Stellantis lifts margin goal as Tavares’ turnaround kicks in By Reuters

By Giulio Piovaccari and Gilles Guillaume

MILAN (Reuters) -Stellantis hiked its 2021 profit margin target on Tuesday after beating first-half earnings forecasts, in an early sign CEO Carlos Tavares might deliver the kind of turnaround he achieved at Peugeot (OTC:) maker PSA.

The world’s No.4 carmaker, formed in January from the merger of PSA and Fiat Chrysler (FCA), said higher prices and cost savings were boosting profitability, with first-half margins at FCA’s old North American business hitting a record high.

“You can see his hand in these results, synergies he has realised in just six months are conspicuous, he’s doing an excellent job,” Bestinver analyst Marco Opipari said of Tavares.

Stellantis said it was now aiming for an adjusted operating profit margin of around 10% this year, compared with 5.5%-7.5% previously.

The company, whose brands also include Citroen, Dodge, Jeep and Maserati, said it made around 1.3 billion euros ($1.5 billion) in merger-related net cash savings in the first six months of the year.

Its Milan-listed shares rose as much as 5.3% and were the best performer in Italy’s blue-chip index.

Chief Financial Officer Richard Palmer said he was confident the group would reach its long-term goal of 5 billion euros in annual savings, and it aimed to achieve 80% of that target by 2024.

The new margin forecast assumes no further deterioration in the global semiconductor shortage that has been affecting the whole industry, and no further pandemic lockdowns in Europe and in the United States.

Last month, Tavares warned the semiconductor shortage would drag into next year.

Palmer said the group did not expect chip supply to improve before the final quarter of this year, with a total projected production loss of around 1.4 million vehicles in 2021.

He added a spike in raw material prices was also a challenge, with its impact felt more in the second half.

In January-June, Stellantis’ pro-forma adjusted earnings before interest and tax (EBIT) totalled 8.62 billion euros, topping analysts’ average forecast of 5.94 billion in a Reuters poll.

Pricing contributed almost 4 billions to first-half EBIT.

Bestinver’s Opipari said lower production due to the chip shortage helped the group to keep prices high and boost margins.

“With a constrained vehicle offer, they did not need to make discounts,” he said.

The carmaker reported 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 a negative 1.16 billion euros, “reflecting negative working capital impacts due to unfilled semiconductor orders, offsetting positive net synergies,” it said.

In a another sign of efficiency gains under Tavares, luxury brand Maserati reported first-half adjusted operating income of 29 million euros after two years in the red.

($1 = 0.8417 euros)