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GM far above 1Q forecast
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April 18, 2001: 12:16 p.m. ET
Leading automaker's EPS nearly double consensus estimate despite sales drop
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NEW YORK (CNNfn) - General Motors Corp. reported first-quarter earnings Wednesday that were nearly double what analysts expected, but it still came in well below the year-earlier period and cautioned on results for the current quarter.
The world's largest automaker said it earned $225 million, or 50 cents a diluted share, excluding special items. Analysts surveyed by First Call forecast earnings would fall to 26 cents a share from the $1.8 billion, or $2.80 a share, it earned a year earlier, when auto sales were at record levels.
"It's nice to be above expectations, but we're certainly not pleased with the overall results," said John Devine, GM's chief financial officer, in a conference call with analysts. "They're not acceptable results in our view. We have a lot more to do."
The range of analysts' forecasts ran from 19 cents to 35 cents, so GM handily beat even the upper range. But the analysts had been guided partly by the guidance GM (GM: up $3.72 to $57.35, Research, Estimates) gave analysts Feb. 22 that it expected earnings of 25 cents a share in the period.
Some of the better-than-expected result may come at the expense of the current period. The company warned that it expects second-quarter earnings of 95 cents a share, which would miss current forecasts of $1.02 a share.
But Devine said the company is still shooting for the full-year earnings-per-share goal of $4.25 that it has stated publicly since its initial guidance in January. He acknowledged that GM will have to improve results to convince analysts that it will achieve that target. First Call's forecast for full year EPS stands at $3.23.
"It has risks, and it has opportunities," he said of the $4.25 EPS target. "To make $4.25 we have to do better in the third and fourth quarters than many of you have us having. The third quarter is probably the critical quarter for us."
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John Devine
General Motors' CFO says company is pleased it nearly doubled forecasts but is not satisfied with first-quarter results. | | |
Devine concluded his conference call just before the Federal Reserve cut interest rates by one-half percentage point. But he told CNNfn's Market Call that the rate cut does not change any of the company's estimates.
"It's probably earlier than we expected. We expected the Fed to do something," he said. "It's nice to see it now. It doesn't change the medium-term picture for us, although this very fragile beast we have in consumer confidence is probably going to be helped. That's probably the biggest and strongest impact out of this rate cut." (329KB WAV) (329KB AIFF)
Sales were down 9 percent to $42.6 billion, led by steep declines in North America and Europe. North American sales fell 14 percent to $25.1 billion,
while European sales were off 8 percent to $6.3 billion.
But while GM made deep production cuts during the quarter to adjust for the slowing sales and increased inventories, it wasn't able to achieve many savings under labor contracts that keep most of the employees on temporary layoff at near full pay.
Therefore, profit from North American auto operations fell 91 percent, while European auto operations posted a net loss of $86 million after net income of $221 million a year earlier. Those results easily overshadowed improved profitability at its Hughes Electronics and General Motors Acceptance Corp. units.
Still, Devine said it was important that the company was able to keep automotive operations profitable, despite the problems in Europe and the large cutbacks in U.S. production. And he said that the company is comfortable with where it stands on dealer inventories going into the spring selling season.
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The company estimates it has a 75-day supply of cars as of March 31, down from 116-day supply at the start of the quarter, while the truck inventory is at 100 days, slightly higher than target as well as the 86-day supply on March 31, 2000, but down from the 132-day supply with which it started this year.
Devine said the company now believes that the industry's U.S. sales will reach 16.9 million vehicles, which is a bit higher than some earlier estimates.
"The industry volume in the U.S. is playing out better than we could have expected," he said.
Ford Motor Co. (F: up $2.22 to $31.10, Research, Estimates), the world's second-largest automaker, is set to report its results Thursday. 
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