General Motors (GM) reported a weaker-than-expected fourth quarter profit on Thursday, citing wider losses in Europe and lower vehicle prices plus higher costs in its core North American market.
The largest US automaker also made an accounting change in the quarter, intended to signal confidence that it will continue to be profitable in coming years. However, the move resulted in a $26 billion charge for the quarter.
"An entrenched GM investor may see no need to sell, while a prospective investor may see no need to rush in," Morgan Stanley analyst Adam Jonas said in a research note.
GM went public in the autumn of 2010, after its 2009 bankruptcy restructuring and $50 billion US taxpayer bailout.
Several analysts said GM's $699 million operating loss in Europe in the quarter was wider than they had expected.
Conditions in the region will be challenging for another few years, said Edward Jones analyst Christian Mayes, who has rated the stock as 'hold'.
"They're moving in the right direction, but it's difficult over there to move fast because it's so challenging to shut down plants," said Mr Mayes.
GM posted a profit of 48 cents per share before one-time items, 3 cents shy of the analysts' average estimate, according to Thomson Reuters I/B/E/S.
Operating losses in Europe last year more than doubled to $1.8 billion, reflecting rapid deteriorating vehicle demand and weak economic conditions there. It was the 13th straight year of losses in Europe.
"Europe was a little lighter, although I don't think people are going to really punish the stock for a few pennies' miss in Europe, just because we're probably at or near the bottom of that cycle," said Jefferies analyst Peter Nesvold, who rates GM shares at "hold."
CFO Dan Ammann said GM still expects industry sales in Europe to decline in 2013 and is "not betting on" a pickup later in the year, but chief executive Dan Akerson reiterated the company's goal of breaking even in the region by mid-decade.
"It's not like we're just hoping for the best," he said about Europe on a conference call, adding, "We have certain levers that we can pull.
"We're going to be smart about how we cut costs. It isn't just 'close plants.' We're trying to play offense," he further said.
Mr Akerson pointed to the new Opel Mokka SUV and Adam minicar in Europe, where GM has said it will introduce 23 new vehicles between 2012 and 2016.
Barclays analyst Brian Johnson said in a research note that "investors should take some comfort," as GM Europe will show a $600 million drop in depreciation and amortization expenses due to a write-down of assets. As a result, he now expects GM Europe's loss this year to be closer to a range of $1.1 billion to $1.2 billion, instead of the $1.4 billion he previously anticipated.
Lower pricing at home
During the fourth quarter, costs rose by $400 million in North America, GM's most profitable region. But combined vehicle pricing fell by $300 million there as the company offered incentives to cut through its inventory of trucks on dealer lots ahead of its introduction of redesigned versions this year.
It was the first drop in North American pricing for GM since the first quarter of 2011.
Mr Nesvold said the weaker Japanese yen and the deteriorating European market would probably lead to more competitive pricing in North America.
That would continue the trend seen in the fourth quarter, when GM lost one percentage point of US market share despite raising its incentives slightly, according to research firm TrueCar.com.
GM's revenue in the fourth quarter rose 3 per cent to $39.3 billion, above the $39.15 billion analysts had expected.
Net income at the Detroit company almost doubled to $892 million, or 54 cents a share, from $472 million, or 28 cents a share, a year earlier.
Operating profit fell 6.8 per cent to almost $1.4 billion in North America, but jumped almost 27 per cent to $473 million at the international operations unit, which is dominated by China, where GM is a market leader. South America swung to a $99 million profit from a year-earlier loss of $225 million.
The quarterly results included a $34.9 billion reversal of a valuation allowance on US and Canadian deferred tax assets. The move, which rival Ford Motor Co made in late 2011, reflects confidence in GM's ability to generate taxable income in those markets.
GM took a non-cash goodwill asset impairment charge of $26.2 billion related to the valuation allowance, wrote down $5.2 billion worth of assets in Europe, and took a charge of $2.2 billion for its action last summer to cut its U.S. salaried pension obligation.
The company also wrote down $220 million, or about half, of its investment in French alliance partner PSA Peugeot Citroen. GM, which paid $423 million for its 7 per cent stake in Peugeot, warned last August that it might take such an action due to the deepening fiscal crisis in Europe.
Mr Ammann said on Thursday that GM had no plans to put more cash into Peugeot, with which Akerson said the company has a good relationship.
GM did not change its 2013 outlook from last month, when it forecast its operating profit to rise modestly.
For the first quarter, her said GM expects to take a $200 million charge for the devaluation of the Venezuelan currency. He also said the company has no plans to contribute to its US pension plans this year.
Mr Akerson also said the company would probably not fill its vacant global marketing chief position. Instead, it will have global heads for each brand.
GM would like to boost the number of plants in North America operating on three shifts to increase output and reduce structural costs, a strategy it is following globally, said Chuck Stevens, CFO for the region. Eight of GM's 19 plants there currently operate a third shift.
GM also is targeting a full-size pickup truck market share in the United States of 36 per cent to 38 per cent this year, Stevens said. That would be up from 36 per cent last year.
Mr Ammann told reporters in a later conference call that GM had completed the repurchase of a 1 per cent stake in its joint venture with its top Chinese partner SAIC Motor Corp. He said the Chinese government approved the purchase last year.
The deal restored GM's stake in Shanghai GM to 50 per cent. However, SAIC retains a 51 per cent share in the sales side of the business. In the run-up to its 2009 bankruptcy filing, GM sold the 1 per cent share to SAIC for $85 million.
For all of 2012, GM earned $4.9 billion, down from a record $7.6 billion in 2011 due to higher tax rates and weakness in Europe. The results in 2011 included $1.2 billion in gains from asset sales, while 2012 had $500 million in unfavorable items.
Copyright @ Thomson Reuters 2013