GM’s Q4 operating profit rises 14% to $1.25 billion

GM’s Q4 operating profit rises 14% to $1.25 billion
Mike Colias
Automotive News | February 14, 2013 – 7:32 am EST
UPDATED: 2/14/12 4:15 p.m. ET – adds closing stock price
DETROIT — General Motors posted strong fourth-quarter profits in North America and Asia but wider losses in Europe while recording its third straight profitable year since exiting bankruptcy.

GM posted a net profit of $892 million for the October-December period, up 89 percent from the year-earlier period. That includes several one-time charges and gains that added about $100 million to GM’s bottom line.

Excluding those items, GM’s operating profit, which the company believes is the best reflection of its underlying performance, rose 14 percent to $1.25 billion.

For the full year, GM’s net income was $4.86 billion, down 36 percent from a record $7.59 billion in 2011. Operating income in 2012, before any one-time items, was $7.86 billion, down 5 percent, according to the company’s quarterly earnings statement.

GM’s results, on an earnings-per-share basis, disappointed Wall Street. After the one-time items, GM earned 48 cents a share during the quarter — 3 cents less than a survey of analysts conducted by Reuters. GM shares fell 3.3 percent to close the day at $27.72.

‘Solid year’

“From every vantage point, 2012 was another solid year for General Motors,” GM CEO Dan Akerson told analysts during a conference call.

Despite the growing red ink in Europe, Akerson stood by GM’s earlier forecast of reaching breakeven on the troubled continent by the middle of the decade. He expects to finalize a labor deal with German unions by the end of March, a key part of GM’s restructuring plan.

“One thing we can’t control is the market, but we have certain levers we can pull,” Akerson said. “At the same time, we can’t just play defense. We’re trying to play offense” by entering new segments, including the recent launch of the Opel Mokka small crossover and Adam minicar.

GM’s fourth-quarter operating losses in Europe widened to $699 million, from $562 million a year earlier. Losses for the full year grew sharply to $1.8 billion, from $747 million in 2011.

The one-time items in the fourth quarter included: a noncash gain of $34.94 billion from the benefit of the release of most of GM’s valuation allowances on U.S. and Canadian deferred tax assets, a $26.90 billion goodwill impairment related to that gain, a $5.2 billion impairment of assets in Europe and a $2.2 billion charge related to the buyout of some of its U.S. salaried pension plan.

Global fourth-quarter revenue grew 3 percent to $39.31 billion. For the year, revenue rose 13 percent to $152.26 billion.

North American results

North American operating profit dropped 7 percent in the fourth quarter to $1.40 billion. Full-year profit in the region fell 3 percent to $6.95 billion.

In North America, the drop in fourth-quarter operating profit came as higher costs and weaker pricing outweighed higher volumes and better product mix, including stronger sales of profitable full-sized pickups.

GM CFO Dan Ammann said a busier vehicle-launch schedule pushed fourth-quarter costs higher in North America, but he said that vehicle mix improved “for the first time in a long time.” He said that’s “a reflection of the new vehicles that we’re bringing in and the profitability of those vehicles.”

Lower pricing in North America, which shaved about $300 million from operating profit, stemmed from a clearing of inventory of outgoing models, Ammann said.

Overseas earnings

Regarding Europe, Ammann said that he expects conditions to worsen industrywide this year, but reiterated the company’s earlier forecast that GM would trim operating losses slightly there in 2013.

GM’s international division — which includes China, Russia and other emerging markets — posted a 27 percent increase in fourth-quarter operating income to $473 million, as stronger volumes and pricing offset higher costs. For the year, operating profit there rose 15 percent to $2.19 billion.

GM’s strongest improvement in the quarter came in South America, where the company swung to a $99 million operating profit from a $225 million loss a year earlier. GM is launching a slate of new or redesigned vehicles in Brazil and other countries. For all of 2012, South America swung to an operating profit of $271 million from an operating loss of $122 million in 2011.

GM Financial’s operating profit dropped 14 percent to $146 million in the fourth quarter, but rose 20 percent to $744 million in the full year.

More profits ahead

Ammann said that the accounting change to release GM’s valuation allowances on its deferred tax assets signals that GM is confident it will generate enough profits in future years to use those assets. The reserve was created in 2007, when GM was losing billions. U.S. companies can apply losses to future income to reduce tax liability.

“It’s a sign that we’ve established a clear track record of profitability over the last three years,” Ammann said, “and it’s a reflection of our confidence in the fact that we’re going to continue to generate significant profitability in the North American market.”

GM also said it will pay its 49,000 hourly employees profit-sharing checks of $6,750.

2013 details

Commenting on 2013, GM said:

• Capital spending will be “similar” to the $8.06 billion spent in 2012, which was up 29 percent from 2011.

• It doesn’t plan any voluntary contributions to the company’s U.S. defined pension plans this year. GM said it expects no mandatory contributions to those plans for “at least five years,” under current economic conditions. Those plans ended the year 84 percent funded; the underfunded portion stood at $13.1 billion, slightly better than a year earlier.

• The recent devaluation of the Venezuelan currency is expected to result in a $200 million unfavorable special item in the first quarter.

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