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UPDATE 1-Fiat Chrysler profit rises but debt levels disappoint

(Adds details, trader)

MILAN, July 27 (Reuters) - Fiat Chrysler Automobiles (FCA) reported slightly better than expected second-quarter earnings on Thursday, helped by improvements in Europe and Latin America and continued strong performance in its main North American market.

However, the carmaker's net industrial debt only fell to 4.2 billion euros ($4.9 billion) at the end of June from 5.1 billion euros three months earlier, whereas analysts had been expecting a decline to 3.9 billion.

"It's good to see the strong margins from North America and Latin America turning a profit but the market had expected they would have cut debt a bit more," one trader in Milan said.

FCA's shares fell in Milan after the results but recovered to trade 0.1 percent higher by 1151 GMT.

FCA has been retooling some U.S. factories to boost output of sport-utility vehicles (SUV) and trucks while discontinuing production of some unprofitable sedans in a bid to strengthen its finances as the U.S. car market comes off its peak.

The world's seventh-largest carmaker still makes the lion's share of its profits in North America so improving, or at least maintaining, its margins there is a key focus for Chief Executive Sergio Marchionne.

The company said its adjusted operating profit margin in the region rose to a record 8.4 percent from 7.9 percent a year earlier, despite a drop in sales and shipments.

The company said adjusted earnings before interest and tax for the April-June period rose 15 percent to 1.87 billion euros ($2.2 billion), above a 1.81 billion consensus forecast in a Thomson Reuters poll.

Profitability also improved in Europe, helped by sales of Alfa Romeo's Giulia and Stelvio models, while margins at luxury brand Maserati more than doubled to 14.2 percent on the back of strong demand for its first SUV, the Levante.

Revenue was flat at 27.9 billion euros for the quarter, slightly below an average forecast of 28.9 billion euros.

FCA confirmed its target to nearly halve net debt this year from 4.6 billion at the end of 2016 and increase its adjusted operating profit by at least 15 percent.

Doubts remain, however, about its exposure to the weakening U.S. market recall costs and potential fines over emissions. ($1 = 0.8544 euros) (Reporting by Agnieszka Flak; editing by David Clarke)