By Ben Klayman and Deepa Seetharaman
DETROIT May 2 General Motors Co posted
stronger-than-expected quarterly profit on Thursday as the U.S.
automaker kept a tight grip on costs in its North American and
GM shares rose 3.6 percent to $31.27, near their initial
public offering debut of $33 in the fall of 2010, and hit the
highest point since July of 2011.
The increase is welcome news for GM's largest shareholder,
the U.S. Treasury, which acquired its stake after a
taxpayer-funded bailout. Treasury, which says it will sell its
remaining position over the next year, gains almost $250 million
for every $1 increase in GM's stock price.
"GM, while still beset with issues, is generally executing
better than investors give it credit for," Barclays analyst
Brian Johnson said in a research note.
The company still expects to return to breakeven by
mid-decade in Europe, where it has reported 13 straight years of
losses, said GM Chief Financial Officer Dan Ammann.
RBC Capital Markets analyst Joseph Spak welcomed the
results, pointing to the company's ability to cut costs.
"Better-than-expected results (in Europe) will be well
received, giving investors confidence that progress is being
made and breakeven by mid-decade is possible," he said in a
GM's smaller U.S. rival Ford Motor Co last week posted
a stronger-than-expected first-quarter profit on strength in
North America, but overall costs spiked as it took steps to
reinvest in its global lineup and shore up European operations.
About $225 million in higher structural costs in the quarter
stemmed from Ford's efforts to fix the European business after
an economic downturn hit consumer demand for new cars.
'TOO SOON TO CALL A BOTTOM'
Ammann said GM doesn't see any signs of a turnaround in
Europe. "It's too soon to call a bottom in Europe."
Ford officials have said the European auto industry may see
some stabilization toward year-end or early 2014.
GM's first-quarter net income attributable to common
stockholders fell 13.5 percent to $865 million, or 58 cents a
share, from $1 billion, or 60 cents a share, in the year-earlier
period. The company took a $400 million hit to earnings due to
falling prices for its vehicles and weaker volume.
The latest quarter included a $162 million noncash charge
for the devaluation of the Venezuelan currency.
Excluding one-time items, GM earned 67 cents, topping the
analysts' estimate of 54 cents, according to a poll by Thomson
"We are much more of a formidable competitor now than we
have been in more than a generation," Chief Executive Dan
Akerson said on a conference call.
Revenue fell 2.4 percent from last year to $36.9 billion,
and was just above the Wall Street target of $36.6 billion.
GM's North American unit reported operating profit of $1.41
billion, better than the Wall Street estimate of $1.21 billion,
according to FactSet StreetAccount. The result was down from a
year ago due to higher costs from preparing plants for new
vehicle launches, especially the redesigned Chevrolet Silverado
and GMC Sierra full-size pickup trucks, as well as lower
shipments because the plants were down.
The company also saw a $200 million drop in operating
earnings as it was forced to offer pricing deals on its current
large truck line ahead of the launch of the new models.
Analysts have warned that a weaker Japanese yen and
deteriorating European market will likely lead to more
competitive pricing in North America. Japanese automaker Nissan
Motor Co said this week it was cutting prices on seven
models representing 65 percent of its U.S. offerings.
KEEPING COSTS FLAT
GM kept North American costs in the quarter flat, which was
better than anticipated. In January, company officials said
costs would increase this year.
GM officials said while most of the expected increase in
costs in North America will occur in the second and third
quarters because of the new-vehicle launches, it will benefit
from higher prices and lower incentives associated with the new
cars and trucks.
RBC's Spak said the North American unit's 6.2 percent profit
margin was stronger than the 4.7 percent he expected. Ford had a
North American margin of 11 percent in the quarter.
GM's loss of $175 million in Europe was smaller than the
$469 million loss Wall Street estimated, according to FactSet.
In the region, GM cut $300 million in costs and was able to
keep the pricing on its vehicles unchanged, both better than
Ammann said GM will see cost savings in Europe slow as the
year progresses, and Edward Jones analyst Christian Mayes said
fixing its European operations will be "a long slog."
Morgan Stanley analyst Adam Jonas said in a research note
that it was the first time GM's Europe unit topped Wall Street
expectations in nearly two years and the first year-over-year
improvement in results in five quarters.
The international unit, which includes China, had an
operating profit of $495 million, while South America recorded a
small $38 million loss. Both results were weaker than expected.
Ammann said strong results in China were offset by weakness
in the rest of the international operations. He said the South
America business is expected "to build" this year on last year's
GM said adjusted free cash flow in the quarter was a
negative $1.3 billion due mostly to the lower earnings and
timing-related items that it said would reverse during the rest
of the year.
The Detroit automaker ended the quarter with total liquidity
of $35.3 billion in its automotive business.
Treasury officials declined to say whether the rise in GM's
stock price could accelerate the sale of its remaining stake.
According to GM's proxy, Treasury still owned more than 241
million shares as of April 17, so it would need to sell at an
average of about $79.03 a share to break even.
Federal officials said last week that Treasury had recovered
about $30.4 billion of its investment in GM as of the end of
March. In January, Treasury initiated a prearranged written
trading plan to sell the rest of the stake.
The government got an 18 percent GM stake following the
$49.5 billion bailout in 2009.