DETROIT/MILAN Italian carmaker Fiat FIA.MI beat analysts' forecasts for first quarter earnings as its U.S. unit Chrysler Group LLC posted its best quarterly profit since its 2009 bankruptcy, once again compensating for declining sales in Europe.
Without profits from Chrysler, Fiat would be just breaking even in the first quarter because of volume declines in Europe, compared with a trading profit of 251 million euros in the first quarter of 2011, it said in a statement.
Despite revenue in Europe falling by 13.1 percent to 4.5 billion euros, Fiat said it is on track with its business plan and confirmed all of its targets for 2012.
Fiat's shares were down 4.8 percent at 3.74 euros at 10:54 a.m. EDT (1454 GMT).
Chrysler's auto sales increased 33 percent to 523,000 vehicles in the quarter, led by its home U.S. market where it gained market share on a first-quarter sales jump of 36 percent versus the industry-wide gain of 13 percent.
"Another positive quarter - built on sales gains that have surpassed the industry average - is affirmation that the Chrysler team is maintaining its focus," said Sergio Marchionne, chief executive of both Chrysler and Italy's Fiat.
The first quarter results show Fiat-Chrysler continues to be a "two speed" company.
Carmakers like Fiat that rely heavily on Europe sales are struggling with cut-throat price competition in a dwindling market as budget cuts, weak wages growth and rising unemployment depress consumer spending power.
French car maker Peugeot (PEUP.PA) said on Wednesday its car sales in terms of volumes fell 20 percent in the first quarter from the year before, exceeding Fiat's 18 percent decline.
In Europe overall, the passenger car market was down 7.3 percent in the first quarter. Fiat's trading loss in Europe rose to 207 million in the quarter, nearly double the 106 million loss it posted in the first quarter of 2011.
The European scenario is likely to impact Ford (F.N) and General Motors (GM.N) results when they report Friday and May 3 respectively.
The United States is another story.
In the nearly three years since its bankruptcy, Chrysler has overhauled its line-up and boosted sales.
It has lured customers through a series of unconventional Super Bowl television advertisements, including one recently featuring Academy Award-winning actor and director Clint Eastwood.
Next month, the company will fill the void in its line-up for a highly fuel-efficient small car with the launch of the Dodge Dart as U.S. drivers feel the pain of high gasoline prices.
Group revenues for both Fiat and Chrysler were 20.2 billion euros for the quarter, and trading profit was 866 million euros.
Net industrial debt was 5.77 billion euros, a tad lower than the 5.8 billion analysts were forecasting, while the group's cash cushion rose to 21.4 billion euros from 20.7 billion at the end of 2011, with 12 billion related to Fiat excluding Chrysler.
Chrysler said its quarterly revenue of $16.35 billion was an improvement over $13.12 billion a year earlier. The No. 3 U.S. automaker also reported modified operating profit of $740 million, up from $477 million a year ago.
Chrysler confirmed 2012 guidance made in January of achieving net income of about $1.5 billion, eight times the 2011 net profit of $183 million. Last year's profit was the first annual profit for Chrysler since 2005 when it was owned by Germany's Daimler AG (DAIGn.DE).
In Latin America, where Fiat is a leader in Brazil, revenue rose to 2.57 million euros, while trading profit fell 50 million euros to 235 million, as price pressure from imports by other carmakers bit.
Italy's Fiat SpA took control of the company after Chrysler's 2009 bankruptcy.
Fiat's stake in Chrysler is 58.5 percent. The remaining 41.5 percent is owned by the retiree healthcare trust affiliated with the UAW, which represents the company's U.S. hourly-paid workers.
(Additional reporting by Deepa Seetharaman in Detroit; Editing by David Cowell)