By Agnieszka Flak
MILAN (Reuters) - Shares in Fiat Chrysler Automobiles (FCA) (MI:FCHA) were hit on Wednesday after it made a surprise provision against the costs of vehicle recalls in North America, overshadowing a 35 percent rise in its third-quarter underlying operating profit.
The Milan-listed shares reversed early gains made on third-quarter operating results to fall more than 4 percent after the carmaker said it had booked a 602 million-euro (435 million pound) after-tax charge, mainly for estimated future recall costs.
"You have these one-off additional provisions for recalls, which is surprising and negative," one broker said. Another added that the charge would be a major source of questioning during a call with analysts due at 1600 GMT.
After listing Ferrari (N:RACE) to much fanfare on Wall Street last week and raising nearly 1 billion dollars from selling 10 percent of the sportscar maker, the market focus has returned to FCA's main business and its high debt, an ambitious growth plan and persistent weakness in Latin America.
These challenges are being offset only partially by a recovering car market in Europe and firmer margins in FCA's North American profit centre, which accounted for 91 percent of adjusted operating profit in the quarter.
The world's seventh-largest carmaker (N:FCAU), which moved its primary listing to New York a year ago, reported a 35 percent jump in third-quarter adjusted earnings before interest and tax to 1.3 billion euros ($1.4 billion). This compares with 968 million euros for the same period last year and a consensus forecast of 1.18 billion euros given in a Reuters poll of analysts.
Including the one-off charges, the company recorded a quarterly net loss of 299 million euros, compared with a net profit of 188 million euros in the same period last year.
Revenue rose 17 percent to 27.5 billion euros, while net industrial debt stood at 7.8 billion euros at the end of September, down from 8 billion euros three months earlier.
FCA's operating margins in North America rose to 7 percent in the quarter from 4 percent a year earlier, boosted by better pricing and currency effects, but the carmaker is still lagging larger rivals Ford (N:F) and General Motors (N:GM), which reported margins of 11.3 percent and 11.8 percent, respectively.
FCA Chief Executive Sergio Marchionne has vowed to close the North American margin gap with GM and Ford by 2018.
With the separation of Ferrari due to be completed at the start of next year, Marchionne is expected to resume his campaign to merge with a rival to share costs and boost scale. Previous approaches made to preferred target GM have been rebuffed.