Stellantis' (NYSE: STLA) latest warning has stunned investors. The maker of Chrysler, Fiat, Jeep, Peugeot, Ram Trucks, and more cut its guidance for 2024 this week, with CEO Carlos Tavares even hinting at a potential dividend cut next year.
Stellantis stock plunged after the developments and was trading 17% lower for the week through noon Friday, according to data provided by S&P Global Market Intelligence. The automotive stock is now trading at prices last seen in 2022.
Problems aplenty
The entire auto industry is grappling with a slowdown in demand as evidenced by the warnings issued by several automakers in recent weeks. However, Europe-based Stellantis is also facing several operational challenges including high inventory and launch delays that have hit earnings, especially from its largest profit center, North America. The headwinds forced Stellantis to downgrade its guidance for 2024 significantly on Sept. 30.
Stellantis expects to ship at least 200,000 fewer units in North America during the second half of 2024 versus the corresponding period in 2023. Until late July, the auto giant expected shipments to drop by around 100,000 units.
The large drop in shipments and high costs will eat into the company's margins, what with Stellantis now guiding for an adjusted operating margin of only 5.5% to 7% for 2024 versus a previous double-digit margin outlook. Worse yet, Stellantis guided for positive free cash flow (FCF) earlier, but now expects to generate negative FCF between 5 billion and 10 billion euros.
While those numbers are dismal to say the least, Tavares' comments on dividends seem to have jolted Stellantis stock the most this week.
What's next for Stellantis stock?
During a factory visit coinciding with Stellantis' financial guidance downgrade, Tavares stated that although the company is committed to paying a dividend in 2024, it will confirm a dividend for 2025 next year based on how it fares operationally in 2024.
The huge FCF cut, of course, is the biggest red flag, and it's now highly likely that Stellantis may cut its dividend in 2025. Stellantis stock has plunged 51% year to date as of this writing and its dividend yield has shot up to 12.7%. Unfortunately, that's the kind of dividend stock you'd want to avoid now, as it could get a lot more painful before the stock can find a bottom.
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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.
