General Motors Co (GM) reported a weaker-than-expected fourth-quarter profit on Thursday, citing wider losses in Europe and lower vehicle prices plus higher costs in its core North American market.
The largest US automaker also made an accounting change in the quarter, intended to signal confidence that it will continue to be profitable in coming years. However, the move resulted in a US$26 billion charge for the quarter.
“An entrenched GM investor may see no need to sell, while a prospective investor may see no need to rush in,” Morgan Stanley analyst Adam Jonas said in a research note.
Several analysts said GM’s US$699 million operating loss in Europe in the quarter was wider than they had expected.
Conditions in the region will be challenging for another few years, Edward Jones analyst Christian Mayes said.
“They’re moving in the right direction, but it’s difficult over there to move fast because it’s so challenging to shut down plants,” he said.
GM posted a profit of US$0.48 per share before one-time items, US$0.03 shy of the analysts’ average estimate, according to Thomson Reuters I/B/E/S.
Operating losses in Europe more than doubled to US$1.8 billion last year, reflecting rapid deteriorating vehicle demand and weak economic conditions. It was the 13th straight year of losses in Europe.
“Europe was a little lighter, although I don’t think people are going to really punish the stock for a few pennies miss in Europe just because we’re probably at or near the bottom of that cycle,” said Jefferies analyst Peter Nesvold, who rates GM shares at “hold.”
Chief financial officer Dan Ammann said GM still expects industry sales in Europe to decline this year and is “not betting on” a pickup later in the year, but chief executive officer Dan Akerson reiterated the company’s goal of breaking even in the region by mid-decade.
GM has said it would introduce 23 new vehicles between last year and 2016 in Europe.
Barclays analyst Brian Johnson said in a research note that “investors should take some comfort” as GM Europe will show a US$600 million drop in depreciation and amortization expenses due to a write-down of assets.
As a result, he now expects GM Europe’s loss this year to be closer to a range of US$1.1 billion to US$1.2 billion, instead of the US$1.4 billion he previously anticipated.
Combined vehicle pricing fell by US$300 million there as the company offered incentives to cut through its inventory of trucks on dealer lots ahead of its introduction of redesigned versions this year. It was the first drop in North American pricing for GM since the first quarter of 2011.
Jefferies’ Nesvold said the weaker Japanese yen and the deteriorating European market would probably lead to more competitive pricing in North America.
GM’s revenue in the fourth quarter rose 3 percent to US$39.3 billion.
Net income almost doubled to US$892 million, or US$0.54 a share, from US$472 million, or US$0.28 a share, a year earlier.