GM's Dismal Profit May Spur Analysts to Cut 2014 Forecast
By Ben Klayman
and Deepa Seetharaman
DETROIT -- General Motors reported a disappointing fourth-quarter profit Thursday, hurt by weaker-than-expected results in Asia and South America that may prompt analysts to ratchet down their profit forecasts for 2014 for the No. 1 U.S. automaker.
The poor showing triggered an early drop in GM's (GM) stock price by as much as 2.5 percent, before it recovered to gain 0.2 percent to $35.31 in afternoon trading.
It was the first quarterly earnings report for GM's new management team led by Chief Executive Officer Mary Barra, the 52-year-old electrical engineer and GM "lifer" who became the industry's first female CEO last month.
"We have more work to do and our sense of urgency won't let up one bit," Barra said on a conference call.
Excluding one-time charges, GM earned 67 cents a share, 21 cents less than expected by analysts surveyed by Thomson Reuters I/B/E/S.
The fourth quarter was bogged down by $200 million in one-time charges stemming partly from the Chevrolet brand's exit from Europe and a plan to stop manufacturing cars in Australia. %VIRTUAL-article-sponsoredlinks%GM has said it will spend another $1.1 billion in 2014 to restructure operations in Europe and South America.
Citi (C) analyst Itay Michaeli said the fourth quarter was disappointing, but GM's projection for a modest profit increase this year remained unchanged from its update to investors in January.
"I don't think the story will change much despite what seems to be a disappointing finish to 2013 because the regions that are hurting the most are now the very regions where GM is actually restructuring aggressively," he said.
Nevertheless, Michaeli and other analysts said Wall Street's consensus estimate for GM's 2014 profit -- currently at $4.16 a share -- will likely be revised lower after the weak fourth quarter. Morgan Stanley analyst Adam Jonas said the downward revision could be as much as 10 percent.
GM executives Thursday also cited pressures in regions outside its core North American market.
Chief Financial Officer Chuck Stevens said the largest U.S. automaker faces increased competition in China, but aims to offset pricing pressures there with new models and maintain 9 percent profit margins.
The international regions outside China also remained under pressure, he said. These included countries in Southeast Asia, the Middle East, India and Australia.
Stevens warned that the South American market had significantly deteriorated in recent weeks, but did not change the company's outlook for a higher profit there this year.
Executives said GM should see the benefits of its restructuring efforts starting next year and North American margins would rise over the next couple of years.
Barra said she saw opportunities to build GM's brands, to grow in China and to better control costs.
RBC Capital Markets analyst Joseph Spak said in a research note that GM's strength in North America, where it has been able to raise prices, "should really shine through" in the second quarter, a period he called "make or break" for the Detroit company.
Stevens attributed the earnings miss to analysts not fully accounting for restructuring relating to plans to close a plant in Bochum, Germany, later in the year, as well as a higher-than-expected tax rate.
"Our view is that the sell-side consensus didn't comprehend that restructuring," he told reporters. "The final announcement associated with that wasn't done until early December. Due to that, we needed to book some of the restructuring costs, primarily related to the severance portion of that program."
Net income rose to $913 million, or 57 cents a share, from $892 million, or 54 cents a share, in the year-earlier quarter. The operating profit rose 58 percent to $1.9 billion.
Revenue in the quarter rose 3 percent to $40.5 billion, below the $41.08 billion expected by analysts.
GM's North American operating profit was $1.88 billion, up from $1.14 billion a year earlier, but short of the $2.04 billion expected by analysts surveyed by Reuters.
The increased profit was driven by stronger pricing for its redesigned full-size pickup trucks, the Chevrolet Silverado and GMC Sierra. Pricing accounted for a $1.2 billion gain in the quarter, but costs of $500 million were higher than Citi's Michaeli had expected.
Buckingham Research analyst Joseph Amaturo said the negative catalysts for the stock were already priced in and investors should "aggressively buy" on any declines because the redesigned pickups will boost profits significantly in the second half of 2014 and all of 2015.
Weakness In South America
The company's international operations, which includes China, earned $208 million, down from $676 million a year earlier, as businesses outside China accounted for a loss of $200 million. Analysts had expected a profit of $310 million.
However, Michaeli was concerned about weakening even in China, the world's largest automotive market, as profit margins fell to 7.6 percent from 9.4 percent in the third quarter.
South American profit of $27 million fell far short of the $151 million analysts had expected.
"The risk profile of South America has increased significantly over the last several weeks," Stevens said. "The devaluation of the peso in Argentina and fundamentally the economy is shut down in Venezuela, so that's going to be an area that we're going to have to manage through."
Losses in Europe, meanwhile, shrank by more than half to $345 million, smaller than the $399 million loss analysts had expected. Stevens stood by the company's target to break even in the region financially by mid-decade.
Still, Stifel analyst James Albertine said in a research note that GM's overhaul of Europe may be more time-consuming, expensive and risky than the company is signaling.
For the full year, GM reported a net profit of almost $3.8 billion, down from almost $4.9 billion in 2012. Sales rose 2 percent to $155.4 billion.
GM ended the year with $38.3 billion in total automotive liquidity, up $1 billion from the end of the third quarter.
The automaker ended 2013 with its $71.5 billion U.S. defined benefit pension plan about 90 percent funded. The U.S. plans ended the year underfunded by $7.3 billion, down by almost half from $14 billion at the end of 2012.