General Motors (GM) reported disappointing results for the fourth quarter of 2011, with earnings falling well short of analyst expectations and a major loss for GM Europe. However, the company reported a record profit for the year of 2011 and a lower-than-expected pension shortfall, prompting the stock to spike in early trading.
Weaker-Than-Expected Quarter ends Stronger-Than-Expected Year
General Motors reported strong sales in North America both in the fourth quarter and for the full year. General Motors earned $500 million, or $0.28 per share, in the fourth quarter, $0.03 per share less than it did in the prior year. Excluding one-time items, GM's EPS of $0.39 missed the $0.41 per share expected by analysts polled by Reuters. Sales in North America were up, with earnings for the North American unit doubling to $1.5 billion.
"The good news is they've done a nice job getting North America back on track; the bad news is the rest of the world," Edward Jones analyst Matt Collins said. "In order to get the stock moving again, they really need to address international profitability and the pension."
Raining on GM's parade was GM Europe, which posted a loss for both the quarter and the year. The fourth quarter was especially bad, though, when GM lost $547 million, almost double the $292 million lost in the previous three months. On the year, GM lost $747 million in Europe before taxes and earnings, less than the $1.95 billion lost there last year but still disappointing given that the company was hoping to break even after completing a difficult restructuring program.
"We obviously have work to do still and a long way to get to the objectives we ultimately want to get to," GM Chief Financial Officer Dan Ammann told reporters. "We clearly have work to do in Europe. We have work to do in the South America business. Frankly, we have work to do all around the company in terms of cost opportunity."
GM's Record Year Boosts Shares
However, while results for the quarter were mixed, the year-end totals were strong, prompting a nearly 9 percent jump in the company's share price. General Motors reported a profit of $7.59 billion, up from last year's $4.67 billion. This was the best year in the company's history, topping 1997's record of $6.7 billion (though, it's worth noting, 1997's total when adjusted for inflation would be the equivalent of over $9 billion). Of those profits, $7.3 billion could be attributed to the North American division.
The company also reported another shortfall in its pension plan, but one smaller than analysts expected. Pensions generated returns of 11.1 percent and saw a funding shortage of $13.3 billion. In response, GM announced its intention to end traditional pension benefits and move to a 401(k) plan in the future as a means of reducing its pension liabilities. The 47,500 hourly employees at GM can expect profit sharing checks of $7,000 apiece as part of a deal reached with the UAW last fall.
GOP Candidates Enter the Fray
With the upcoming GOP primary in Michigan coming up, Mitt Romney, who grew up in the state, didn't mince words with his opinions on the auto bailout. While Barrack Obama has been touting the return to profitability by GM and Chrysler (FIATY) as a sign that the bailouts were worthwhile, Romney called them "Crony Capitalism" and wrote a Valentine's Day op ed piece for the Detroit News calling for, among other things, the US Treasury Department to sell its remaining stake in GM. The Treasury still holds almost one third of GM's shares, but the Obama Administration has waited on selling them in hopes that share prices would continue to increase and reduce losses on the bailout plan. In order to fully recoup costs for the taxpayers, GM's shares will need to nearly double in price to about $50 a share.
Romney also accused Obama of playing favorites with the UAW and asserts that, without Obama's bailout, things in Detroit would be even better than they are today.
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