BUSINESS
07/26/2011 11:15 am ET | Updated Sep 25, 2011

Debt fears overshadow Fiat's raised profit target

By Silvia Aloisi

MILAN (Reuters) - Concern over Fiat SpA's <FIA.MI> ballooning debt dragged its stock lower on Tuesday, overshadowing the forecast-beating quarterly results that prompted the Italian carmaker to raise its full-year targets.

Fiat, Europe's sixth-biggest automaker by market share, posted group trading profit of 525 million euros ($753 million), as strong U.S. and Brazilian sales helped offset a weak European market in a quarter that included profits from U.S. arm Chrysler for the first time.

The median analyst forecast in a consensus distributed by Fiat was 485 million euros. The results consolidated Chrysler for the month of June after Fiat -- which has been running the number 3 U.S. automaker since a 2009 bailout -- took a majority stake in it.

Fiat said it raised its targets for 2011 due to the Chrysler consolidation and improved performance at its other units, but it also forecast net debt of between 5.0 and 5.5 billion euros at the end of this year -- compared with full-year analyst forecasts of 4.8 billion euros and a second-quarter debt of 3.4 billion euros.

"Everything about the operating line looks good. The big confusion would be around the net debt figure. We'd like to know why there will be a 2 billion net outflow in the second half," said a London-based analyst who asked not to be named.

Fiat now expects 2011 revenues of more than 58 billion euros and a trading profit of around 2.1 billion euros. In its first quarter results -- which did not incorporate Chrysler -- Fiat forecast 2011 revenue of around 37 billion euros and trading profit of up to 1.2 billion euros.

Chief Executive Sergio Marchionne, credited with turning around Fiat in recent years, wants to elevate the Italian carmaker to a global player through a revamped Chrysler. The group has previously targeted around 100 billion euros ($144.2 billion) in combined revenues by 2014.

SHARES LOWER

At 1417 GMT (10:17 a.m. EDT), Fiat shares were down 4 percent at 7.1950 euros.

"They have got strong liquidity but you can expect questions at the conference call about the debt," said Bruno Lapierre of Cheuvreux. Fiat CEO Sergio Marchionne, who also runs Chrysler, will hold a conference call with analysts at around 1600 GMT.

Liquidity was reported at 19.2 billion euros.

Marchionne built up Fiat's stake in Chrysler cheaply and more quickly than expected.

Fiat has 53.5 percent of Chrysler after completing a deal to buy the U.S. Treasury's and Canadian government's stakes last week.

By the end of this year its holding will rise to 58.5 percent -- an increase linked to Chrysler developing a Fiat-based fuel-efficient midsize car.

But Fiat needs to decide what to do with the rest of Chrysler, a 41.5 percent stake that is owned by VEBA, the United Auto Workers union trust fund.

Marchionne is expected to outline soon a joint management structure of 25 top executives for the tow companies, including four regional heads for North America, South America, Europe and Asia.

That would pave the way for a full-blown merger while making a Chrysler initial public offering less likely, analysts say.

(Additional reporting by Michel Rose and Valentina Za; Editing by Andrew Callus)