General Motors Co. (GM:US), which plans 15 new or refreshed vehicles in the U.S. this year and 17 in China, forecast profit to “modestly” improve in 2014 as the automaker spends money to restructure nagging trouble spots overseas.
Improved operating performance should offset $1.1 billion in additional restructuring costs, leaving margins for adjusted earnings before interest and taxes similar to 2013 while industrywide sales grow in the U.S. and globally, GM said Jan. 15, Mary Barra’s first day as GM’s chief executive officer.
GM’s guidance “will likely be viewed as a disappointment to most investors,” Brian Johnson, an analyst with Barclays, said yesterday in a note to clients. The restructuring costs are higher than the $900 million Barclays had estimated and GM’s forecast for Europe wasn’t as robust as expected, he said. A Jan. 10 note by Johnson had estimated GM’s adjusted Ebit may rise 17 percent in 2014 compared to 2013.
Shares of GM slipped 1.6 percent to $39.38 in New York yesterday. The stock gained 42 percent last year. Other automakers rose, including Ford Motor Co., up 1.8 percent to $16.70, and Tesla Motors Inc., up 1.8 percent to $164.13.
The outlook follows this week’s announcement that GM will issue a 30-cent-a-share dividend in March, its first quarterly payment since 2008, and appointed Chuck Stevens as chief financial officer. Barra, who had been the company’s product chief, becomes the first female CEO of a global automaker, succeeding Dan Akerson, who is retiring.
“The main theme here for 2014 is that we are taking advantage of the strength in North America and in China to fund restructuring activity elsewhere,” Dan Ammann, GM’s former chief financial officer who became president yesterday, told analysts at a Deutsche Bank conference in Detroit, where the company is based.
GM, which will probably report its 16th straight quarterly profit next month, is benefiting from 18 new or refreshed vehicles introduced last year in the U.S. as the automaker rebounds from its 2009 government-backed bankruptcy reorganization.
GM forecast 2 percent industrywide global sales of more than 85 million vehicles and U.S. sales growth to 16 million to 16.5 million light vehicles from 15.6 million last year.
This year, GM’s adjusted EBIT should rise in the Americas while being down in Europe and its international operations, the company said.
While GM reiterated its goal of reaching North America Ebit margins of 10 percent by mid-decade, “we expect investors to question the ability of GM to reach this target given 10 percent is likely not expected for 2014, which should be a great year from a product standpoint,” Johnson said.
Adjusted EBIT will be softer in the first quarter, because of currencies and costs for restructuring and truck-model changes, GM executives said in a presentation to analysts.
“In a number of markets we are seeing significant FX headwinds,” Ammann said.
“We’re seeing devaluation of emerging-market type currencies and we’ll be looking to recapture that cost through pricing activity to the extent that we’re able to.”
GM’s CFO for South America is in Venezuela working with other automakers and the government trying to “free up some currency,” Stevens said (GM:US).
The automaker also cited foreign-exchange headwinds in Brazil and Russia. The Brazilian real fell 14 percent against the U.S. dollar in the past 12 months, while the Russian ruble dropped more than 9 percent against the greenback, according to data compiled by Bloomberg.
The second and third quarters are forecast to be the most profitable for its North American operations.
GM also sees volatility in Venezuela and other parts of South America that may affect the first quarter, Ammann told analysts at the Deutsche Bank Global Auto Industry Conference.
The automaker plans to spend about $7.5 billion this year, which is less than GM’s normal $8 billion to $9 billion “due primarily to program cadence and timing,” Ammann said.
The new products for China will primarily arrive in showrooms late in the year, helping GM’s earnings in 2015, Stevens said at the conference.
GM’s booming U.S. and China business comes as the automaker continues to target breaking even in Europe by mid-decade and restructuring other parts of Asia operations, including Australia. Much of the $1.1 billion in expected restructuring costs will be for closing the first auto factory in Germany since World War II and pulling the Chevrolet brand from the region, the company said yesterday.
“While the guidance was slightly disappointing, we think this set up could create a good entry point and better frames GM heading into the rest of the year,” Joseph Spak, a New York-based analyst for RBC Capital Markets, said yesterday in a note to investors. “The guidance also gives the new management team a little more wiggle room to deal with in their first year.”
Stevens succeeded Ammann as finance chief, GM said in a separate statement. Stevens, 54, began his GM career at the Buick division in 1983 and held positions in China, Singapore, Indonesia and Thailand. He reports to Barra.
The dividend is payable March 28 to all common stock holders of record as of March 18, the company said in a statement. GM last made a payout in June 2008 and suspended it the following month.
“I view it positively and as a signal that GM is confident in their capital position and future cash-generating capability,” Spak said in an e-mail.
Optimism for GM has been building for the past year after the U.S. Treasury began unwinding its ownership stake in the automaker, one of the last vestiges of the U.S. government’s $50 billion bailout and bankruptcy reorganization in 2009.
“A dividend yield of 3 percent will reward shareholders well, especially from a company that is in a growth phase,” David Kudla, chief executive officer and chief investment strategist of Mainstay Capital Management LLC, said in an e-mail.
Akerson, the out-going CEO, spent yesterday evening in Detroit at a dinner for the final night of the Automotive News World Congress, an annual industry event, where he spent almost an hour on stage sharing his experiences at GM and talking about the re-emergence of the automaker from bankruptcy.
“We believe in our future, we believe in our strategy, we’re executing it,” he said. “You talk about the financial turnaround, but I think from the company’s perspective, they’re not fragile, they’re industrial-strength now. We believe in what we’re doing.”
Asked on stage where GM’s shares will be valued in five years, Akerson paused before he said: “I think I still have insider information, I don’t want to get a call from the SEC tomorrow.” The audience laughed, after which he said: “More than it is today.”
He exited the stage to a crowd of reporters. Barra’s “ascendancy is a statement about a company that’s looking forward and not backward,” he said. “I hope Mary is gangbuster successful and my name fades to black.”
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