Chrysler Q3
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Chrysler Q3
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(FOOL CONFERENCE CALL SYNOPSIS)* By Dale Wettlaufer (MF Raleigh)
CHRYSLER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: C)") else Response.Write("(NYSE: C)") end if %> Q3 1996 ALEXANDRIA, Va, October 16, 1996 /FOOLWIRE/ -- Chrysler Corporation announced October 14th third-quarter 1996 net earnings of $680 million, or $0.93 per common share ($0.93 per fully diluted common share) -- the highest third-quarter net earnings and earnings per share in the Company's history. Included in third-quarter 1996 net earnings was a $55 million charge ($88 million pretax) for costs associated with a voluntary early retirement program for certain salaried employees. Excluding this charge, EPS would have been $1.00 for the quarter. Third-quarter 1995 net earnings were $354 million, or $0.45 per common share ($0.45 per fully diluted common share).
Pretax earnings for the third quarter of 1996 were $1.111 billion -- Chrysler's best third-quarter pretax earnings ever and an increase of $529 million, or 91 percent, over third-quarter 1995 pretax earnings of $582 million.
"Chrysler's performance in the third quarter was outstanding," said Robert J. Eaton, Chairman and Chief Executive Officer of Chrysler Corporation. "It was fueled by record setting demand for our products which led to a new third-quarter U.S. retail unit sales record and produced the best model year for U.S. retail unit sales in the company's history.
"In addition, we are very pleased that we have reached agreements with the UAW and CAW (Canadian Auto Workers). These agreements represent a solid foundation from which we can go about the business of growing Chrysler Corporation for the benefit of everyone in the Chrysler family. The contract calls for a $2,000 signing bonus and 3% wage increases in year 2 and 3 of the contract. The signing bonus will be amortized over the life of the contract. Pension costs will increase by $30 million per quarter. Labor costs represent less than 15% of total cost structure. The CAW contract calls for less wage increases at 2% each year.
"Our success isn't an aberration nor have we plateaued, we've merely built a foundation for even better things in the future. Many people have said -- and we have no reason to disagree -- that Chrysler has the hottest designs in the business, the best supplier relations, a progressive operating system and has turned up the heat internationally. "We believe we are ready for the future and are well positioned to build on our success," Eaton concluded. The 1996 model year was the best sales year in the company's history. The company also set 13 individual model year sales records and nine in the third quarter.
Other Third-Quarter 1996 Highlights
o Total revenues were $14.4 billion for third-quarter 1996 -- a new third-quarter record for Chrysler and an increase of $2.4 billion, or 20 percent, over third-quarter 1995 total revenues of $12.0 billion.
o Net earnings as a percent of total revenues increased to 4.7 percent in third-quarter 1996, compared with 2.9 percent in third-quarter 1995.
o Chrysler's combined automotive cash, cash equivalents and marketable securities was $7.490 billion, at September 30, 1996, compared with $6.407 billion at September 30, 1995.
o Chrysler's worldwide factory shipments in third-quarter 1996 were 650,529 units, compared to 581,853 units during the same period in 1995.
o Chrysler's combined U.S. and Canadian retail (including fleet) unit sales of cars and trucks in third-quarter 1996 were 645,766 units, compared to 560,841 units for the same period in 1995. Fleet sales accounted for 12% of total sales in the quarter, up four percentage points from last year, but down 8 points from Q2 1996.
o Chrysler's combined U.S. and Canadian retail car and truck market share for third-quarter 1996 was 15.5 percent, compared with 13.6 percent in third-quarter 1995. In cars, Chrysler's market share was 9% of the US/Canadian market vs. 8.3% last year. GM lost market share while the Europeans gained and Ford and the Japanese fluctuated less. Chrysler market share in trucks improved to 24% in US/Canada while the other makers declined in market share. Through nine months of 1996, Chrysler's share of the total auto and truck market increased 1.6 percentage points while other GM, Ford, and the Japanese all lost share. At the same time, incentive spending dropped to $685 per unit, down from $870 in Q3 1995.
o International retail sales in the third quarter of 1996 were 57,209 vehicles, up 19 percent over third-quarter 1995 sales of 48,207 vehicles. In Europe, Chrysler sold 28,079 vehicles in third-quarter 1996, an increase of 28 percent over 21,918 vehicles in third-quarter 1995. Asia/Pacific sales were flat and Latin America/Africa/Middle East sales increased 57%
o Chrysler repurchased $452 million of its common stock in the third-quarter 1996. As previously announced, the company initiated a $2 billion common stock buyback for 1996, and expects to repurchase an additional $1 billion of common stock in 1997. Both actions are subject to market and general economic conditions. Chrysler completed a $1 billion common stock buyback in 1995 and, through the first nine months of 1996, repurchased an additional $1.6 billion of common stock.
