GM First-Quarter Profit Falls as Losses in Europe Widen
Net income declined to $1.32 billion from $3.37 billion a year earlier, Detroit-based GM said today in a statement. Excluding some items, profit slipped to 93 cents a share, down from 95 cents a year earlier. That beat the 85-cent average estimate of 16 analysts surveyed by Bloomberg.
The adjusted operating loss in Europe, including Opel, totaled $256 million compared with a $5 million profit a year earlier, GM said. Not included in the loss is $590 million in writedowns, according to the company. GM said fixing Europe will require a series of efforts and may not come all at once. GM shares fell to the lowest intraday price in almost four months.
“We lack confidence that this is the bottom of the bottom of the cycle in Europe,” Peter Nesvold, an analyst with Jefferies & Co, wrote in a report.
The first-quarter results, GM’s ninth straight profitable quarter, resemble Ford Motor Co. (F)’s profit, which fell 45 percent to $1.4 billion as North American income was countered by losses in Europe, as well as a higher tax rate. Slowing growth in China and increasing competition in South America exacerbate the companies’ reliance on their home market.
The company’s adjusted operating profit in North America rose 35 percent to $1.69 billion from $1.25 billion a year earlier while profit from international operations, which includes China, fell to $529 million from $586 million. The year-earlier North American figure excludes a gain of $1.6 billion related to the sale of GM’s interest in Delphi Automotive LLP.
GM’s North American profit was “a bit soft,” Itay Michaeli, a New York-based analyst with Citigroup Inc., said in a note to investors. GM fell 2.4 percent to $22.37 at close in New York, the lowest price since Jan. 5.
The U.S. Treasury Department sold 28 percent of GM at $33 a share in a 2010 initial public offering and still holds 32 percent of the common stock, acquired in the $50 billion bailout by the Obama administration. The U.S. wants to sell for at least the IPO price, people familiar with the matter have said.
The company defended the results.
“This is a solid quarter,” Chief Financial Officer Dan Ammann told reporters. “Revenue growth, profit growth, margin growth, cash-flow improvement, another step in the right direction.” Second- and third-quarter results for North America should be similar to the year’s first three months, Ammann said.
Revenue rose 4.4 percent to $37.8 billion from $36.2 billion, exceeding seven analysts’ $37.5 billion average estimate. The company’s global vehicle sales rose 2.7 percent to 2.28 million units from 2.22 million a year earlier. GM remains ahead of Volkswagen AG (VOW), which sold 2.16 million vehicles in the quarter, an 8.7 percent increase from a year earlier.
GM’s first-quarter U.S. sales climbed 2.7 percent to an industry-leading 608,320, helped by the Chevrolet Cruze and Malibu sedans, while the company spent 11 percent less on incentives per vehicle, according to researcher Autodata Corp. Market share fell as Chief Executive Officer Dan Akerson has emphasized profit margin over unit volumes.
North America Improvements
Improved pricing, especially in North America, helped bolster earnings by $800 million compared with a year earlier, GM said.
“These new products that are rolling out, that are a bit up contented, we are able to hold price and get a premium,” Akerson said on a conference call with analysts. He pointed to the Chevrolet Sonic, which he said is getting about $1,000 more per car in the segment.
In South America, GM had a profit of $83 million, down from $90 million.
Europe has been a persistent problem for GM. After board members, including Akerson, decided not to sell the company’s German-based Opel unit in 2009, losses have continued.
The European operations were on target to break even last year until November when the company said those plans were off track as the economy worsened. GM Europe had a 2011 loss of $747 million before interest and taxes. The first-quarter writedowns in Europe were related to interest rates and employee benefit- related obligations, GM said.
In February, GM announced an agreement to acquire 7 percent of PSA Peugeot Citroen (UG) as part of an alliance that includes purchasing and vehicle development as part of an effort to revitalize its European operations. That effort is separate from fixing Opel, which the company said would take a couple of months.
No ‘Big Bang’
“Everyone is waiting for a big bang, and I’m not sure there’s going to be a big bang per se,” Ammann told reporters today, referring to a European turnaround plan. “You’ll see things as we go along. There will be actions and perhaps some announcements, but it’s a series of actions that we’re taking.”
Ammann declined to provide a forecast for Europe in an interview on Bloomberg Television’s “InsideTrack.”
“We still have not matched production to demand,” Akerson told analysts today. “I think before the next quarter’s report, you’ll see some more information coming out from the company.”
GM is considering buyouts for workers at Opel, Karl- Friedrich Stracke, head of the Opel unit, said during a separate conference call today.
“You’re going to see headcount coming out on a continual basis,” Ammann said of Europe. “There’s a fixation on plant closings and so on, but those take time and are challenging as demonstrated across the industry.”
In the January-to-March quarter, GM’s car sales fell 12 percent to 271,711 in the 27-member European Union plus Switzerland, Norway and Iceland while the total market declined 7.3 percent, according to the Brussels-based European Automobile Manufacturers’ Association.
“Europe remains the anchor around their neck,” Matt Collins, a St. Louis-based analyst at Edward Jones, wrote in an e-mail. “It’s critical for them to right-size that business since the European market seems likely to get worse before it gets better. Management’s guidance was underwhelming.”
GM’s vehicle sales in China rose in the first quarter 8.7 percent to 745,152, including joint ventures. Akerson last week announced GM plans to open 600 new dealerships in China this year and said that the automaker plans to introduce one new Cadillac model in the country every year through 2016. Including minority-owned joint ventures, GM is the top foreign automaker in the market.
Following the PSA deal, Isuzu said GM is among the companies with which it is considering forming an alliance.
“Don’t always believe what you read,” Akerson said.
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