General Motors Co. (GM:US), the biggest U.S. automaker, rose to the highest price in since July 2011 after reporting a narrower first-quarter loss in Europe than a year earlier and earning more money than analysts had estimated.
GM rose 3.2 percent to $31.16 for its eighth gain in the last 10 trading days. The shares earlier surged 5.4 percent, the biggest intraday gain this year. GM has climbed 8.1 percent this year on top of 2012’s 42 percent jump.
GM’s European adjusted loss before interest and taxes was $175 million, compared with $294 million a year earlier, as the region’s economic slump continued to roil sales, according to a statement today from the Detroit-based automaker. The smaller loss suggests GM’s cost cuts are starting to offset declining industrywide sales, which are heading toward 20-year lows.
“The results that you see in the first quarter are a function of us executing” the European plan, Chief Financial Officer Dan Ammann told reporters in Detroit. “Obviously there are things that we control and we feel quite good about the progress we’re making on those. There are things we don’t control, such as the European macroeconomic environment.”
GM in the fourth quarter took a $5.2 billion writedown of European assets to reflect the tougher conditions, forecasting that the reductions would boost 2013 results by $600 million. GM also has new models such as the Opel Adam subcompact and Mokka sport-utility vehicle.
Companywide profit excluding one-time items was 67 cents a share, exceeding the 54-cent average of 16 estimates compiled by Bloomberg.
GM’s loss in Europe was less than that of Ford (F:US) Motor Co., which reported a loss of $462 million in Europe last quarter and in January widened the forecast for its full-year deficit in the region to about $2 billion. Before the revised forecast, Peter Nesvold, a Jefferies Group analyst, had said Ford would be about a year ahead of GM in revamping European operations.
GM’s first-quarter European loss was better than the lost estimate of $432 million, the average of three analysts surveyed by Bloomberg.
“Probably too early to call a bottom in Europe and would expect some variability quarter-to-quarter, but the better than expected results will be well-received, giving investors confidence that progress is being made and break-even by mid- decade is possible,” Joseph Spak, an industry analyst with RBC Capital Markets LLC, said today in a note to investors.
GM has gained 54 percent since 2011 doubling the 27 percent gain of the S&P 500, which the automaker is poised to rejoin.
GM’s first-quarter net income (GM:US) fell to $1.18 billion, from $1.32 billion a year earlier. Revenue was $36.9 billion, beating the $36.6 billion average of eight analysts’ estimates. Profit in North America before interest and taxes slipped to $1.41 billion from $1.64 billion a year earlier.
Chief Executive Officer Dan Akerson, 64, is pushing GM to achieve several mid-decade goals, including breaking even in Europe, increasing China sales to 5 million from 2.84 million last year and boosting North American operating margins to 10 percent from the average of 7.4 percent during the past three years.
GM is rolling out about 20 new or refreshed vehicles in the U.S. this year after its product lineup had grown stale since the company’s 2009 bankruptcy. The automaker is seeking to rebound from a 2012 market-share drop to an 88-year low.
The company’s U.S. vehicle sales rose 9.3 percent in the first quarter, outpacing the industry’s 6.4 percent gain, according to researcher Autodata Corp. Deliveries were helped by a 21 percent combined gain for the Chevrolet Silverado and GMC Sierra, as GM boosted incentives on the pickups to clear dealer lots for new trucks arriving this quarter.
“It’s one of those quarters where any expectation is really low because of the disruption ahead of the truck changeover,” Adam Jonas, a Morgan Stanley analyst in New York, said before the earnings release.
GM’s earnings before interest and taxes in its international operations, which include China, slipped to $495 million from $521 million a year earlier. Operations in South America swung to a loss of $38 million from a profit of $153 million.
South American deliveries fell mostly because of Venezuela where “we almost had no production or sales in the first quarter,” Jaime Ardila, president of GM South America, said last week in a telephone interview. Venezuela’s economy has been in turmoil since the March 5 death of President Hugo Chavez.
GM reported $162 million in first-quarter costs because of the Venezuelan currency. The company was profitable in South America last year and Ammann reiterated that the automaker plans to do better this year.
In North America, GM has said the benefits of its new products won’t start to show until the second half of this year. Akerson told reporters in January that this year and 2014 will be “good years” as the automaker introduces new vehicles.
In the fourth quarter, GM spent $5.5 billion to acquire 40 percent of the U.S. government’s stake in the company, helping facilitate the Treasury’s efforts to exit the automaker. The government said in December that it would take 12 to 15 months to sell the rest of its stake, which was 16.4 percent as of April 1, according to a GM filing.
In Europe, GM has taken several steps to stem losses, from hiring Karl-Thomas Neumann, a former Volkswagen AG (VOW) executive, to head its operations in the region, to plans to cut $500 million in annual costs during the next three years after eliminating $300 million in spending and 2,600 jobs by the end of 2012.
During the first quarter, revenue in Europe fell to $4.8 billion from $5.3 billion during the same period a year earlier as sales fell, GM said.
GM lowered its costs by about $200 million during the quarter through engineering and fixed cost reductions and, benefited from some “timing items” that “amplified the cost savings you’re seeing there and we’ll see some normalization as we move through the year,” Ammann told analysts during a conference call.
“We are in aggressive cost control mode in Europe,” the CFO said. “It’s a very tough market environment.”
GM ended the first quarter with 36,000 employees in Europe, the company said. The automaker wants to reduce capacity in Europe by closing a German factory in Bochum as vehicle demand in the region shrinks for a sixth straight year.
The company also seeks to improve results in the region through an alliance with Paris-based PSA Peugeot Citroen. (UG)
“They still have a ways to go to prove to investors that GM’s approach in Europe has changed, but some of the cost- cutting appears to be bearing initial fruit,” Christian Mayes, an analyst with Edward Jones & Co. in St. Louis, said in an e- mail. “It’s just too early to say if this is a longer-term trend, or if there’s more of a hard slog ahead for taking costs out of Europe.”
GM took an asset impairment in Europe in the fourth quarter, which was a one-time special item that reduced its profitability in that period. Ford determined its business in Europe was not impaired, meaning it will have to book accelerated depreciation over the next several quarters for the three factories it has slated to close in Europe by 2014.
Because of the different approaches, Ford’s “pretax profits are disadvantaged in the near-term,” Nesvold of Jefferies wrote on April 25.
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