Fiat Auto’s trading profit (at EUR95m/1.5% in Q4 2006 and EUR291m/1.2% in FY06) was better than Banca IMI’s expectation of EUR81m and EUR277m, respectively, and CEO Marchionne’s FY06 target of EUR275m, analyst Sabine Blümel said in a research note on Thursday.


Volume sales were up by 16.6% to 1.98m units (up 11.1% year on year in Q4 2006), mainly driven by the B-segment Grande Punto and new introductions during 2006, such as the Fiat Sedici, new versions of the Fiat Panda, the Alfa 159 estate and the Ducato LCV.


“The key effects of the reported EUR572m improvement in trading profit are in our view attributable to operational leverage and a better model mix (we calculate a 4% increase in divisional unit revenues, as the new models are being sold with a higher uptake of options than the predecessors). An ongoing strong performance in Brazil with sales up 15% to 465,000 appeared to be an additional supporting factor,” Blümel wrote.


Banca IMI noted that the group trading profit of EUR1.95Bn/3.8% beat management’s targets. The reported 95% jump in group trading profit jumped to EUR1.95Bn (3.8% margin), marginally better than its estimate (EUR1.85Bn/3.5%) and above Marchionne’s target. As expected, the main drivers, besides the turnaround at Fiat Auto, were increases of 65% at Iveco (EUR546m, a 6.0% margin) and of 54% at Powertrain (EUR168m, a 2.7% margin). CNH reported a better than expected 5.6% increase in trading profit to EUR707m (a 7.1% margin), as better pricing and restructuring efforts compensated for a deteriorating volume and mix.


Headline earnings declined by 20% to EUR1.07bn or EUR 0.83/share, due to lower unusual items in FY06 vs FY05. A considerably higher investment income (EUR156m in FY06 vs EUR34m in FY05) and lower financial charges (EUR576m vs EUR843m) resulted in a group pre-tax profit before unusual items of EUR1.53m (a 2.9% margin) compared with EUR 191m (0.4%) in FY05.


In view of EUR0.11bn unusual income in FY06 vs EUR1.22bn in FY05, headline pre-tax profit fell 27.5% to EUR1.64bn and earnings 20% to EUR1.07bn or EUR0.83/share.


“This is worse than our estimate of a 4.6% decline in earnings to EUR1.27bn and EUR0.95/share, because Fiat took the opportunity of EUR617m capital gains (of which EUR463m in 4Q06, due to the Fiat Auto Financial Services transaction) to take a higher than expected restructuring charge of EUR450m, mainly relating to CNH and Comau,” the analyst said.


“Improvement at industrial net debt was a better than expected EUR1.45bn to EUR -1.77bn, vs. our expectation of EUR0.66bn and EUR2.56bn, respectively. With the current available information, we are unable to calculate industrial FCF before and after divestments in a consistent manner, but observe that there was a EUR 1.48bn positive WC in Q4 2006, after EUR -0.8Bn in the first nine months and even higher than EUR1.35bn reported in Q4 2005.”


The bank’s note said Fiat management confirmed the FY07 target ranges set in early November: trading profit EUR2.5-2.7bn/4.5-5.1% margin and net income EUR1.6-1.8bn.


The divisional trading target ranges are 2.6-3.4% at Fiat Auto, 8.9%-9.7% at CNH and 7.1%-7.9% at Iveco.