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General Motors: The Recovery Continues
General Motors' (GM) comeback story continues, as the nation's largest auto manufacturer finished 2010 on a solid note. Indeed, the car maker generated revenues of $36.9 billion in the fourth quarter, above our $34.8 billion estimate. Worldwide auto demand remained on the recovery track throughout the December period, and GM was well poised to benefit, holding a global market-share position of slightly less than 12%.
The bottom line will likely make a flashier headline, however, as the company turned in its first full year of profitability since 2004. For the quarter, GM earned $500 million, bringing the 2010 total to $4.7 billion. The North American operations can largely be credited for supporting the ongoing turnaround, as GM notched a profit here amid the improving demand climate and a much leaner cost structure. Too, its international business, excluding Europe, remained on the plus side, which is promising, considering the company's already sizable, yet still growing, presence in China. But, much like its rival Ford Motor (F), GM was unable to squeeze out a profit in Europe, where the environment remains challenging.
The late-year profit level was off compared with the previous three quarters, but investors were given fair warning. GM had previously indicated that a weaker product mix would take a toll. And, like Ford, higher launch costs, for the rollouts of the Chevy Cruze and Volt, also weighed on the bottom line.
On a per-share basis, GM netted $0.31 (including charges of $0.21 related to its liability for the U.S. Treasury's preferred shares), which fell a few pennies short of our expectation. Although the stock is trading slightly lower following the earnings release, it is hard to be disappointed with the overall story of a near $5 billion full-year profit in the company's first report since going public in mid-November.
Concurrently with the earnings release, the company officially announced its plans to reward 45,000 hourly employees and 3,000 GM Components Holdings workers with profit-sharing payouts of $4,300 and $3,200 each, respectively. Many taxpayers may not like the sound of this, given that there is still a sizable amount of the $50 billion in bailout funds left to be paid back. However, looking at it from the car maker's point of view, this may prove to be an initial peace offering, given that Detroit and the United Auto Workers union are headed back to the negotiating table at the end of the year.
In the meantime, General Motors' recovery, from the depths of bankruptcy to a leap into the black, should gain momentum throughout 2011. That is, as long as global auto sales remain healthy. The recent political unrest overseas may put a slight crimp in near-term totals, but assuming it is a temporary hiccup, GM should generate solid sales growth this year. We would not be surprised to see a U.S. market-share decline when all is said and done, as the new vehicle rollouts are heavily weighted toward the back end of the year. This schedule, however, leaves GM well positioned heading into next year.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.