GM Releases Delayed Earnings Report

[Dragon]

http://money.cnn.com/2007/03/14/news/compa...dex.htm?cnn=yes

NEW YORK (CNNMoney.com) -- General Motors reversed a year-earlier loss to post a profit Wednesday, but it badly missed Wall Street forecasts, as a big improvement at its core North American auto operations was partly offset by a rising problem with subprime mortgage lending by its finance unit.

Kevin Tynan, auto analyst with Argus Research, said auto earnings were a bit better than he had expected, but that the worries about subprime mortgages could weigh on shares Wednesday.

Shares of Dow component GM (Charts) lost nearly 2 percent in pre-market trading.

"It's almost like, 'Now what?' We're starting to get automotive together, and we have to deal with problems in what has been the cornerstone of earnings going back for years," Tynan said.

The world's No. 1 automaker posted net income of $950 million, or $1.68, but that was helped by the sale of 51 percent of its GMAC finance arm during the period.

Excluding special items, earnings came in at $180 million, or 32 cents a share, a big improvement from the loss of $936 million, or $1.66 per share, on that basis a year earlier, but well below the $1.19 a share that analysts surveyed by earnings tracker First Call had been forecasting.

The company's North American auto operations nearly broke even in the fourth quarter, reporting a net loss of $14 million versus an adjusted loss of $1.4 billion a year earlier.

The company also posted a narrow loss of $8 million on its European auto operations, compared to a $5 million profit a year earlier. But earnings from Latin America, Africa and the Middle East more than doubled to $128 million, and earnings from the Asia Pacific region was little changed at $122 million.

That allowed the company's overall auto operations to post income excluding items of $228 million, compared to a loss of $1.2 billion on that basis a year earlier.

Sales from autos posted an unexpected gain, coming in at $44 billion, up from $42.9 billion a year earlier. First Call's forecast was for that revenue to slip to $41.5 billion. Overall revenue came in at $51.2 billion, including two months of revenue at GMAC before the sale closed.

The company was forced to give $1 billion to its GMAC unit, of which it still owns 49 percent, to restore its adjusted tangible equity balance agreed upon before the Nov. 30 sale, due to a downturn in the market for subprime mortgages.

Units of GMAC were the nation's No. 12 subprime mortgage lender in 2006, according to industry trade group Inside B&C Lending, with originations to those more risky borrowers of $21.2 billion in 2006.

GM's earnings report had been delayed by the accounting related to the GMAC sale, as well as by the need to restate results going back to 2002 due to changes in accounting for some of its hedging activity. The restatements resulted in better than previously reported results in some period, worse in others, working out to a $29 million reduction in earnings over the nearly five-year period.

While GM has struggled with market share losses to Asian competitors like Toyota Motor (Charts) and Honda Motor (Charts), it has made more progress in stemming losses in its North American auto plants than have rivals Ford Motor (Charts) and DaimlerChrysler (Charts) unit Chrysler Group.

Edited March 14, 2007 by Dragon

[Drew Dowdell]

So... a profitable.... but not as profitable as we had hoped GM is still a downer.

What'd they lose two years ago... 10 billion?

[Windy-57]

It was actually last year that they lost $10.6B. But that's really not a fair comparison becuase that included the buyouts (special downer) and this year includes the GMAC sale (special upper).

Still, what they don't seem to realize is that it's amazing to have that kind of performance given that 2006 was rife with new product investment and that, for the most part, the new product hasn't arrived yet. The new pickups didn't start selling until late in the year, same for the Lambdas, and the new Malibu is going to add some serious coin in 2007.

Let them be disappointed. I'll wait for the stock price to drop to $28 and buy as much as I can. Then watch that price double in 2007 and 2008.

[vrazzhledazzle]

I read somewhere that they expected a $2.5 billion profit..that was exaggerated - or maybe it was the estimate for 2007.

[I hope GMRULES again]

I read somewhere that they expected a $2.5 billion profit..that was exaggerated - or maybe it was the estimate for 2007.

