MILAN/DETROIT Fiat FIA.MI has cut its 2014 profit forecast after a slump in Latin American earnings, underscoring the task the carmaker faces as it completes a merger with U.S. arm Chrysler and shifts its focus away from Italy to create a true global player.
Turin-based Fiat, which this month bought out Chrysler's minority investor in a $4.35 billion deal, said on Wednesday the new Fiat Chrysler Automobiles (FCA) group would have its primary listing in New York, with a secondary listing in Milan.
The holding group will be registered in the Netherlands and have its tax domicile in Britain, cementing a politically sensitive shift away from Italy. Unions and politicians have been concerned about any potential job cuts, but Fiat said the merger would have no impact on jobs in Italy or elsewhere.
Five years after Fiat helped to rescue Chrysler from bankruptcy, the U.S. unit, the number 3 U.S. automaker, has become a major profit centre for the group, helping to offset a six-year European market slump.
Latin America has also become important. But Fiat said on Wednesday core earnings in the region plunged 80 percent in the final quarter of 2013, dragging group results below forecasts and contributing to its decision to lower expectations for this year.
"Fiat remains a fragile business, is highly leveraged ... and will not generate cash anytime soon. Management appear to face Sisyphean tasks in many regions," Max Warburton, an analyst at Bernstein, said in a note.
Fiat said it now expected a 2014 trading profit of 3.6 billion-4.0 billion euros, down from a range of 4.7 billion-5.2 billion euros given in October 2012 and below analysts' forecast of 4.15 billion.
The company said it would not pay a dividend on 2013 earnings to preserve cash after completing its acquisition of Chrysler to create the world's seventh-largest carmaker.
The Latin American headwinds and much slower growth in forecast profitability at Chrysler mean the merged FCA will remain a company in the midst of a painful restructuring.
"The number of challenges is not going to decrease," Chief Executive Sergio Marchionne said during a conference call.
The much needed investments to revamp plants and build new models are expected to consume cash in 2014, with capital expenditure forecast at around 8 billion euros ($10.9 billion).
Fiat shares closed down 4.11 percent at 7.24 euros.
Fiat said it was moving FCA's tax domicile to Britain, saying this would not affect its tax burden in the countries where it operates. However, tax experts said the shift could ultimately deprive the United States and Italy of tax revenue on some overseas earnings.
Rome has been careful not to antagonize Italy's biggest manufacturing employer, stressing that its pledges to invest billions of euros in production showed Fiat's commitment to its home of the last 115 years much more than where it was based.
"What counts are jobs and the number of cars sold," Prime Minister Enrico Letta told reporters in Brussels.
After a meeting with Marchionne late on Wednesday, unions also said they were satisfied, given the promise of investments.
Marchionne, who pledged to stay at the helm of FCA for at least three years, said he hoped to list the group in New York as of October 1, hoping to benefit from a more liquid market.
While analysts have widely welcomed the Chrysler deal, which Marchionne funded without a rights issue and more cheaply than anticipated, they have been more skeptical about the group's rising debt and the ability of the 61-year-old executive to turn the Fiat part of the business around.
At 9.8 billion-10.3 billion euros, Fiat's forecast of net debt for 2014 is lower than analysts' expectations.
But the group risks having to issue more debt to fund a three-year investment plan that is due to be announced in May.
Fiat reported a fourth-quarter group trading profit of 931 million euros, compared with a restated 887 million a year earlier and analysts' consensus forecast of 1.15 billion euros.
Analysts said the sudden and sharp slowdown in Latin America was the main concern. Brazil used to account for about one fifth of Fiat profits.
"The key question is whether this decline is now structural," Citi analysts said in a note.
Fiat's operations in Latin America were hit by an end to car sales incentives in Brazil, higher input costs, currency effects and a cooling off of local economies. Marchionne expects a new plant in Brazil, due to open in 2015, to make up any shortfalls in volumes by better targeting models to demand.
The group managed to reduce its losses in Europe, and surprised to the upside by a strong performance of its luxury brands, especially Maserati. Chrysler's fourth-quarter adjusted net income rose 74 percent to $659 million.
($1 = 0.7329 euros)
(Additional reporting by Stefano Rebaudo, Stephen Jewkes and Isla Binnie in Milan, Francesco Guarascio in Brussels, Gianni Montani in Turin Editing by Mark Potter and Anthony Barker)