By Agnieszka Flak
MILAN (Reuters) - Fiat Chrysler (FCA) reported better-than-expected third-quarter earnings and promised to pay 2 billion euros ($2.3 billion) in special dividends, but a lowered net cash forecast and a charge related to U.S. diesel talks weighed on shares.
Milan-listed shares in FCA, which had been down more than 3 percent in early trading, briefly recovered after the earnings release but then fell again. The stock was down 1 percent by 1425 GMT.
FCA confirmed its operating guidance for the full year. However, its forecast for net cash was reduced to between 1.5-2.0 billion euros from around 3 billion euros. The change reflects production adjustments to correspond to expected demand and an accelerated discretionary pension contribution, FCA said.
It promised the special dividend after last week agreeing to sell parts unit Magneti Marelli to Japan's Calsonic Kansei for 6.2 billion euros.
The sale was the first big deal since Mike Manley took over in July after long-time chief Sergio Marchionne fell ill and later died after succumbing to complications from surgery.
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The special dividend comes on top of ordinary dividends of 20 percent of earnings the company already pledged to pay starting early next year.
"It's the usual mixed bag, investors are happy about the special dividend, but the lowered guidance for net cash was a surprise," a trader said.
The world's seventh-largest carmaker said adjusted earnings before interest and tax (EBIT) for the July-September period rose 13 percent to 1.995 billion euros, compared with 1.87 billion euros in a Reuters poll of analysts.
NORTH AMERICA DOMINATES
North America accounted for 97 percent of profit in the quarter, raising concerns about over-reliance on one region.
FCA's operations in Europe were hit by the transition to new emissions standards, while China market weakness weighed on its performance in Asia. Both regions reported an operating loss.
Sales rose 9 percent, above expectations, helped by higher shipments of the new Jeep Wrangler and Jeep Cherokee models and the new RAM 1500 pick-up truck.
FCA's shift to sell more trucks and SUVs in North America once again boosted operating profit margins in the region. The North America margin stood at 10.2 percent in the three months to September from 8.0 percent in the same quarter a year ago.
Group net profit in the quarter was down 38 percent, due to a 700 million euro charge for estimated costs related to diesel emissions disputes in the United States. The charge does not represent an agreed settlement nor is an admission of liability, FCA added.
"It remains to be seen if this (provision) is an 'all-in' number. However, it sits someway below most expectations of a figure in excess of 1 billion euros," Evercore ISI analyst George Galliers said in a note.
FCA has been in intensive settlement talks with the U.S. Justice Department, California and lawyers for owners after the government sued the company in May 2017 contending it illegally used software that led to excess emissions in 104,000 U.S. diesel vehicles sold since 2014.($1 = 0.8808 euros)
(Additional reporting by Danilo Masoni; Editing by Keith Weir)
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