GM earnings: Not 'good enough'

@CNNMoney November 9, 2011: 9:55 AM ET

NEW YORK (CNNMoney) -- General Motors posted better-than-expected earnings in the third quarter, but CEO Dan Akerson said the quarter "isn't good enough," signaling more cost cutting could lay ahead.

The nation's largest automaker earned $1.7 billion, or $1.03 a share, in the quarter, down from the $2 billion it earned a year earlier in the last full period before its initial public offering.

Analysts surveyed by Thomson Reuters had forecast earnings per share of 96 cents a share.

"Solid isn't good enough, even in a tough global economy," said Akerson in the company's earnings statement Wednesday. "Our overall results underscore the work we have to do to leverage our scale and further improve our margins everywhere we do business."

While Akerson didn't lay out any specific measures to improve margins, he did say, "The next level of performance will come as we systematically eliminate complexity and cost throughout the organization."

The company did not give specific guidance on net income in the fourth quarter, but said its income excluding interest and taxes should be similar to year-ago results in that measure.

Adam Jonas, auto analyst with Morgan Stanley, said that guidance is about 30% to 40% less than analysts were expecting and only about half of what he was forecasting.

"While details are scant, we believe the market will interpret GM's fourth-quarter guidance as implying European losses at least as bad as the third quarter," he wrote in a note to analysts.

The fourth-quarter guidance helped send shares of GM (GM, Fortune 500) down 6% at the start of trading Tuesday. But some of that decline could be related to broader market concerns about the European debt crisis, which had overall U.S. markets sharply lower at the open.

GM posted operating losses of $292 million in Europe and $44 million in South America in the third quarter. While the European loss was smaller than the year-earlier result, the company had made money in South America in the prior year.

Akerson told analysts during a conference call that GM's losses in Europe and South America in the third quarter were "not acceptable and not sustainable."

Global sales at GM rose 8% to $36.7 billion, as the total vehicles sold worldwide reached 2.2 million, up 8.9%.

GM is poised to recapture its position of the world's largest automaker, passing Toyota Motor (TM), which captured the title in 2008 after decades of gaining on GM. Improving market share in the world's two largest markets -- China and the United States -- has allowed GM to sell 6.8 million vehicles so far this year, up 570,000 vehicles from a year ago.

Meanwhile the March earthquake and tsunami in Japan, coupled with a high value of the yen, have hit Toyota sales, cutting year-to-date global sales by 558,000 vehicles to 5.8 million.

But despite the improved sales, GM's profit margin is still narrower than some of its other rivals, such as Ford Motor (F, Fortune 500) and Volkswagen, even though it has the advantage of scale and lower debt burden thanks to its bankruptcy. Operating earnings at GM came to 6.4% of revenue for the first nine months of this year, better than the 6% margin in the year-earlier period, but less than the 7% margin at Ford.

With rivals Ford and Chrysler Group also profitable, 2011 will be the first year since 2004 that all three major U.S. automakers are in the black at the same time. That would complete a turnaround that seemed far-fetched only two years ago when GM and Chrysler required federal bailouts and bankruptcy reorganization, and Ford was continuing to lose money the first half of that year.

The quarter also included a new four-year deal with the United Auto Workers thatch the union and company said should create or save more than 6,000 factory jobs at GM's U.S. factories, but limit the increases in labor costs so that the company can remain profitable.

Employment at GM's North American plants rose 4,000 over 2010 levels to 100,000 workers at the end of the period. GM debt rating was raised to the highest level of junk bond status after the labor deal passed. To top of page

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