GM earns $945 million in 1Q, up sharply from year ago
General Motors Co. Thursday reported net income up sharply in the first quarter, but higher taxes, currency costs with a strong U.S. dollar and economic weakness in Russia and Brazil led the company to miss Wall Street expectations.
GM was led by gains in North America, where the automaker posted its best first quarter since emerging from bankruptcy as a new company in 2009, but its loss in South America grew in the quarter and China joint venture income was dinged with product launches and changeovers.
While GM's $945 million net income in the first quarter was significantly greater than a year ago when the company was hammered by $1.3 billion in recall costs, net revenue fell by $1.7 billion and shareholders pushed GM stock down 3.3 percent Thursday to close at $35.92 a share.
"This probably wasn't the quarter GM bulls were hoping for," Brian A. Johnson, a Barclays Capital Inc. analyst wrote in a note to investors. "Nevertheless, we think the result wasn't as bad as it looks — we think North America results sufficiently cleared the bar, the full-year outlook was maintained and the soft international results were more than understandable."
GM gained big ground in North America and before interest and taxes made $2.2 billion there, up from $557 million a year ago. Its North American profit margin improved for the seventh straight quarter and GM Chief Financial Officer Chuck Stevens said GM is on its way to 10 percent margins, a goal it has for next year.
Sales of high-profit large SUVs and trucks were aided by low gas prices and helped results in North America. GM's overall U.S. sales were up 5.3 percent in the January-March period. The company has seen higher sales prices, including a 12.9 percent gain from the first-quarter 2014 in transaction prices for its Cadillac brand, topping $55,500 a vehicle in the quarter, according to data compiled by Kelley Blue Book.
"Clearly low fuel prices and the strength of full-size pickups, full size SUVs and crossovers generally, are helping General Motors and the industry," Stevens said.
GM on Thursday reaffirmed plans for full-year profit improvement over 2014 results and improvement before interest and taxes in each region this year.
"It was a very solid performance," GM CEO Mary Barra told analysts in a call. "It was in line with our expectations and we are on track to achieve our 2015 commitments."
But the company faces some challenges internationally. GM South America lost $214 million before interest and taxes, worse than the $156 million loss a year ago.
Stevens said South America, particularly Brazil, deteriorated even more than GM had predicted as recently as January. He said there was a "political crisis" in Brazil, where industry sales are down about 20 percent year-over-year. He said GM has launched a "significant salaried headcount reduction " and will reduce shifts in the country to help it generate $200 million in annual costs savings going forward.
"We're going to get out and stay out in front of this," he said, adding he expects South America to again be profitable for GM in the second half of the year.
The company improved its performance in Europe, posting a $239 million loss before interest and taxes, less than its $284 million loss in the 2014 . The company hopes to be profitable in Europe next year and Stevens said that by mitigating exposure in Russia, it is "on plan for 2016."
The company said special items in the quarter included $428 million related to its March decision to cease production in Russia and stop selling Opel and most Chevys there and an adjustment to increase the amount GM expects to pay for its ignition switch compensation program by $150 million.
That means the automaker now expects to spend $550 million to $600 million on payments to families of people who died or were injured by the ignition switch defect, Stevens told reporters. To date, 87 deaths have been approved by Kenneth Feinberg, compensation fund administrator. The automaker previously said it would spend $400 million to $600 million on the program.
Stevens said he expects the program will wrap up around the third quarter and GM would make a final adjustment to its cost. Through April 17, GM has paid out $208 million under the compensation program.
GM also said it repurchased 19.4 million shares through April 21, including 10 million shares costing about $375 million in the first quarter, as part of a stock repurchase program it announced in March. It plans to buy back $5 billion worth of stock by the end of next year.
The Detroit automaker earned 56 cents a share in the first quarter and when factoring in special items that cost $547 million, or 30 cents a share, it earned 86 cents a share. That missed analyst estimates of 97 cents a share; the company blamed the miss on foreign currency issues and weaker performance in countries such as Brazil. GM earned 6 cents a share a year ago, or 29 cents when factoring in special items.
Stevens said GM likely will have an additional $100 million in special charges in its Russian restructuring this year.
The automaker said Thursday that 50 state attorneys general are now investigating the company for the ignition switch recall, up from 49 previously. It also noted it recovered $32 million from insurance related to the flooding at the Tech Center in Warren in August. The company previously had said flooding there cost it $132 million.