GM’s 1Q profits of $865M beat analysts’ expectations
May 3, 2013 at 9:03 am
GM’s 1Q profits of $865M beat analysts’ expectations
By Melissa Burden
The Detroit News
General Motors Co. Thursday posted its 13th consecutive quarterly profit, $865 million in the first quarter, and reduced its loss in Europe as its efforts to trim costs and boost revenues is beginning to show some results as it plans to break even there by mid-decade.
GM’s earnings were down 13.5 percent from $1 billion in the first three months of 2012, due to troubles in Europe and South America. But earnings of 58 cents a share, or 67 cents excluding one-time charges, were stronger than analysts’ expectations. They were looking for 54 cents a share on revenue of $36.6 billion; the Detroit automaker had revenue of $36.9 billion.
Wall Street responded favorably to GM’s report; its shares closed Thursday at $31.16, up 98 cents, or 3.25 percent, compared to gains under 1 percent for the Dow Jones and S+P 500 indexes.
“GM delivered a solid beat against a backdrop of muted expectations — validating our thesis that GM, while still beset with issues, is generally executing better than investors give it credit for,” Brian A. Johnson, a Barclays Capital Inc. analyst, wrote in a Thursday investors’ note.
The company’s net income was driven by profits in North America, though its adjusted $1.4 billion profit before interest and taxes fell 13.9 percent from a year ago.
“This was a solid quarter for GM and we are much more a formidable competitor now than we have been in a generation,” Chairman and CEO Dan Akerson said during the call with analysts. “We are very much on plan financially as well, despite the competitive landscape, the volatility that we have seen in several currency markets, and Europe’s ongoing challenges.”
GM is feverishly trying to remake its European operations, in the face of stubborn economic problems there, and says it remains on target to break even in the region by mid-decade.
“We are pleased with our progress, but we’re still losing money in Europe, a lot of it,” Akerson said. “And so we have a lot of work to do.”
Chief Financial Officer Dan Ammann said GM’s weaker North American profit was due to a drop in wholesale deliveries to dealers, as it changes over plants for vehicle launches. GM’s North America profit was hurt by a $200 million drop in pricing from the same quarter a year ago, mainly due to higher truck incentives, Ammann said. The company is launching all-new 2014 Chevrolet Silverado and GMC Sierra pickups this quarter and expects pricing to improve later in the year, as its new products generate higher average transaction prices.
European losses improve
The company posted a $175 million loss in Europe for the quarter, an improvement over the $294 million it dropped in the same 2012 quarter.
It saw a $300 million cost savings improvement in Europe over the same quarter a year ago, with more than $100 million in lower depreciation expense and about $200 million in reduced engineering expenses and other timing related costs.
“Obviously, what will drive results in Europe is a combination of the things that we do control, which we feel quite good about, and the things that we don’t control, which is obviously the European economy,” Ammann told reporters. “And we don’t see any real signs of improvement in the European economy at this period of time. Obviously that’s going to be a major driver of the business going forward.”
Ammann said it’s too soon to call a bottom in the slumping European car market.
“When you have 20-plus percent unemployment in a number of important countries, I think it’s far too soon to call a bottom in a macroeconomic situation there,” he said.
Still, GM’s quarterly European loss was much smaller than analysts had been expecting — an average of $469 million. Morgan Stanley analyst Adam Jonas predicted a $400 million loss and thinks GM will lose $1.3 billion in Europe for the year. The company lost $1.9 billion there last year.
“The better than expected results will be well received, giving investors confidence that progress is being made and break-even by mid-decade is possible,” Joseph Spak, an analyst with RBC Capital Markets, wrote in a note to investors Thursday.
Better sales accountability
GM, beginning with the first quarter 2013, is reporting revenue and profits based on where a vehicle is sold, as opposed to where it was built. Akerson called the change a “huge step forward” as it improves visibility into profits, while Ammann said it has managerial benefits and can help show accountability for sales and profits.
Those changes have no effect on GM’s overall bottom line last year, but affected some of first quarter yearly comparisons by region. For example, a year ago, GM reported its European losses at $256 million.
GM International Operations made $495 million before interest and taxes in the quarter, down slightly from $521 million a year ago. In South America, GM lost $38 million pretax, down from a profit of $153 million during the first three months of 2012. The automaker’s profits for the quarter were hit by $170 million in special items, due mainly to Venezuela currency devaluation.
GM was the last of Detroit’s three automakers to report first-quarter earnings. Last week, rival Ford Motor Co. said it made $1.6 billion, up 15.4 percent, as its North American operations had the highest profit since at least 2000. The Dearborn company lost $462 million in Europe during the quarter and expects to lose $2 billion there this year.
Chrysler Group LLC this week said its $166 million first-quarter profit was down by 65 percent, hurt by lower vehicle shipments.
From The Detroit News: http://www.detroitnews.com/article/20130503/AUTO0103/305030328#ixzz2SFDFBedh