By Giulio Piovaccari and Nick Carey
MILAN (Reuters) -Fiat, Ram and Peugeot (OTC:PUGOY) maker Stellantis beat profit forecasts on Wednesday due to strong car prices and greater-than-expected merger benefits, but warned of pricing pressure as industry-wide supply chain problems ease.
Automakers globally have been hit by several supply problems stemming from the global coronavirus pandemic, with the worst a shortage of semiconductor chips that has hit their production.
Amid strong demand, that shortage has allowed carmakers to raise prices and Stellantis said its full-year 2022 operating profits had jumped 29%, despite a 2% drop in vehicle deliveries.
"Pricing power is going to be under pressure because of the rebalancing of supply and demand," CEO Carlos Tavares said.
He added that the semiconductor crisis had mostly been caused by major first-tier suppliers struggling to manage their own supply chains, but most now have that under control.
"Production is now okay, it's not perfect because we don't always build the cars we would like to build ... The number of troublemakers is now limited to one or two big Tier 1 (suppliers)," Tavares said.
"We believe that through the very strong order book that we have, we have some time to adapt ... The name of the game is to reduce total production costs faster than the erosion of pricing power," Tavares added.
BUYBACK
Stellantis, created just over two years ago from the merger of Fiat Chrysler and Peugeot maker PSA, said its second-half 2022 operating profit rose 17%.
It also announced a share buyback programme worth up to 1.5 billion euros ($1.6 billion) for 2023, supported by more than 10.8 billion euros in industrial free cash flow last year, and said it will pay a dividend of 4.2 billion euros on its 2022 results, or 1.34 euros per share.
Stellantis said it had achieved cash synergies of 7.1 billion euros last year, far exceeding the 5 billion euros by 2024 target it had set at the time of the merger.
JP Morgan analysts described the results as "strong" and the outlook for 2023 as "solid", adding that the share buyback announcement was unexpected.
Milan-listed shares in the world's third largest automaker were up 2.1% at 1510 GMT, outperforming a 1.3% fall in Italy's blue-chip index.
Stellantis's adjusted second-half earnings before interest and tax (EBIT) grew 17% to 10.95 billion euros, topping a consensus estimate of 9.63 billion euros in a Reuters poll of analysts.
The margin on adjusted EBIT was 12% in the July-December period, down from 14.1% in the first six months of the year. But the company still met its target for a "double digit" margin last year.
It reiterated the same margin target for 2023, as well as one for positive cash flows.
($1 = 0.9393 euros)