General Motors (GM) Soars as South America Returns to Profitability
Shares of General Motors (GM: Charts, News), the second largest automaker in the world, surged over 9% yesterday after the company posted its third quarter earnings, which soundly beat analyst expectations. The Detroit, Michigan-based company, which returned to the market in November 2010 after a controversial government bailout, posted third quarter earnings of $1.48 billion, or 89 cents per share, on revenue of $37.6 billion.
Excluding one-time charges, GM earned 93 cents per share, topping Wall Street's forecast of 60 cents on the same basis. Analysts expected revenue of $36 billion. Earnings per share declined 14% from the prior year quarter, but revenue rose 2.5%. The decline was expected, due to weakness in Europe, but strong numbers from South America unexpectedly offset those losses. Daily Chart
GM posted a $478 million loss in Europe, down from a $292 million loss in the prior year quarter. Meanwhile, GM's North American profit slid 17% to $1.8 billion due to higher warranty costs and lump sum pension payments, which were partially offset by lower commodity and freight costs. South America was the company's standout region, posting a profit of $114 million, up from a loss of $44 million last year. This return to profitability in the region was attributed to the strength of its new models. Profit from the company's international operations, excluding China, nearly doubled to $689 million. Four of the company's five main business segments are now profitable, with the exception of Europe. GM intends to cut 2,300 jobs in Europe by the end of the year, with an eventual target of 2,600 to reduce costs by approximately $300 million. Additional job reductions will depend on sales in the coming year. Looking forward, GM expects fourth quarter earnings of $1.1 billion, matching last year's results. GM also expects to break even in Europe by the middle of the decade, relying on a slowly recovering macro environment and new models specifically designed for the European market. For Europe, GM is rolling out smaller vehicles, such as the Mokka mini-SUV and Adam mini compact. GM stated that it already has 40,000 orders for the Mokka in Europe. GM expects a full-year loss between $1.5 billion to $1.8 billion in Europe, more than double last year's loss in the region. In America, GM is moving the liability for its salaried pension plan to an annuity managed by The Prudential Insurance Company (PRU
), which will reduce its liability by $29 billion, an improvement from the $26 billion it originally projected. CEO Dan Akerson stated, "GM had a solid quarter." He added that GM was finally "seeing green shoots take hold on tough issues like complexity reduction, pensions and Europe." CFO Dan Ammann noted, "We have to lead with product in order to sustain and grow the top line." GM trades at 6.5 times forward earnings with a 5-year PEG ratio of 0.68. The stock hasn't closed above its IPO price of $33 since early 2011. The U.S. government, which still owns the majority of GM's shares, needs the stock to reach $51 a share to break even on its investment. Other News About GM General Motors 3Q profit falls 14 pct.; stock rises as company beats Wall Street expectations
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Published on Nov 1, 2012
By Leo Sun