GM Profits Soar, Stock Jumps
By Michael Ellis
Tuesday April 16, 4:14 pm Eastern Time
DETROIT (Reuters) - General Motors Corp. on Tuesday said first-quarter profits soared before one-time charges, on strong results in the key North American market, and the No. 1 automaker raised its forecasts for full-year earnings and production.
The news was greeted enthusiastically on Wall Street, where GM (NYSE:GM - news) shares closed up $2.95, or nearly 5 percent, at $64.05 on the New York Stock Exchange, their highest level since last July.
GM's first-quarter net earnings fell slightly due to a $407 million charge for job cuts and asset write-downs in Europe. But investors focused on a jump in earnings before one-time charges, to $645 million from $225 million a year earlier.
``That's a hell of a good number,'' said analyst David Bradley of J.P. Morgan Chase ``They're doing very, very well market share-wise in trucks. They make high margins on trucks, and the more they make, the more the company makes.''
Shares of rivals Ford (NYSE:F - news) and DaimlerChrysler AG (NYSE:DCX - news; DCXGn.DE) rallied in tandem with GM. Ford ended up 80 cents or 5.3 percent at $15.86, while DaimlerChrysler jumped $2.62 or 5.8 percent at $47.40 on the New York Stock Exchange.
GM, citing strength in the domestic market where the world's largest automaker has been stealing market share in highly profitable trucks from Ford and DaimlerChrysler, raised its U.S. sales forecast and its earnings estimate for the full year.
While overseas operations continued to be a headache, GM's core North American auto operations surged, producing profits of $625 million, up from $120 million previously.
Many of GM's North American vehicle assembly plants ran overtime during the quarter, with production surging by 11 percent from a year earlier. GM said it expected to ratchet up car and truck production over the rest of the second quarter and the year. Stronger sales of highly-profitable sport utility vehicles, including its new Chevrolet TrailBlazer and GMC Envoy mid-size SUVs, boosted the bottom line in the first quarter.
EARNINGS FORECAST RAISED
Based on the strong U.S. market, GM said it expects to earn about $4.60 per share this year, including losses of about 40 cents per share from its Hughes Electronics Corp. (NYSE:GMH - news) unit. In March it forecast 2002 earnings of $3.10 per share.
GM Chief Financial Officer John Devine suggested that GM could beat its revised 2002 earnings target. He added that the target puts GM well on its way toward its mid-decade earnings goal of $10 per share, excluding Hughes.
``If you do the arithmetic, you could obviously justify higher ... but it's very early in the year,'' Devine told reporters and analysts in a conference call. ``Obviously, we have a lot more work to do to get to that $10 number and then sustain it.''
GM said it expects second-quarter earnings of $1.90 per share, including a loss of about 10 cents for Hughes.
Wall Street analysts' forecasts for the full year, including Hughes, range from $2.97 to $5 per share, with a consensus estimate of $4.17, according to Thomson Financial/First Call. GM earned $3.23 per share in 2001.
For the second quarter, analysts' estimates range from $1 to $2.30 per share, with a consensus of $1.59, according to First Call. GM earned $1.26 a share in the second quarter last year.
GM raised the forecast for its North American car and truck production this year to 5.4 million vehicles, up 6 percent from 2001. It previously forecast output of 5.1 million vehicles.
The automaker said it expects U.S. vehicle sales across the industry to total 16.5 million this year, up from its previous forecast of more than 16 million. At the beginning of the year, many analysts had expected sales of less than 16 million cars and trucks in 2002, but a price war has vehicles at their most affordable levels in decades.
EUROPEAN PROBLEM CHILD
Partly offsetting the strength in the U.S. market, GM's European automotive operations lost $125 million in the first quarter, even before the restructuring charge, compared with a year-earlier loss of $86 million.
GM's Adam Opel brand, based in Germany, has been losing market share to competitors and has been hit by slow sales in its home market. Under its ``Project Olympia'' restructuring, which includes cutting thousands of jobs, reducing production capacity and halving the number of dealerships, Opel aims to return to profitability next year.
``They don't seem to have their act together overseas,'' Bradley said. ``International is a mess.''
GM's combined Latin America/Middle East/Africa operations lost $40 million during the first quarter, compared with a profit of $6 million a year earlier. The devaluation of the Argentine currency cost the company $20 million.
HUGHES CHARGES
In addition to the charge for restructuring European operations, GM also took a first-quarter charge of $10 million from Hughes.
Excluding those charges, GM earned $1.29 per share in the quarter, up from 50 cents a year earlier. Analysts' estimates had ranged from $1 to $1.30 per share, with a consensus forecast of $1.14, according to research firm Thomson Financial/First Call.
Including one-time items and the Hughes losses, GM's net earnings fell to $228 million from $237 million a year earlier. Earnings per share were 57 cents, up from 53 cents a year earlier.
First-quarter revenues rose to $46.29 billion from $42.62 billion a year earlier including Hughes, and to $44.25 billion from $40.71 billion excluding Hughes.
GM said its cash levels climbed to $17.3 billion at the end of March from $11.5 billion at the end of December. After the quarter ended, GM contributed $2.2 billion to its pension plan for U.S. hourly workers, which was underfunded by about $8 billion at the end of 2001. Devine said GM hopes to contribute up to $10 billion to the plan this year. |
