GM Posts USD1.0-Bil. Revenues for Q1, Marking a Y/Y Decline

General Motors (GM) posted its first-quarter 2012 earnings results yesterday morning (3 May), surpassing Wall Street analysts' expectations with a USD1.0-billion net profit for the period on revenues of USD37.8 billion globally. This compares unfavourably with the massive USD3.2 billion net profit GM posted in the first quarter of 2011 on revenues of USD36.2 billion. GM's earnings before interest, taxes, depreciation, and amortisation (EBITDA) were positive, with the company earning USD2.2 billion in operating income compared with USD2.0 billion on operations during the year-earlier quarter. Net cash flow was dramatically improved, up by USD2.2 billion from operating activities to come in at 300 million in total from all automotive activities. "The US economic recovery, record demand for GM vehicles in China and the global growth of the Chevrolet brand helped deliver solid earnings for General Motors," said Dan Akerson, chairman and CEO. "New products are starting to make a difference in South America, but 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."

On a regional basis, GM's results were mixed. It recorded the strongest performances in its North America (GMNA) and International Operations (GMIO) divisions. GMNA posted earnings before interest and taxes (EBIT) of USD1.7 billion for the quarter, an improvement of USD400 million, on improved revenues of USD24.2 billion. GMIO fared somewhat worse, with its EBIT dropping from USD600 million in the first quarter of 2011 to USD500 million in the first three months of 2012, on revenues that were up almost USD800 million to USD6.1 billion for the quarter. The big trouble spot however is General Motors Europe (GME), which switched from break-even in the first quarter of 2011 to an adjusted EBIT loss of USD500 million in the most recent quarter. GM South America (GMSA), which is again a separate organisation from GMIO, reported an EBIT of USD100 million, pretty much exactly where it was for the first quarter of 2011. The company reported that cash flow from automotive operating activities was up, posting a positive USD2.3 billion from operating activities, and automotive free cash flow was a positive USD300 million. Overall liquidity however was very strong, at USD37.3 billion at the end of the quarter.

Outlook and Implications

Two factors affected GM greater than any other during the period. First was the change in the special items, the one time fees and charges that the company books for the first quarter. In 2011, they were net positive, adding USD1.5 billion to GM's adjusted EBIT at the end of the quarter, and included things like gains from the sale of GM's interest in supplier Delphi and of preferred stock in financier Ally Financial. For 2012 however, those special items took a USD600 million bite out of the final net income, and had entirely to do with goodwill impairment charges from GM Europe and GMIO. While the shift in special charges helped to diminish GM earnings, the bigger concern is the condition of the company's European business. CEO Dan Akerson has now called the situation a "four-alarm fire", and further extensive restructuring is expected, despite the serious turnover of GME management not six months ago. Addressing the company's ability to close plants, management was largely mum, identifying it as something that is desired but acknowledging that the environment is very different in Europe than it was when it accomplished its restructuring in the United States in 2009. Buyouts may be a possibility, as admitted to by Karl-Friedrich Stracke, the head of the Opel unit, during a conference call. "All of this is in discussion, it's a whole package. It is too early to speculate," he said.

In Asia and North America, the two biggest and arguably most important regions, GM is doing decently well. The company expects new model launches in the second and third quarters to help boost and maintain its profits and market share for the period, forecasting similar performances as in the first quarter. "We are aggressively eliminating complexity to reduce our costs, and at that same time, we are preparing for more than 20 major vehicle launches around the world in 2012 to drive revenue this year and farther into the future," said Dan Ammann, senior vice president and chief financial officer, in a statement by the company. For Asia, performance in the first quarter was hampered by higher costs, largely associated with the launch of the Baojun brand throughout the continent. That launch however also boosted volume considerably, with the company selling a record 745,000 vehicles in the Chinese market for the first quarter, easily making China the most voluminous region in which GM operates. GM expects the Asia-Pacific region to also start to pick up in the second and third quarters, offsetting anticipated ongoing disappointing results in the European theatre. The company is likely to make serious efforts to restructure the European business, reduce capacity, cost, and personnel, and come up with creative ways to address the struggling operations while the market is in a corrective phase.