General Motors (GM) Rallies on Record Profit of $7.6 Billion

Shares of General Motors (GM: Charts, News), the formerly bankrupt auto giant, posted its biggest profit ever last Thursday. The company, which went public over a year ago after a controversial government bailout, posted fourth quarter earnings of 39 cents per share on revenue of $38 billion.

Although General Motors missed earnings estimates of 42 cents per share, it matched revenue expectations. Shares rallied strongly throughout Thursday, rising as much as 9% during intraday trading, and continued to rise on Friday. Daily Chart
Investors shrugged off an expected year-on-year decline in earnings, which dropped from 52 cents per share in the prior year quarter, instead focusing on strong year-end results. For fiscal 2011, General Motors earned $7.6 billion - a 62% gain over the $4.7 billion it earned the previous year - which also eclipsed its previous record of $6.7 billion, which was set in 1997. For its strong annual numbers, the company rewarded 47,500 blue-collar employees with profit-sharing checks for as much as $7,000, granted under a newly negotiated union contract. In the fourth quarter, General Motors' North American segment led all others, posting earnings of $1.5 billion on revenue of $23.1 billion - an increase of 87.5% and 5%, respectively. Meanwhile, its International Operations, which include Asia but exclude Europe and South America, reported earnings of $0.4 billion on revenue of $7 billion - an increase of 33% and 22% respectively. The company's South American segment posted a loss of $0.2 billion, a 6% decrease, on revenue of $4.2 billion - a 6% drop. Its European segment fared the worst, posting a loss of $0.6 billion, which was flat from the prior year quarter, on revenue of $6.3 billion - a 9% decrease. For the entire year, the company's best performing segment was its home turf, North America, which earned $1.9 billion. Meanwhile, its International Operations segment earned $1.9 billion. As expected, European losses, exacerbated by the ongoing Eurozone debt crisis, dragged on GM's bottom line. Opel, GM's troubled European unit, posted a loss of $747 million for the year, which was actually a $1.3 billion improvement over the previous year's losses. GM has been unprofitable in Europe for 12 straight years. GM had originally planned to break even in Europe this year, but abandoned those goals when the Eurozone crisis worsened. The company sees its global share holding steady at 11.9%, despite the return of Japanese automakers that had been sidelined for the majority of 2011 by the disastrous floods in Thailand. If the auto industry shows further signs of life, as many analysts anticipate, GM's market share could increase, since the company was able to earn a record profit in 2011 with auto sales in the United States at a historical low of 12.8 million units sold. Optimistic analysts believe that the figure could conservatively rise to 14 million in 2012, barring any unforeseen economic crises down the road. However, all automakers are likely to see their margins squeezed in 2012, due to the rising cost of raw materials and consumer focus on smaller, less-expensive vehicles. GM bucked the trend and predicted that its overall costs wouldn't significantly rise, a view that contradicts its industry peers. GM trimmed costs by $500 million during the fourth quarter by consolidating advertising agencies and engineering operations. GM also ended its traditional pension plans for white-collar employees and hinted at further cost-cutting measures in 2012, which CEO Dan Akerson claims will create a "fortress balance sheet". Despite General Motors' newly streamlined management and strong profitability, the company's $49.5 billion rescue - paid for by American taxpayers - remains a divisive issue. The government still owns 500 million shares of GM, on which it is still taking a paper loss. Shares must climb to $53 per share for the government to break even on its initial investment. From a technical perspective, GM is currently undervalued, trading at 5.8 times forward earnings with a 5-year PEG ratio of 0.47. Other News About GM General Motors posts record profit of $7.6B General Motors posts its biggest annual profit ever. GM Misses, Yearly Profits Up Despite missing estimates, shares rally strongly. Other Stocks in the News A Hidden Reason Walt Disney's Earnings Are Outstanding Should Disney be a core holding in your long-term portfolio? Is Hewlett-Packard a Cash King? Can HP bounce back despite current woes? Copyright 2011 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. 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Published on Feb 21, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2016. Content published with author's permission.

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