GM's 1-billion 1Q profit exceeds expectations
May 04, 2012 (Menafn - Detroit Free Press - McClatchy-Tribune Information Services via COMTEX) --General Motors' 1-billion first-quarter profit report Thursday exceeded expectations, but a cautious outlook for the U.S. and continuing problems in Europe led investors to drive the stock down to 22.37, its lowest close since Jan. 5.
The automaker earned a robust 1.7-billion operating profit in North America, but warned it didn't expect to repeat last spring and summer's uptick in North American earnings. The automaker has scheduled 29 weeks of downtime total at its truck plants to prepare for the 2013 launch of the new Chevy Silverado and GMC Sierra.
The stock price drop -- 2.4% for the day -- leaves the shares well below their initial price of 33 in November 2010, likely delaying the U.S. government's decision to sell shares.
Despite a 31% increase in North American profits and a respectable profit in South America, GM executives only offered hints of restructuring moves in Europe, where GM lost 256 million in the January-through-March quarter. It has lost money in Europe for 12 straight years.
But once the dust clears from the North American retooling, GM could be poised for big profits, analysts said. This year, GM launches the Cadillac XTS and ATS sedans and next year, a new Chevrolet Impala and Silverado -- all likely to generate hefty profit margins.
"Next year is the big year for the GM story," said Itay Michaeli, an analyst with Citi Investment Research.
GM was intentional in dropping the reality check about North American profits, Chief Financial Officer Dan Ammann said. Better to share the news now than underperform expectations later.
"We just wanted to make sure that people understood how that was going to impact earnings for the next couple of quarters," Ammann said. "I'm not particularly surprised at how they're looking at it."
North American earnings benefited from better pricing: The average GM vehicle sold for 300 more than a year earlier and carried a discount that was 380 less. But the automaker hasn't been able to take as much of a profit on the Chevy Cruze and Sonic small cars as analysts had hoped.
"That just means those trucks are even more important than we thought," Citi's Michaeli said.
GM needs profits from the rest of the world to offset continued losses in Europe.
The 256-million loss in Europe, off a 20% decline in revenue, was smaller than in the fourth quarter and exceeded most analysts' forecasts. But GM executives declined to provide more specifics about what they will do next in Europe, beyond February's agreement to acquire 7% of Peugeot Citroen, in hopes of jointly developing vehicles and combining purchasing efforts.
That alliance shouldn't impact earnings until 2015 or 2016, Ammann said. He and CEO Dan Akerson also hinted at buyouts for European Opel workers who are near retirement, potentially in the next three months.
"We're making progress week-to-week on the cost front," Ammann said. "Not everything will come with some big announcement."
GM's Opel unit has more plants tooled to build more cars than European consumers are able to buy. Industry-wide new car sales in the 17 countries of the European Union fell to a 14-year low in March.
"The industry has a fundamental overcapacity problem," Ammann said. "We're doing our best to address that, and we hope and believe that others will do that as well."
Without closing at least one or two of Opel's 14 plants -- Morgan Stanley analyst Adam Jonas suggested shuttering half -- the automaker has little hope for long-term profits in Europe, Jonas said. Closing even a few plants "in a non-politically embarrassing way" could take years, he said.
GM's European operations also took the blame for a special accounting-related 590-million charge that dragged down total earnings. Ammann attributed the charge to "accounting weirdness" left over from GM's 2009 bankruptcy exit.
Not including special items, interest and taxes, GM made 2.2 billion in the first quarter, 10% higher than a year earlier. That nearly matched Ford's 2.3 billion pretax profit and beat Chrysler's operating profit of 740 million.
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