On a year-to-date basis, the company returned to shareholders $1.57 billion via share repurchases and $700 million in dividends. The $2.3 billion direct return to shareholders is the largest made by any auto company in the world. The share repurchase program to date has brought in almost 100 million shares at a cost of more than $2.6 billion. The company plans to round out the year with another half billion dollars in share repurchases.
o Chrysler Financial Corporation (CFC) reported third-quarter 1996 net earnings of $94 million -- CFC's best third quarter ever. CFC's third-quarter 1995 net earnings were $87 million. Third-quarter 1996 pretax earnings were $144 million, compared with third-quarter 1995 pretax earnings of $138 million.
o Chrysler successfully launched the Dakota pickup to "great reviews."
o The company announced further expansion in South America, highlighted by a joint venture with BMW to produce 1.4 and 1.6 liter engines.
Earnings, Cash Flow, and Balance Sheet Comments
Chrysler's net earnings for the first nine months of 1996 were $2.722 billion, or $3.65 per common share ($3.62 per fully diluted common share) compared with $985 million, or $1.28 per common share ($1.24 per fully diluted common share) for the first nine months of 1995.
Net earnings for the first nine months of 1996 included a $100 million charge ($65 million pretax) for the write-down of Thrifty Rent-A-Car System, Inc., a $55 million charge ($88 million pretax) for costs associated with a voluntary early retirement program, and an $87 million gain ($101 million pretax) related to the sale of Electrospace Systems, Inc. and Chrysler Technologies Airborne Systems, Inc.
Net earnings for the first nine months of 1995 included charges of $162 million ($263 million pretax) for production changes at Chrysler's Newark (Del.) assembly plant, $96 million for the adoption of the consensus on Emerging Issues Task Force Issue 95-1, and $71 million ($115 million pretax) for a voluntary minivan owner service action.
Return on sales, adjusted for the early retirement program, was 5.4%, 2.1 percentage points better than 1995. Worldwide earnings per unit came in at $1,620, up from $805 per unit in 1995's third quarter. Return on net assets was 20% for the quarter, annualized. Revenue per unit equaled $19,900, up $700 per unit from Q2 1996, primarily due to 1997 model year pricing actions as well as a favorable mix of high-revenue vehicles.
Earnings for subsidiaries improved mainly due to the company's writedown of Thrifty Rent-A-Car in the second quarter. Selling and administrative costs decreased from Q2 levels but were up $155 million from Q3 1995 due to increased advertising expense, profit-related employee compensation costs, and higher costs related to international expansion. Marketing was 5.5% of revenue, down from 6.5% in Q2 and flat compared to Q3 1995. Employee retirement benefit costs were up due to the $88 million retirement costs.
Cash flow from operations was $2.6 billion, capital expenditures were $1.4 billion, $500 million went to share repurchases, and $300 million went to dividend payments. Pension contributions were $300 million and $100 million in short-term debt was re-paid. Cash at the beginning of the quarter was $7.5 billion and ended the quarter at that level. Inventories stand at 57 day spot, up from 53 days at the end of Q2. GM and Ford were both around 69 days at the end of Q3 1996.
Long-term debt has decreased more than 50% since 1991 and now stands at approximately $2 billion. Debt to capitalization has dropped from 42% in 1991 to 15% at the end of Q3. Pension funding continues to improve. In the last five years, pension funding has gone from a $4 billion deficit to a $500 million surplus now. Chrysler's credit rating now stands at the "A" level for the first time since 1974.
Production for the coming quarter is scheduled to reach 700,000 units worldwide, up negligibly from Q4 1995. The Jeep division will launch a new Cherokee. Production across the US industry in 1997 is estimated to reach 15-15.5 million autos. Ram truck production capacity will increase by 20,000 units in the year while Dakota, Cherokee, Wrangler, and the new Dodge sport/utility will go from launch status to production in 1997, allowing the company to produce an additional 155,000 units. Total unit capacity will increase by 190,000 units in 1997.
For the quarter, depreciation was $291 million; amortization, $205 million; and post-retirement expense was $214 million.
Additional Questions and Comments
The company is not planning any incentive increases for the quarter provided that the competitive landscape on incentives does not change significantly.
The company is not trying to push forcefully on getting cars into the market via non-traditional means such as daily rental fleets, bid fleets, subsidized leases, or regular leases. Chrysler is keeping that supply at the level that the market naturally desires rather than trying to stuff the channel as the entire industry did a few years ago with daily rentals.
The movement of the yen will not have a great impact on international sales. The weakening of the yen has allowed the Japanese to subsidize leases or repatriate larger profits. The company does expect the stronger dollar to play into the competitive position for the Japanese companies in the US and if the yen does stay at 112, then that would take a year of adjustment for Chrysler.
Capital spending for the year should exceed $400 million. Cap. ex. for 1997 has not been finalized, though the current outlook is for an increase next year. Paint systems is probably the biggest issue going forward and the company may also look at powertrains. In addition, the company will be acquiring more distributorships next year. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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Copyright 1996, The Motley Fool |