Chevrolet Silverado (GM)
General Motors Co.’s improving profit margin in North America, reported in third-quarter earnings of $698 million on Wednesday, bodes well for the automaker’s future financial results.
Wall Street and investors responded favorably Wednesday to GM’s 15th-consecutive quarterly profit. Shares of GM stock rose 3.24 percent to close at $37.23 per share, while the markets overall fell.
While GM’s overall profit fell more than 50 percent year-over-year due to special items, analysts were pleased with the company’s improvements in Europe, South America, China and in North America. There, the automaker made nearly $2.2 billion before earnings and taxes, up 27.5 percent from a year ago. The company’s earnings in the region were buoyed by sales of new vehicles such as its new 2014 pickups.
Margins in North America hit 9.3 percent in the quarter — its highest quarterly margin in two years — and jumped from 7.7 percent year-over-year. The company wants 10 percent-plus margins in North America by mid-decade, getting it closer to margins achieved by rival Ford Motor Co.
“We’re commanding good prices, we’re controlling costs,” Chief Financial Officer Dan Ammann told reporters at the company’s Detroit headquarters Wednesday.
Barclays Capital Inc. analyst Brian A. Johnson said he expects GM’s North American margin will show another solid improvement next quarter. Analysts are expecting GM’s profit to grow next year thanks to a new North American product push, plus expected higher prices on vehicles.
Johnson said a share buyback may come after mid-November.
GM CEO Dan Akerson said the company’s board wants to return money to shareholders, hinting a dividend or share buyback may be on the horizon.
“That will be a continuing thing, not only this quarter, but the next year and the year after,” he said in a call with analysts.
GM also improved its performance in Europe in the third quarter, trimming its loss from $487 million pretax a year ago to $214 million pretax. The carmaker posted its first quarterly revenue increase in Europe in two years — up 3.3 percent — and reduced costs by 400 million year-over-year.
GM has posted losses of $499 million through the first nine months in Europe, compared to $1.18 billion in the same period a year ago. GM executives earlier said they expect losses in Europe for all of 2013 to be slightly less than last year’s $1.9 billion. The carmaker wants to break even in the region by mid-decade.
“Clearly we’re well on track toward that objective,” Ammann told reporters.
GM said it plans to close its Bochum plant in Germany by the end of 2014. That will include “significant restructuring costs,” some of which would begin to show up as early as fourth quarter 2013, Ammann said in a call with analysts. GM, in a regulatory filing Wednesday said it expects $100 million in restructuring costs in Europe in the fourth quarter, as it plans to cut 390 positions.
Taking out $900 million in special items, including $800 million to repurchase 120 million shares of preferred stock from the UAW Retiree Medical Benefits Trust (UAW VEBA), GM slightly beat analyst expectations by earning 96 cents a share. The company’s adjusted earnings before interest and taxes rose to $2.64 billion in the quarter, up $341 million from a year ago.
GM also posted pretax profits in its South America region, GM Financial and its International Operations, though the $299 million pretax profit for International Operations fell by nearly 61 percent from a year ago.
Ammann said business in China is strong and GM earned about $400 million there in the quarter, but the company faces challenges such as increased pricing pressure related to the yen in countries such as Australia and GM’s recent recall in India.
“We do expect to have some ongoing challenges in some of those markets in the quarters ahead, but we’re working to address those and get that business to the level of profitability we’d like to see,” he told reporters.
GM said its South American performance could be hurt in future quarters, particularly in Venezuela.
GM earned 45 cents a share in the third quarter. Total revenue was $39 billion in the quarter, up from $37.6 billion a year ago.
Akerson told analysts the company will continue to monitor the situation with alliance partner PSA Peugeot Citroen and its need to raise additional capital, but said it continues to work toward sharing platforms where it makes sense for both companies. News reports have indicated Chinese company Dongfeng Motor Corp. might take a substantial stake in the French automaker. Dongfeng would be a direct competitor to one of GM’s joint ventures in China.