Stellantis raises profit margin target in 2021 despite chip compression

  • Stellantis sees FY adj. EBIT margin of around 10%
  • Shortage of chips and inflation of raw materials weighing on S2
  • Adj. EBIT at 8.6 billion euros in H1, higher than expectations
  • Record North America EBIT margin of 16.1% in H1
  • € 1.3 billion in cash savings in the first half of the year

MILAN, Aug.3 (Reuters) – Car maker Stellantis on Tuesday announced it was raising its annual adjusted operating profit margin target after strong first-half results, which included record margins in North America and progress in cost savings.

Stellantis, formed in January by the merger of Fiat Chrysler and manufacturer Peugeot PSA, said it was aiming for an adjusted operating profit margin of around 10%, against a previous forecast of between 5.5% and 7.5%.

Milan-listed stocks in the world’s fourth-largest automaker rose 5.3% and were the best performers on the Italian Blue Chip Index (.FTMIB).

“The market was taken by surprise and did not expect the results to be so good,” said a Milan-based trader.

The company said it achieved approximately € 1.3 billion in net merger-related cash savings in the first half of the year. CFO Richard Palmer said he was confident the group would meet its long-term goal of € 5 billion in annual savings and aim to reach 80% of that goal by 2024.

The margin forecast assumes no further deterioration in the global semiconductor shortage that affected the entire industry, and no further blockages in Europe and the United States. Read more

Last month CEO Carlos Tavares, who won praise for increasing his margins while in charge of PSA, warned that the global semiconductor shortage would easily spill over into next year. Read more

The Stellantis logo can be seen on a company building in Vélizy-Villacoublay near Paris, France, on May 5, 2021. REUTERS / Gonzalo Fuentes

Palmer said the group did not expect an improvement in chip supply until the last quarter of this year, with an expected total production loss of around 1.4 million vehicles in 2021.

He added that a surge in commodity prices also remains a challenge, with its impact being felt more in the second half of the year.

In the January-June period, Stellantis’ pro forma adjusted profit before interest and taxes (EBIT) totaled 8.622 billion euros, exceeding the 5.938 billion euros forecast by analysts in a Reuters poll.

The group posted an EBIT margin of 11.4% in the first six months, with North America at a record 16.1%.

Pro forma industrial free cash flow was negative at 1.163 billion euros, “reflecting the negative impacts on working capital due to unfulfilled semiconductor orders, offsetting the positive net synergies,” he said. .

Another sign of efficiency gains under Tavares, luxury brand Maserati announced adjusted operating income of 29 million euros in the first half after two years in the red.

Stellantis pledged last month to invest more than 30 billion euros by 2025 in the electrification of its range of vehicles, just days before the European Union proposed an effective ban on the sale of new petrol and diesel cars from 2035. read more

The group said on Tuesday it would launch 11 new battery-electric vehicles and 10 plug-in hybrid vehicles over the next 24 months.

Writing by Giulio Piovaccari; additional reporting by Giancarlo Navach; edited by Agnieszka Flak and Tomasz Janowski

Our Standards: Thomson Reuters Trust Principles.

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