GM's dismal profit may spur analysts to cut 2014 estimate

General Motors Co reported a disappointing fourth-quarter profit on Thursday, hurt by weaker-than-expected results in Asia and South America that may prompt analysts to ratchet down their profit forecasts for 2014 for the No. 1 US automaker.

The poor showing triggered an early drop in GM's stock price by as much as 2.5 percent, before it recovered to gain 0.2 percent to USD 35.31 in afternoon trading.

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It was the first quarterly earnings report for GM's new management team led by Chief Executive Mary Barra, the 52-year-old electrical engineer and GM "lifer" who became the industry's first female CEO last month.

"We have more work to do and our sense of urgency won't let up one bit," Barra said on a conference call.

Excluding one-time charges, GM earned 67 cents a share, 21 cents less than expected by analysts surveyed by Thomson Reuters I/B/E/S.

The fourth quarter was bogged down by USD 200 million in one-time charges stemming partly from the Chevrolet brand's exit from Europe and a plan to stop manufacturing cars in Australia. GM has said it will spend another USD 1.1 billion in 2014 to restructure operations in Europe and South America.

Citi analyst Itay Michaeli said the fourth quarter was disappointing, but GM's projection for a modest profit increase this year remained unchanged from its update to investors in January.

"I don't think the story will change much despite what seems to be a disappointing finish to 2013 because the regions that are hurting the most are now the very regions where GM is actually restructuring aggressively," he said.

Nevertheless, Michaeli and other analysts said Wall Street's consensus estimate for GM's 2014 profit - currently at USD 4.16 a share - will likely be revised lower after the weak fourth quarter. Morgan Stanley analyst Adam Jonas said the downward revision could be as much as 10 percent.

GM executives on Thursday also cited pressures in regions outside its core North American market.

Chief Financial Officer Chuck Stevens said the largest US automaker faces increased competition in China, but aims to offset pricing pressures there with new models and maintain 9 percent profit margins.

The international regions outside China also remained under pressure, he said. These included countries in Southeast Asia, the Middle East, India and Australia.

Stevens warned that the South American market had significantly deteriorated in recent weeks, but did not change the company's outlook for a higher profit there this year.

Executives said GM should see the benefits of its restructuring efforts starting next year and North American margins would rise over the next couple of years.

Barra said she saw opportunities to build GM's brands, to grow in China and to better control costs.

RBC Capital Markets analyst Joseph Spak said in a research note that GM's strength in North America, where it has been able to raise prices, "should really shine through" in the second quarter, a period he called "make or break" for the Detroit company.

RESTRUCTURING

Stevens attributed the earnings miss to analysts not fully accounting for restructuring relating to plans to close a plant in Bochum, Germany later in the year, as well as a higher-than-expected tax rate.

"Our view is that the sell-side consensus didn't comprehend that restructuring," he told reporters. "The final announcement associated with that wasn't done until early December. Due to that, we needed to book some of the restructuring costs, primarily related to the severance portion of that program."

Net income rose to USD 913 million, or 57 cents a share, from USD 892 million, or 54 cents a share, in the year-earlier quarter.

The operating profit rose 58 percent to USD 1.9 billion.

Revenue in the quarter rose 3 percent to USD 40.5 billion, below the USD 41.08 billion expected by analysts.

GM's North American operating profit was USD 1.88 billion, up from USD 1.14 billion a year earlier, but short of the USD 2.04 billion expected by analysts surveyed by Reuters.

The increased profit was driven by stronger pricing for its redesigned full-size pickup trucks, the Chevrolet Silverado and GMC Sierra. Pricing accounted for a USD 1.2 billion gain in the quarter, but costs of USd 500 million were higher than Citi's Michaeli had expected.

Buckingham Research analyst Joseph Amaturo said the negative catalysts for the stock were already priced in and investors should "aggressively buy" on any declines because the redesigned pickups will boost profits significantly in the second half of 2014 and all of 2015.

WEAKNESS IN SOUTH AMERICA

The company's international operations, which includes China, earned USD 208 million, down from $676 million a year earlier, as businesses outside China accounted for a loss of USD 200 million. Analysts had expected a profit of USD 310 million.

However, Michaeli was concerned about weakening even in China, the world's largest automotive market, as profit margins fell to 7.6 percent from 9.4 percent in the third quarter.

South American profit of USD 27 million fell far short of the USD 151 million analysts had expected.

"The risk profile of South America has increased significantly over the last several weeks," Stevens said. "The devaluation of the peso in Argentina and fundamentally the economy is shut down in Venezuela, so that's going to be an area that we're going to have to manage through."

Losses in Europe, meanwhile, shrank by more than half to USD 345 million, smaller than the USD 399 million loss analysts had expected. Stevens stood by the company's target to break even in the region financially by mid-decade.

Still, Stifel analyst James Albertine said in a research note that GM's overhaul of Europe may be more time-consuming, expensive and risky than the company is signaling.

For the full year, GM reported a net profit of almost USD 3.8 billion, down from almost USD 4.9 billion in 2012. Sales rose 2 percent to USD 155.4 billion.

GM ended the year with USD 38.3 billion in total automotive liquidity, up USD 1 billion from the end of the third quarter.

The automaker ended 2013 with its USD 71.5-billion US defined benefit pension plan about 90 percent funded. The US plans ended the year underfunded by USD 7.3 billion, down by almost half from USD 14 billion at the end of 2012.