Fiat's New Models Help First-Quarter Profit Trump Expectations

Italian car maker Fiat posted an almost four-fold rise in first-quarter trading profit at its auto unit, beating forecasts, as it squeezed more money from a rise in sales of its smaller city cars, like the Panda.

Fiat said on Monday it was lifting its guidance for the year to the top end of its range and it expected to cut net debt below 1 billion euros ($1.36 billion) by the end of 2007, compared with a previous target of 2 billion.

Shares in the company, which now holds fifth place in Europe's car market with France's Renault after a massive restructuring, were up 1.86% at 20.86 euros after touching 20.89 euros, their highest since the third quarter of 2001.

Trading profit, or operating profit before special items, at the auto unit was 192 million euros from 57 million a year ago, beating the average expectations of nine analysts in a Reuters poll of 131.67 million. Fiat said there was a one-off gain of about 40 million euros.

Fiat Group net profit was 376 million euros, up from 151 million a year ago, on sales up 8.9% to 13.676 billion euros. Nine analysts in a Reuters poll had expected group net profit of 483.56 million euros and sales of 13.392 billion.

Smashing Targets

Fiat said trading margin at its autos unit -- the amount of sales turned into profit -- was 3.1% in the quarter, up from 1% a year ago and smashing 2007 targets of 2.9% at best for all units.

Fiat said the improvement was helped not just by higher volumes but also by "a more favourable product mix" as new models were introduced which give more profitable sales.

Chief Executive Sergio Marchionne has overseen the group's rapid turnaround over the last three years with the revamp of models. He and has set ambitious targets for every year until 2010 as he strives to emulate the success of Japan's Toyota.

Fiat's other targets for 2007 include group trading profit of between 2.5 billion to 2.7 billion euros and net income between 1.6 billion and 1.8 billion euros.

Helped by strong sales of the Panda and Grande Punto hatchback, Fiat came to command 8.3% of the broad European market in the first quarter.

In its home market of Italy, sales got a boost from government incentives for drivers to buy new, less-polluting cars and it took 31.77% of the market in March.

But Fiat faces greater competition later this year as Renault and other automakers bring to market new models, such as the Twingo and Laguna.

The company made no mention of its plans for a bond issue of up to 1 billion euros which was delayed because of volatile markets and is now likely in the second quarter.

Fiat shares now trade on a forecast price/earnings ratio of 15.6 versus Renault's 8.9 and European market leader Volkswagen's 17.5 times, according to Reuters data.