Setbacks in other overseas markets signal challenges for Barra

GM's Q4 profit grows 2% on strong N.A., China results

Setbacks in other overseas markets signal challenges for Barra

Stronger pricing -- especially for GM's redesigned full-sized pickups, the Chevrolet Silverado and GMC Sierra -- offset higher costs from product launches in the fourth quarter.

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DETROIT -- General Motors rode strong pricing in North America and sales growth in China to slightly higher fourth-quarter profits, even as its performance skidded in other international markets.

GM said its net income for the October-December period rose 2 percent from a year earlier, to $913 million, marking its 16th straight quarterly profit since exiting bankruptcy.

Earnings before interest and taxes and excluding nonrecurring items -- the figure that GM considers the best measure of its underlying performance -- rose 52 percent, to $1.9 billion. The net effect of several one-time items shaved about $200 million from the bottom line. These included costs related to GM's wind-down of most of its Chevrolet sales in Europe and manufacturing in Australia.

Still, the results highlighted some trouble spots that will test the new executive team led by GM CEO Mary Barra, who took over last month.

Excluding China, GM lost money in its International Operations business amid pricing pressures. Profits declined in South America as sales slowed. European losses shrank, but executives forecast a challenging year of weak pricing and restructuring costs.

"Clearly we have a lot of work ahead to make all of our regions solidly and consistently profitable," Barra told analysts during her first earnings conference call as CEO. "It's going to be a multiyear journey that will include brand building, significant reductions in materials and logistics costs, and overall lower fixed costs."

Short of expectations

Fourth-quarter revenue rose 3 percent, to $40.5 billion.

The earnings result on a per-share basis missed analysts' expectations. GM's profit of 67 cents a share, excluding one-time items, fell short of the 87-cent average of 14 analysts' estimates compiled by Bloomberg.

GM CFO Chuck Stevens, who took the job last month, told reporters at GM headquarters today that most of that gap was attributable to a higher tax rate than analysts had expected as well as restructuring costs in Europe that analysts hadn't accounted for.

GM shares were essentially unchanged, falling 1 cent to close the day at $35.23.

"Like a slightly used car with significant cosmetic damage but a working powertrain, GM posted a quarter that looks worse on the outside than on the inside," analyst Brian Johnson of Barclays Capital wrote in a report today.

Citi analyst Itay Michaeli said GM's $1.9 billion pretax profit excluding one-time items fell about $400 million short of his forecast, almost entirely because of weakness in South America and International Operations.

"We don't view this as a story-changing quarter," Michaeli said in a research note. "Weakness is isolated to regions where GM is aggressively restructuring."

For the full year, GM's net income fell 22 percent to $3.77 billion. Higher tax expenses and other one-time items trimmed the full-year bottom line by $1.3 billion. Pretax profit excluding one-time items was $8.58 billion, up 9 percent from 2012.

Record in North America

GM's posted a record $7.46 billion in pretax profit in North America for the full year, excluding one-time charges and gains.

Fourth-quarter pretax profit in North America jumped 65 percent, to $1.88 billion, as stronger pricing -- especially for GM's redesigned full-sized pickups, the Chevrolet Silverado and GMC Sierra -- offset higher costs from product launches.

GM continued to reduce its losses in Europe. Its fourth quarter loss of $345 million was down from $761 million a year earlier. For the year, GM lost $844 million in Europe, down from $1.94 billion in 2012.

GM's International Operations division, which includes China, Australia, India, Korea and several other Asian markets, posted $208 million in pretax profit. But China alone had pretax profit of $400 million, while the remaining countries swung to a combined loss of about $200 million, from a profit of about $300 million a year earlier.

"We had a number of challenges in the International Operations outside of China," Stevens said. He described the results as "across-the-board deterioration in earnings year over year."

Stevens said several challenges are weighing on earnings in those markets, including weaker pricing due to the strong yen; unfavorable foreign-exchange rates and pricing pressure in the Middle East. For the year, pretax profit from International Operations was $1.23 billion, down from $2.53 billion in 2012.

Pretax profit in South America fell to $27 million, from $135 million, hurt by sagging volumes in Venezuela and restructuring costs. The economic turmoil in Venezuela, Argentina and other South American markets, caused by soaring inflation, poses a risk to GM's business there, Stevens said.

Costs tied to Chevrolet's withdrawal from Europe totaled $700 million, and costs for closing manufacturing operations in Australia were $500 million.

A favorable tax settlement and a gain on the sale of an equity investment in Ally Financial, along with other smaller items, partially offset these charges, leaving GM with the $200 million net drain on fourth-quarter profits.

Other highlights from the quarter:

• GM will pay up to $7,500 in profit-sharing bonuses to about 48,500 U.S. hourly employees, up from $6,750 last year.

• GM said it cut the underfunded portion of its U.S. pension obligation by 48 percent during the year, to $7.3 billion.

• GM's spending on incentives in North America during the fourth quarter on average was equal to 10.8 percent of its average transaction prices, about 5 percent higher than the industry average.

You can reach Mike Colias at mcolias@crain.com.

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