Earnings Preview: GM Expected to Post First Annual Profit Since 2004

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GM is expected to report fourth-quarter earnings Thursday. Will it meet expectations for its first full-year profit since 2004?It's been a real American rags-to-riches story: With the help of a government bailout, automaker General Motors (GM) -- which descended into bankruptcy during a harrowing 2009 -- racked up solid profits in the first three quarters of 2010 and once again went public in November.

On Thursday, investors and taxpayers will get the latest snapshot of GM's health when the company reports earnings for the fourth quarter and full year. Analysts expect the carmaker to post its first full-year profit since 2004, raking in $5.3 billion, according to estimates compiled by Thomson One Analytics.

On a per-share basis, GM's full-year earnings are expected to reach $2.87 a share, according to a consensus estimate of 14 analysts compiled by Zacks.com. Those anticipated results compare to a loss of $4.3 billion during the second half of 2010, following GM's emergence from its controversial government-backed bankruptcy.

This week's earnings report will provide evidence that the plan worked, Aaron Bragman, an analyst with IHS Automotive, told the Detroit Free Press. GM has done quite well under the program, which has been shepherded along by new management team, Bragman said. "First and foremost, this has to be run like a profitable business."

New Model Costs Will Weigh on Results

GM has sought to keep expectations low for the quarter, which ended in December, after earning $4.2 billion in the first nine months of the year. It has warned that fourth-quarter results will be "significantly lower" than those recorded in previous quarters.

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The automaker has cited costs related to the introduction of new models, including the compact Chevrolet Cruze and Volt plug-in hybrid as well as increased engineering expenses, for the anticipated lower earnings. GM also expects to take a $700 million charge to buy back preferred shares held by the U.S. Treasury.

The company said it expects to record positive earnings before charges related to interest and taxes, but it didn't say if it anticipates a net profit in the fourth quarter. Wall Street expects GM to report earnings of 47 cents a share on revenue of $34 billion.

After fellow automaker Ford Motor (F) missed analysts' fourth-quarter estimates last month, investors have been concerned that GM may disappoint, too. That may send its shares, which have traded in a narrow range since rejoining the stock market last fall, tumbling.

Growth and Challenges

GM ended Tuesday's trading down about 2% to $35.77 a share, as stocks on Wall Street lost ground overall on worries of higher oil prices and civil unrest in oil-rich Libya.

Growth prospects for GM are strongest in China, where it sold more cars last year than it did in the U.S., and in its U.S. truck operations, according to Trefis. The equity-forecasting firm has set a price target of $45 a share on GM stock, which is about 25% higher than its current share price.

Still, GM still faces challenges in streamlining its European Opel and Vauxhall operations to bring them back into profitability. To that end, the company is seeking to reduce plant capacity and labor costs, cut jobs and increase efficiency.


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