Stellantis Faces Dividend Uncertainty Amid Profit Warning

Stellantis CEO Carlos Tavares recently expressed caution regarding the automaker’s financial outlook, stating that it is “too soon” to confirm the 2025 dividend. This announcement comes as Stellantis shares have plunged 4%, reaching their lowest since July 2022. The decline follows a significant profit warning earlier this week, raising concerns among investors about the sustainability of dividends and share buybacks.

During a factory visit in eastern France, Tavares addressed the operational challenges facing Stellantis in the U.S. market, labeling them a “small operational error.” He expressed confidence that these issues would be resolved well before the end of his contract in 2026. However, Tavares acknowledged that current market conditions have intensified scrutiny of management decisions, saying, “When you are in a context that is brutal and more demanding, if you make a small operational error, well, it is immediately visible.”

Stellantis has experienced a dramatic stock price decline of over 55% since March. This decline has resulted in a staggering loss of approximately €47 billion (around $52 billion) in the company’s market valuation. Investors increasingly worry that the high costs of revamping Stellantis’s U.S. operations could jeopardize the company’s historically generous shareholder payouts.

In the wake of the profit warning, Natalie Knight, Stellantis’s Chief Financial Officer, faced scrutiny for her earlier optimistic forecasts. Just a week before the profit warning, Knight had broadly confirmed projections for a double-digit EBIT margin, making the recent adjustments all the more surprising. Analysts at Barclays noted this inconsistency, stating that the significant free cash flow cut has raised serious questions regarding Stellantis’s capacity to maintain dividends and buyback programs moving forward.

Kevin Thozet, a member of the investment committee at Carmignac, commented on the dire situation, stating, “European automakers are falling like autumn leaves.” He highlighted the consequences of Stellantis’s profit warning, predicting a zero operating margin in the year’s second half, which puts both dividends and buyback programs at risk.

While Tavares assured stakeholders that the company would honor its 2024 dividend, he was cautious about making any commitments for 2025. He stated, “The time for 2025 has not come; we will see what will happen at the end of 2024 for a discussion and a decision for 2025.”

Adding to the uncertainty, Barclays recently downgraded Stellantis from “overweight” to “equal-weight,” further underscoring the company’s challenges. Barclays analysts slashed their earnings before interest and taxes (EBIT) estimates for Stellantis by 33-45%, citing concerns over free cash flow and its implications for dividends and buybacks.

Analysts from Bernstein, who once viewed Stellantis as a pinnacle of effective management under Tavares, expressed astonishment at the recent developments. They noted that investors had confidence in the company’s leadership and inventory management strategies. However, the recent profit warning has led to a reevaluation of this outlook, with Bernstein admitting, “But … we were too complacent.”

As Stellantis navigates these turbulent waters, all eyes will be on the upcoming months, where decisions regarding future dividends and strategic adjustments will be crucial for restoring investor confidence.

Source: Reuters