The 2.5 billion number was in the Newsweek article from last week, probably was what they were expecting before special charges.

[bowtie_dude]

Profitability is good, even if its less than expected and not in the billions. This just means that whatever GM is doing is turning around their financial situation.

[vrazzhledazzle]

Hmm...so why does a Motor Trend blog headline say "GM reports $2 billion dollar loss"?

[gmcbob]

Hmm...so why does a Motor Trend blog headline say "GM reports $2 billion dollar loss"?

That was for the entire year. The only quarter they apparently made a profit in was Q4

[Oracle of Delphi]

Well they made money because they sold off GMAC, not much left to sell off except core business units now.

[vrazzhledazzle]

Well they made money because they sold off GMAC, not much left to sell off except core business units now.

I'm not familiar with GMAC, but wasn't that thing GM's cash cow? I mean they sold it for quick cash...but wasn't that thing making them billions year after year.

[Oracle of Delphi]

I'm not familiar with GMAC, but wasn't that thing GM's cash cow? I mean they sold it for quick cash...but wasn't that thing making them billions year after year.

Yes, so was EDS, GM Hughes, Delphi, Detroit Diesel, etc, at the time they sold them off too. GM has sold off 51% of GMAC so it's just a matter of time before it all goes. So some decisions were good, some were bad, as EDS stock and Delphi tanked almost as soon as GM cut them loose.

Edited March 15, 2007 by Pontiac-Custom-S

[VenSeattle]

Yes, so was EDS, GM Hughes, Delphi, Detroit Diesel, etc, at the time they sold them off too. GM has sold off 51% of GMAC so it's just a matter of time before it all goes. So some decisions were good, some were bad, as EDS stock and Delphi tanked almost as soon as GM cut them loose.

EDS didn't... and EDS' eventual financial problems (EDS's stock almost hit $72 a share before it started declining in 2001 thru 2002) had nothing to do with GM. It had to do with Shoddy contracts, poor vision by a new CEO, and poor upper management.

But actually (not to target any type of attack), I'm looking forward to Evok's response to this. He's been waiting for this and he's probably buried deep in GM's earnings report right now.

[Oracle of Delphi]

Every

Day

Sucks

[VenSeattle]

Every

Day

Sucks

It didn't until Dick Brown took over... 3+ years after EDS was split off from GM. He nearly destroyed the company. EDS appears to be stable (or stabilizing) once again. Still too soon to really tell. At the moment, I wouldn't work for EDS again. They need to address some more issues before I would consider it.

[Drew Dowdell]

I'm not familiar with GMAC, but wasn't that thing GM's cash cow? I mean they sold it for quick cash...but wasn't that thing making them billions year after year.

GMAC, along with the rest of the mortgage industry, is going to be in deep $h! later this year. Since December 06, 27 mortgage companies have gone bust. GMAC won't be the goose that lays the golden eggs for much longer.

[CARBIZ]

Next to lawyers, accountants are my least favorite people. Cook the books? What temperature, sir? There are far too many companies out there getting their knuckles wrapped for shady books. The CEO always shrugs and says,"I didn't understand what I was signing off on." Well, you're paid $5million a year - get educated!!

[Windy-57]

I'm not familiar with GMAC, but wasn't that thing GM's cash cow? I mean they sold it for quick cash...but wasn't that thing making them billions year after year.

Don't know how true this is, but someone once told me that a major factor in selling the 51% controlling stake was to separate GMAC's debt rating from GM's which was getting worse and worse. Declining debt ratings make it terribly more difficult and expensive to operate in GMAC's industry. Also, if you want to make money selling assets, the ones doing well sell for a higher prices; that's why Ford sold Aston Martin and not the ailing Jaguar.

[Drew Dowdell]

GMAC, along with the rest of the mortgage industry, is going to be in deep $h! later this year. Since December 06, 38 mortgage companies have gone bust. GMAC won't be the goose that lays the golden eggs for much longer.

edit: updated to today's number.