FCA close to paying off debt, outperforming Ford in earnings

• FCA boosting output of SUVs, trucks in U.S.
• Marchionne says the company no longer needs a merger partner
• FCA expects to pay off all debt this year
• "There's a very strong likelihood that we will outperform Ford"

MILAN/DETROIT — Fiat Chrysler's shift to sell more trucks and SUVs boosted margins yet again in its North American profit center, making Chief Executive Sergio Marchionne confident he can hit most of the final targets of his five-year turnaround plan.

FCA has been retooling some U.S. factories to boost output of lucrative sport-utility vehicles and trucks while ending production of some unprofitable sedans.

This put the world's seventh-largest carmaker on track to become debt-free by the end of the year, and allowed Marchionne to make good on his promise to close the gap on larger U.S. rivals General Motors (GM) and Ford.

"There's a very strong likelihood that we will outperform Ford in terms of operating earnings in 2018," Marchionne told analysts on an earnings call Thursday. "That's something that if I told any of us in the room here that would've been doable five years ago, nobody would have believed it."

As the 65-year-old executive prepares to hand over the reins to an internal successor next year, he said the improvements mean the company no longer needed a partner to survive.

The carmaker has often been the subject of merger speculation, especially after its unsuccessful 2015 attempt to tie up with GM.

"The necessity to find a partner, to try and guarantee our survival, going forward, is put to bed. I mean we're done," Marchionne told analysts on a post-results conference call.

North America accounted for 71 percent of earnings last quarter, and profit margins in the region rose to 8 percent from 7.1 percent a year earlier, even as shipments fell 3 percent.

Meanwhile Ford's automotive margin for North America slipped to 6.8 percent, down from 8.5 percent a year earlier.FCA trimmed its expectations for 2018 revenues and forecast adjusted operating profit of at least 8.7 billion euros, at the lower end of a previously given range.

Analysts said FCA's margin improvement was impressive, and it could be on the cusp of a big boost from its new Jeep Wrangler and Jeep Cherokee models and its Ram 1500 truck.

FCA ready to pay off its debt

But the Italian-American carmaker expects to cancel all debt during 2018 — possibly by the end of June — and generate around 4 billion euros in net cash by the end of the year.

"The 2018 forecast is an indication of what this machine can produce," Marchionne added. "We're going to run our business, and we are going to run hard."

For the fourth quarter, FCA reported a 22 percent rise in adjusted earnings before interest and tax, in line with a Thomson Reuters poll of analysts, also helped by improvements in Europe and Latin America.

Milan-listed shares initially fell after the earnings, but they quickly recovered as analysts welcomed FCA's efforts to erase debt and improving performance across regions.

FCA is "a name where we continue to see attractive valuation, strong earnings growth and the need for positive earnings revisions by the street," said Evercore ISI analyst George Galliers, who has an "outperform" rating on the stock.

Marchionne said the 2018 cash forecast did not include any one-off measures, nor the impact from a potential spinoff of parts maker Magneti Marelli, which he plans to present to the board in February and execute in the course of 2018.

A U.S. tax code overhaul passed in December is expected to provide a $1 billion boost this year.

Since taking over at Fiat in 2004, Marchionne has been widely credited with reviving one of Italy's top corporate names and rescuing U.S. Chrysler from bankruptcy.

In 2014, he launched an ambitious five-year plan centered around reviving the Jeep, Maserati and Alfa Romeo brands. Erasing all debt was another key plank of that plan.

"We're now fighting with equal arms from a financial standpoint with the competitors," Marchionne said.

He will present the next strategy to 2022 in June.

($1 = 0.8063 euros)

Reporting by Agnieszka Flak and Nick Carey

By Reuters