GM second-quarter profit falls 38%

by The City Wire staff ([email protected]) 100 views 

General Motors Co., struggling to turn around its money-losing Opel unit, said second-quarter profit slid 38 percent as losses widened in Europe where the auto market is heading toward its fifth year of sales declines.

Net income declined to $1.85 billion from $2.99 billion a year earlier, Detroit-based GM said today (Aug. 2) in a statement. Excluding dividends and other costs related to preferred stock, profit slipped to 90 cents a share, down from $1.54 a year earlier. That beat the 75-cent average estimate of 15 analysts surveyed by Bloomberg.

GM, which rebounded from bankruptcy three years ago to become the world’s No. 1 automaker in 2011, now faces rising losses in Europe and a stagnating China market. The overseas challenges threaten to undercut the company’s recovery even as its domestic market is on pace for the best year since 2007.

“Europe continues to be extremely challenging which makes our outlook for the year uncertain,” Dan Ammann, GM chief financial officer, said today during a conference call with analysts.

The operating loss before interest and taxes in Europe, including Opel, totaled $361 million compared with a $102 million profit a year earlier, GM said. While the performance beat the $440 million average operating loss estimate of four analysts surveyed by Bloomberg, Ammann wouldn’t predict second-half results or when the unit will return to profit.

GM’s revenue declined 4.5% to $37.6 billion. The average estimate of six analysts was for $38.6 billion. GM said the decrease reflected the strong U.S. dollar.

The revenue at GM Europe plunged $1.57 billion, 21%, during the quarter to $5.89 billion. About $800 million of the decline was because of lower vehicle sales, Ammann said on the call.

“We’re taking a lot of very decisive actions around Europe and we have been for a number of quarters now,” Ammann told reporters earlier. “If we’re talking about the general European economy and the industry overall, we continue to see a very challenging environment in the second half.”

The company’s second-quarter European vehicle production fell 29% from the year-earlier period to 230,000 vehicles. GM’s market share dropped to 8.8% from 9%, the company said.

“European losses were better than we expected, but we suspect due in large part to inventory build that must come out” during the second half of the year, Adam Jonas, an analyst with Morgan Stanley, said today in a note to investors. Second-quarter results “may trigger some relief, but we don’t think the numbers mark a strong enough inflection to offset macro concerns.”

The second-quarter results, GM’s 10th straight profitable quarter, were helped by continued profits in North America and Asia where sales have been growing. Adjusted operating profit in North America fell 13% to $1.97 billion and in Asia slid 2.8% to $557 million. GM had an operating loss in South America of $19 million compared with a profit of $57 million in the year-earlier quarter.

The automaker is monitoring whether demand in its home market may weaken, its North American chief said.

“The concern is there” about a slowdown in the U.S. economy and auto market during the third quarter,” said Mark Reuss, president of GM North America. “The volatility here is big. It’s election time, it’s all of that stuff. We’re looking at what the Fed’s doing.”

GM ended the second quarter with $32.6 billion in cash and marketable securities, the company said. That’s an increase from $31.5 billion at the end of the first quarter.

Stemming losses in Europe is just one challenge before CEO Dan Akerson. He’s also grappling with declining market share in the U.S., slowing growth in China and the ramifications of ousting his chief marketing officer, Joel Ewanick, this week.

“People want to get a sense for how bad Europe is going to get,” said Colin Langan, an industry analyst at UBS Securities. “I don’t think many people will disagree it’s going to be negative for at least several more years. But it’s a question of how negative and how much of a drag it’s going to be.”

Langan increased estimated full-year losses for GM Europe to $1.6 billion from $1.3 billion earlier this year.

“I’m baking in a loss in Europe for the next five years,” he said. “They have a long way to go in Europe. The problem with Europe is that maybe the market itself won’t collapse this year but it’s probably not going to recover so it’s going to be stagnation.”

GM’s global sales rose 2.9% to 4.67 million vehicles during the first half of the year. The automaker was helped its Chevrolet brand, which had its best quarter on record, the company said, with global sales rising 2.3% to 1.3 million during April through June.