General Motors reported a $1.0 billion profit, equal to 60 cents a share, for the first quarter, handily beating analysts’ expectations – but the numbers would have been substantially better were it not for the maker’s continuing problems in Europe.
Once forecast to be back in the black this year, GM Europe lost $256 million for the January to March quarter, with GM taking another $590 million writedown in what is now likely to become the subsidiary’s 12th consecutive year of losses.
But those losses were offset by unexpectedly strong numbers from the maker’s home operations in North America, where GM earnings rose 35%, to $1.7 billion.
“It’s a long-term path that we’re on to get to the profitability levels that we want,” Dan Ammann, GM’s chief financial officer, said during a conference call with reporters. “This is a solid quarter: revenue growth, profit growth, margin growth, cash flow improvement.”
GM’s first-quarter 2012 earnings were down sharply from the $3.2 billion profit it posted a year earlier. But the 2011 figures included a $1.6 billion one-time special gain related to the sale of a stake in mega-supplier Delphi. Removing that and other special items, the maker earned $1.7 billion between January and March 2011.
But on an operating basis, GM’s profit before interest and taxes actually rose this year by 10%, to $2.2 billion. And revenues rose $1.6 billion, or about 4%, to $37.8 billion.
Much of that can be credited to the recovery in the U.S., where GM seen a sharp jump in demand – despite the modest decline in April largely due to a decision to trim back fleet sales. The average transaction price, or ATP, on GM products has been rising even as the maker has reduced the incentives it has long relied on to spur demand. According to data from TrueCar.com, the average GM vehicle sold in the U.S. went for $33,131 during the latest quarter, a 5.3% year-over-year jump, while incentives declined 11.4%, to $3,161 per vehicle.
“Despite the market share decline in the US, gains in China and improvements in transaction prices are likely to contribute to another profitable quarter but there’s still room for improvement, especially in further enhancing their product line up,” said TrueCar analyst Jesse Toprak.
The maker also saw a return to profitability in its large South American operations, benefiting from a new product campaign that has brought nine new models to the region.
Things were a little tougher in China, which experienced an unexpected slowdown during the first quarter. That helped nudge the numbers for GM’s International Operations down 9.7%, to $529 million.
But the killer was Europe. As recently as a year ago, GM had hoped to reach breakeven by the end of 2011 and push back into the last in 2012. Instead, the region, dominated by the lackluster Opel brand, continues to flounder. For those who think the glass is half full, Europe lost less than it did in the fourth quarter, but the latest $256 million loss compared with a slight $5 million gain in the first quarter of 2011.
“Europe remains a work in progress. We’ll continue to work on both revenue and cost opportunities until we have brought GM to competitive levels of profitability,” said GM CEO Dan Akerson.
Most of the senior management team in Europe retired or were reassigned late last year. The maker has reassigned some of its most promising new managers to step in and come up with a revised rescue effort, including Susan Docherty, who had been handling International Operations out of China, and Vice Chairman Steve Girsky.
Part of their strategy is an alliance with French automaker PSA Peugeot Citroen. The alliance will see the two makers consolidate purchasing, work together on the development of some new products and share powertrains and other key components – all told with the goal of shaving billions of dollars in costs over the next five years. As part of the deal, GM has taken a 7% stake in its erstwhile French rival.
A turnaround in Europe – and a resumption of strong earnings from China – will be critical to driving up GM’s margins, which slipped to 5.8% for the latest quarter, well below the 10% or better CEO Akerson is targeting.
Still, the first-quarter results mark the ninth consecutive quarter in the black for a maker that went into bankruptcy three years ago after running up $82 billion in losses in the four years leading up to its filing for Chapter 11 protection.
It remains to be seen how investors will react to the latest news, but based on the expectation of further losses in Europe GM shares slipped 1.6%, to close at $22.93 yesterday. That compares with the $33 price of the maker’s November 2010 IPO – and the roughly $59 a share GM will need to get for the U.S. Treasury to break even on the roughly 25% of the automaker’s stock it still owns as a result of the 2009 bailout.
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