Fiat Chrysler Loss Shrugged Off on Relief PSA Deal Unchanged

(Bloomberg) -- Fiat Chrysler Automobiles NV's worse-than-expected first-quarter loss didn't faze investors relieved by assurances the carmaker's planned merger with French rival PSA Group is still on track.

Reeling from a coronavirus-induced slump, the Italian-American company withdrew full-year guidance and said it may have to raise more money after posting negative 5.1 billion euros ($5.5 billion) in industrial free cash flow.

Industry sales and profits have been hard-hit by the virus outbreak, with Fiat Chrysler and other automakers closing plants in Europe and in the U.S. But Chief Executive Officer Mike Manley addressed speculation about the fate of the merger with PSA, saying there's been no tinkering so far in the terms of the deal.

“Despite this unexpected crisis, we remain committed to the merger with Group PSA,” the CEO said Tuesday on a call with analysts. “At this point and time, all the terms and conditions that we have agreed to as part of the merger process have not changed.”

Shares of Fiat Chrysler were little changed, down 0.3% to $8.27 as of 3:04 p.m. in New York after earlier rising as much as 2.3%. The stock has tumbled about 44% this year.

Fatter Cash Cushion

As it seeks to conserve cash while production and sales are largely in limbo, the company placed under review a planned 1.1 billion-euro dividend for this year. Peugeot maker PSA had earlier opened the door to revising its equal payout -- both of which were announced with the merger plan in October.

Fiat bolstered its finances with a 3.5 billion-euro credit line, which it called a bridge to potential further tapping of capital markets. That adds to the 18.6 billion euros of cash and cash equivalents it had at the end of March.

The company said it may need the fatter cash cushion with the worst yet to come. Chief Financial Officer Richard Palmer expects the second-quarter to be the low point for the year.

In a sign of the uncertain outlook, Fiat Chrysler formally withdrew its 2020 financial targets, first set by Manley in October, to generate 7 billion euros of earnings before interest and taxes.

Pent-Up Demand Signal

Plant lockdowns in North America, where Fiat Chrysler generates most of its sales and profit, have starved the carmaker of revenue from profitable models like the Ram pickup truck and Jeep Wrangler SUV.

That led to a 16% drop in first-quarter revenue, to 20.6 billion euros, with net losses totaling 1.69 billion euros. But sales in April, a brutal month across the industry, were better than expected, signaling there may be pent-up demand in the U.S if Fiat Chrysler can get its factories running again.

The company said it currently plans to reopen most of its plants in the U.S. on May 18 after postponing an earlier target to restart by May 4.

The plan to combine with Peugeot owner PSA would create the world's fourth-largest automaker by volume, allowing the companies to share the cost burden of expensive new technologies. The deal could also bolster results by strengthening the partners' foothold in Europe's lucrative commercial vehicle business.

With Covid-19 sapping results, Fiat hasn't said whether it will stick with an added 5.5 billion-euro dividend that's earmarked for Fiat shareholders including the founding Agnelli family.

The companies had a combined value of 44.7 billion euros when their deal was announced in October. That's down to about 23.7 billion euros.

Get more:

North American shipments fell 16% in the first quarter
Fiat's European unit reported a 270 million-euro loss, with shipments declining almost 100,000 units.
Fiat registered a loss in the Asia-Pacific region as shipments fell by almost half. CEO Manley has worked to reduce losses there after new products in China failed to gain traction and Maserati sales plunged.