Chrysler Profit Jumps 46% in Third Quarter
Chrysler Corp. is heading into next month’s planned merger with German auto maker Daimler-Benz richer and more profitable than even Wall Street’s optimists expected.
Chrysler said its profit jumped a surprising 46% in the third quarter and entered its final weeks as an independent U.S. company with a $9.6-billion cash reserve, which should ease any fears across the Atlantic about its financial strength.
The No. 3 U.S. auto maker said its net income rose to $682 million, or $1.02 a diluted share, from $466 million, or 69 cents, before a charge in the 1997 third quarter. The results topped average forecasts of 87 cents, according to First Call Corp., sending its shares up $2.50, or 6%, to close at $44.25 on the Pacific Exchange.
Chrysler credited strong sales of profitable new models, cost-cutting and the smooth launch of the redesigned ’99 Jeep Grand Cherokee as reasons for its 55% increase in third-quarter earnings.
Sales jumped 13.6% to $15 billion, from $13.2 billion a year ago, when two of Chrysler’s assembly plants were shut down for the changeover to new models. Sales of its Dodge Durango were particularly heavy, prompting Chrysler to boost production of the sport-utility vehicle.
Unlike larger rivals General Motors Corp. and Ford Motor Co., Chrysler wasn’t forced to suspend production in slowing overseas economies because almost 60% of its sales are in the U.S.
The performance bodes well for Daimler-Benz, which sought Chrysler partly for its strong sales of sport-utility vehicles such as the Dodge Durango. The $33.63-billion planned stock and assumed-debt acquisition comes as Chrysler increases its market share, revamps its sedans and light trucks and boosts production.
“Some of the European shareholders are concerned about buying Chrysler at the peak of the cycle,” said analyst Mark Rowen of Salomon Smith Barney. “These results should be pretty appealing to them.”
Chrysler’s strong performance came despite weak sales overseas and high incentive spending in North America. It spent an average of $1,280 in discounts per vehicle, above the $1,140 it spent a year ago but significantly less than analysts expected.
And sales of Chrysler’s larger cars--the Dodge Intrepid, Chrysler Concorde, LHS and 300M--also have been healthy in a declining car market.
The late summer launch of the Grand Cherokee moved ahead of schedule, meaning more of the SUVs made it to dealers in the third quarter than the company expected. The vehicle is one of Chrysler’s most profitable.
Chrysler’s North American market share rose to 15.5% during the quarter, compared with 14.1% a year ago. Sales overseas, however, fell 21%.
President Thomas T. Stallkamp said the low inventories at General Motors Corp. caused by strikes in the third quarter might have helped Chrysler’s sales, but not dramatically so because most of Chrysler’s light truck plants were already at full production.
Cost-cutting also figured in the improved earnings picture. Chrysler estimated it had about $300 million in pretax savings from continued reductions in materials costs and lower warranty expenses.
Chrysler plans to complete its merger with Daimler-Benz by mid-November, and its earnings report Monday was expected to be the last from Chrysler as an independent company. The deal is valued at about $40 billion.
The $9.6-billion cash reserve at the end of the quarter was up from $9.2 billion at the start of the quarter and from $7.1 billion on Jan. 1.
Chrysler was the first of the Big Three to report third-quarter earnings. GM was scheduled to report Tuesday, followed by Ford on Wednesday.
At a Glance
Other earnings, excluding one-time gains and charges unless noted:
* Harley-Davidson Inc., the largest U.S. motorcycle builder, said its third-quarter earnings jumped 27% to $52.4 million, or 34 cents a diluted share, in line with analyst estimates. Harley, whose motorcycles are in such demand that buyers are often put on waiting lists, said revenue climbed 16% to $517.2 million.
* Enron Oil & Gas Co., a unit of Enron Corp., said third-quarter profit fell 81% to $5.9 million, or 4 cents a share, as higher production couldn’t offset growing exploration costs and lower prices for oil and natural gas. The results were in line with analyst estimates.
* SLM Holding Corp., better known as Sallie Mae, said third-quarter earnings fell 24% to $108 million, or 64 cents a share, as it cut back on loans and stop securitization of those loans amid turmoil in the asset-backed securities market. The company suffered as U.S. Treasuries soared, which caused Treasury bill rates--to which student loans are pegged--to sink and financing spreads to widen, forcing the company to stop selling securities backed by its student loans. Sallie Mae included so-called floor earnings in its earnings total for the quarter, ending its reporting of core net income, which may account for its surpassing the average earnings estimate. Floor earnings come from government subsidies that insure lenders will draw above a given rate on variable-rate student loans when interest rates fall. It’s becoming increasingly difficult to figure out Sallie Mae’s earnings, said Jonathan Gray, an analyst at Sanford C. Bernstein in New York. The analysts “excluded floor-income” in their estimates, he said. The company was not immediately available for comment on the amount of floor-income profit included in the earnings statement.
*
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Earnings Watch
A summary of companies reporting quarterly earnings Monday, ranked by year-over-year growth, and companies due to report today, ranked by analysts’ forecast change in earnings per share (EPS) from the year-ago quarter, compiled by First Call:
Reporting Monday
*--*
Pct. above/ 1997 Ticker Consensus Actual below 3rd-qtr. Company symbol estimate earnings estimate EPS Willamette WLL $0.23 $0.32 +39% $0.18 Chrysler C 0.87 1.02 +17 0.69 MGIC Investment MTG 0.84 0.84 0 0.71 Gannett GCI 0.62 0.62 0 0.53 SLM Holdings SLM 0.59 0.64 +8 0.74
Year- over-year Company % growth Willamette 78% Chrysler 48 MGIC Investment 18 Gannett 17 SLM Holdings --14
*--*
Reporting Today
*--*
Ticker Consensus Year-ago Predicted Company symbol EPS estimate quarter pct. chg. Eastman Kodak EK $1.20 $0.80 50% Whirlpool WHR 1.02 0.82 24 Owens Corning OWC 1.28 1.05 22 Charles Schwab SCH 0.33 0.28 18 Assoc Financial AFS 0.91 0.78 17 BB&T; BBK 0.44 0.38 16 Pepsico PEP 0.40 0.35 14 Auto Data Processing AUD 0.40 0.35 14 Suntrust Banks STI 0.90 0.80 13 Synovus Financial SNV 0.18 0.16 13 Johnson & Johnson JNJ 0.70 0.63 11 Grainger GWW 0.60 0.56 7 Armstrong Worldwide ACK 1.51 1.41 7 Huntington Bancshares HBAN 0.42 0.42 0 Caterpillar CAT 1.00 1.01 --1 Enron ENE 0.45 0.46 --2 Intel INTC 0.80 0.88 --9 Weyerhaeuser WY 0.44 0.53 --17 International Paper IP 0.25 0.34 --26 Eaton ETN 1.24 1.77 --30 Rowan RDC 0.33 0.59 --44 Merrill Lynch MER 0.48 1.24 --61 General Motors GM --0.99 1.35 NM* Columbia Energy CG 0.09 0.00 NM* Boise Cascade BCC 0.12 --0.23 NP**
*--*
* Not meaningful ** Negative to positive
*
MORE EARNINGS: C2
