MILAN/SOCHAUX, France – On Thursday, Stellantis (NYSE: STLA) CEO Carlos Tavares left the door open for possible cuts to its dividend and share buybacks next year and brushed off problems with its U.S. business that led to a major profit warning this week as a “small operational error”.
Shares slid 4% to their lowest since July 2022 as investors fret that soaring costs of reviving the automaker’s U.S. business will threaten its generous payouts to shareholders.
The scale of Monday’s warning has also hurt investor confidence in management.
Speaking during a factory visit in eastern France, Tavares said the company had operational difficulties in the U.S. but they would be fixed well before his contract ends in 2026.
He added that he intended to honor his contract and believed the board shared this view, but that in a tough market, mistakes were being more closely scrutinized.
“When you are in a context that is brutal and more demanding, a small operational error is immediately visible,” he said. He added that he was taking it as a “wake-up call” and was very serious about it.
Shares in the owner of the Chrysler, Jeep, Fiat, Citroen, and Peugeot brands have tumbled more than 55% since March, the worst performance among European autos stocks and slashing 47 billion euros ($52 billion) off the company’s valuation.
Kevin Thozet, a member of the investment committee at asset manager Carmignac, said European automakers were “falling like autumn leaves”, with Stellantis’ profit warning meaning a zero operating margin in the second half of this year.
“This is a real blow to the investment thesis, as it could put the generous dividend at risk and will very likely imply saying bye-bye’ to buybacks,” Thozet said in a note.
Over the past few months, investors have been reducing exposure to European autos due to concerns over a difficult transition to electric engines, fierce competition from Chinese newcomers, and increasingly price-conscious consumers.
While Stellantis (NYSE: STLA) is committed to its 2024 dividend, Tavares said it was too early to confirm next year’s plan.
“The time for 2025 has not come, we will see what will happen at the end of 2024 for a discussion and a decision for 2025,” he said.
‘TOO COMPLACENT’
Barclays downgraded the stock to “equal-weight” from “overweight” and cut its 2024-26 EBIT (operating profit) estimates by 33-45%. It said Stellantis’ large free cash flow cut raised questions over its dividend and buyback potential.
“We got wrong-footed on Stellantis, being too slow to acknowledge its US inventory issue and eroding EU/US market shares,” Barclays analysts said in a note.
They also pointed to how Stellantis (NYSE: STLA) finance chief Natalie Knight broadly confirmed forecasts for a double-digit EBIT margin only a week before the profit warning.
“Frankly, we are still stunned by the magnitude of the cut in the shortness of time,” they said.
At 1240 GMT, shares in Stellantis, Europe’s No. 5 carmaker by market value, were down 4% within an autos index down 2%.
In a note, Bernstein analysts said that under Tavares, Stellantis had been seen as a beacon of constructive management, with a great focus on inventory control and pricing.
“Investors could ‘sleep at night’ trusting that the shop was in safe hands,” they said. “But … we were too complacent”.
($1 = 0.9064 euros)
(Source: ReutersReuters)
