With Tavares’ turnaround, Stellattis raises its profit margin target Reuters

Authors: Giulio Piovaccari and Gilles Guillaume

Milan (Reuters)-After exceeding its first-half profit forecast, Stellattis raised its 2021 profit margin target on Tuesday. This is an early sign that CEO Carlos Tavares may achieve his position in Peugeot (OTC: ) The kind of transformation achieved by the manufacturer PSA.

The world’s fourth-largest automaker, formed by the merger of PSA and Fiat Chrysler (FCA) in January, said that higher prices and cost savings are improving profitability, and FCA’s previous North American business has a record profit margin in the first half of the year. new highs.

“You can see his role in these results. The synergy he achieved in just six months is obvious. He did a great job,” Bestinver analyst Marco Opipari said of Tavares.

Stellantis said that its current goal is to have an adjusted operating profit margin of approximately 10% this year, compared to 5.5%-7.5% before.

The company’s brands also include Citroen, Dodge, Jeep and Maserati, and the company said the net cash savings associated with the merger in the first six months of this year were approximately 1.3 billion euros ($1.5 billion).

Its shares listed in Milan rose 5.3%, making it the best performing stock in the Italian blue chip index.

CFO Richard Palmer (Richard Palmer) said that he believes the group will achieve the long-term goal of saving 5 billion euros per year, and plans to achieve 80% of the goal by 2024.

The new profit margin forecast assumes that the global semiconductor shortage that affects the entire industry has not worsened, and there are no further pandemic blockades in Europe and the United States.

Last month, Tavares warned that the semiconductor shortage will drag on to next year.

Palmer said that the group does not expect chip supply to improve until the last quarter of this year, and the total production loss in 2021 is expected to be approximately 1.4 million units.

He added that soaring raw material prices are also a challenge, and its impact will be more pronounced in the second half of the year.

From January to June, Stellatis’ estimated adjusted earnings before interest and taxes (EBIT) totaled 8.62 billion euros, higher than the 5.94 billion euros average forecast by analysts in the Reuters survey.

Pricing contributed nearly US$4 billion to EBIT in the first half of the year.

Bestinver’s Opipari said that the decline in production due to chip shortages has helped the group maintain high prices and increase profit margins.

“Since the vehicle offers are limited, they don’t need to discount,” he said.

The automaker reported an EBIT margin of 11.4% for the first six months, compared with a record 16.1% in North America.

The company said that it expects industrial free cash flow to be negative 1.16 billion euros, “reflecting the negative impact of uncompleted semiconductor orders on working capital and offsetting the positive net synergies”.

Another sign of efficiency improvement under Tavares’ leadership is that luxury brand Maserati reported an adjusted operating income of 29 million euros in the first half of the year after two years of loss.

(1 USD = 0.8417 Euro)