Stellantis warns of turbulent 2024 after operating profit drop

By Giulio Piovaccari

MILAN (Reuters) -Stellantis warned on Thursday of a turbulent year ahead after its operating profit fell 10% in the second half of 2023 when strikes caused long stoppages at its operations in North America, its profit powerhouse.

Union strikes in North America, which ended with record salary increases for workers at the ‘Detroit Three automakers’, added to a tough outlook for carmakers, with still timid global demand for electric vehicles, increasing Chinese competition, sustained cost pressures and fallout from geopolitical tensions.

Adjusted operating profit (EBIT) at the world’s third largest automaker by revenues fell to 10.2 billion euros ($11 billion) in the July-December period, topping analysts expectations of 9.54 billion euros, according to a Reuters poll.

Milan-listed shares in Stellantis rose as much as 2.8% in early trading to hit an all-time high of 23.22 euros.

The margin on adjusted operating profit fell to 11.2% in the second half, from 12.3% in the same period of 2022.

In North America adjusted operating profit fell 16% to 5.271 billion euros, with margin decreasing by 160 basis points to 13%.

Analysts at Bernstein said the results beat consensus on operating profit as well as cash generation but vague guidance for 2024 did “not add confidence”.

For this year, even with higher labour costs in North America, Stellantis stood by its forecast for double-digit margins on adjusted operating profit and positive industrial free cash flow. It has given the same outlook for the past two years.

“This is our minimum commitment every year, there are lots of head and tailwinds in this number, but something we remain very committed to that outlook,” CFO Natalie Knight told reporters.

PRODUCTION COST PRESSURE

Stellantis has said that last year’s strikes had cost the group almost 750 million euros in terms of profitability and around three billion euros in terms of revenue.

On Thursday Knight said the strikes’ longer term impact for Stellantis, in terms of higher costs per car produced, would be similar to those booked by competitors, but the group could rely on strong pricing power in North America.

“So the impact for us is certainly going to be on an overall level lower than what you’ve seen from our peers,” she said.

Rival Ford said the new labour agreements in North America would cost it $8.8 billion euros in the long term, or $900 in extra costs per vehicle by 2028.

For General Motors, the other of “Detroit’s three’, higher labour costs form deals with the UAW and Unifor unions would amount to $9.3 billion through 2028. .

Knight did not provide figures about estimated higher costs for this year and the following ones.

“It certainly will be less of an overall headwind than the impact that we saw in 2023. But it is something that will be sizable for us when we look at 2024,” she said.

Stellantis said it would propose a 1.55 euro per share dividend, up about 16% from a year earlier. It will also run during 2024 a share buy back programme worth 3 billion euros, in what Bernstein analysts described as “encouraging cash returns”.

($1 = 0.9321 euros)

(Reporting by Giulio Piovaccari and Gilles Guillaume;Editing by Josephine Mason, Kim Coghill and Keith Weir)