EARNINGS : Chrysler Net Hits $178 Million in Quarter : Autos: The firm cites strong demand for minivans and its new Jeep.
Citing strong minivan sales and brisk demand for its new Jeep, Chrysler Corp. reported earnings of $178 million for the second quarter Tuesday, far exceeding Wall Street’s expectations.
Chrysler’s first operating profit in 15 months follows first-quarter operating profits by Ford and GM, signaling a steady recovery by the auto industry after record losses in 1991.
The results--Chrysler’s best in two years--came to 54 cents a share, a sharp improvement over a loss of $212 million, or 95 cents a share, during the year-ago period. The auto maker lost $13 million in the first quarter of this year as it spent heavily on launching the new Jeep Grand Cherokee.
“We are positively surprised,” said Joseph Phillippi, an analyst at Shearson-Lehman Bros. in New York. “It says they’re managing the business very well.”
Chrysler’s impressive performance set off a rally on Wall Street as some analysts predicted that General Motors Corp. and Ford Motor Co. would also post better-than-expected numbers. Ford is scheduled to report second-quarter earnings today, and GM is due to release its results next week.
Ford is expected to report earnings of about $1 a share, contrasted with a loss of 68 cents a year ago. GM is expected to earn about 40 cents a share before a one-time charge of about 97 cents for the restructuring of its Hughes Aircraft unit. GM lost $1.44 a share in the second quarter of 1991.
Chrysler’s stock rose $1.69 to $21.75, Ford rose $1.75 to $45.75 and GM jumped $1.50 to $41.375. All three were among the most-active stocks on the New York Stock Exchange on Tuesday.
Analysts said Chrysler, the smallest of the three domestic auto makers, and Ford, ranked No. 2, have cut costs and increased productivity during the recent downturn, enabling them to make a profit despite the still-sluggish pace of U.S. vehicle sales.
GM, still in the throes of a massive restructuring, has relied on its European automotive operations to bolster its balance sheet. But the No. 1 auto maker hopes to break even in North America by the end of this year.
As the pace of auto sales continues to pick up, analysts say the fortunes of the U.S. auto industry should steadily improve. But several industry observers warn that planned price hikes by the Big Three for their 1993 model year vehicles may put the brakes on a recovery that has just begun to accelerate.
“We’ve been through this before,” said David Garrity, who follows the auto industry for McDonald & Co., a Jersey City, N.J.-based investment research firm. “When things show the slightest signs of improvement, one of the first things to go up in Detroit are prices, and they generally do it in advance of consumer income.”
Chrysler announced price increases Monday of between 3% and 5% on its minivans and high-volume cars, on the heels of Ford’s decision earlier this month to raise most vehicle prices between 4% and 6%. GM is expected to follow suit.
Still, while more expensive vehicles may turn some consumers away, pent-up demand for cars and trucks will continue to fuel a sales recovery, analysts say. And if consumer tastes continue in the same direction, Chrysler will continue to benefit from the growing popularity of trucks--especially minivans and sport utility vehicles--as substitutes for cars.
The auto maker, which was in such a vulnerable financial state a year ago that some analysts questioned whether it would survive, also has three new mid-size sedans due out this fall. Chrysler spent only about half of what it had forecast on the launch of the LH sedans during the second quarter, which is one reason Wall Street’s earnings expectations for the period were out of line.
“We stuck to our investment plans for new products and facilities while cutting costs in all other areas, and we’re beginning to see the payoff for making product development our first priority,” said Chrysler Chairman Lee A. Iacocca.
Chrysler’s second-quarter earnings come on revenues of $9.3 billion, compared to $7.8 billion in the second quarter last year. The earnings contained no one-time gains or losses. The last time Chrysler posted a profit was in the fourth quarter of 1991, but that was a result of a one-time gain on its sale to Mitsubishi of 50% interest in a joint venture.
