GM Stock Drops 6% on News of $130M Loss
Oct 15, 2004
DETROIT -- General Motors Corp. lost $130 million in the third quarter -- a “frankly disappointing” earnings report, conceded chairman Rick Wagoner, which results from intense competition leading to deep price cuts.
The earnings report sent GM’s stock price tumbling down 6% to close at $38.84. ($38.95 EOB Friday)
For only the second time in a decade, GM said its North America operations lost money due to lower production volumes. Losses also increased in GM’s Europe operations and demand weakened in Asia Pacific.
Still, GM reported a net profit of $440 million, or 78 cents a share, for the third quarter compared to $425 million, or 79 cents a share in the 2003’s third quarter. Analysts pointed out GM had fewer shares outstanding in 2003 and its 2004 results fell nearly 20 cents a share below consensus estimates.
According to today’s edition of The New York Times, “Analysts also noted that the earnings were increased by $250 million, or 44 cents a share, because GM is reducing its product liability reserves based on a review of its methodology, making the operating results appear even weaker. Darren Kimball of Lehman Brothers said in a note to investors that earnings without the decrease in reserves would be only 34 cents a share - "a very sizable disappointment.’”
Explained GM’s CEO, "Competition in the automotive business around the globe remains intense, and we are seeing negative pricing in most major markets. Even though we increased market share in all four regions, our automotive earnings in the third quarter reflect these challenging market conditions, and were frankly disappointing,” Wagoner said.
The automaker needs to "move faster in addressing some tough cost challenges like health care in the United States and our overcapacity and high cost footprint in Europe, where we announced major restructuring actions earlier today,” he continued. “Our business strategy remains sound and on track: introduce great cars and trucks, stay aggressive in the market, strive for industry-leading cost competitiveness and quality, and generate cash. But we've got to move more quickly in addressing these challenging, chronic structural-cost issues," Wagoner emphasized.
Profits at General Motors Acceptance Corp. continued to be very strong, the company noted, and GM gained market share in all four regions of the world in the third quarter, with global market share rising to 15.5% from 15.1% in the year-ago period.
GM North America reported a loss of $22 million in the third quarter of 2004, compared with earnings of $128 million in the third quarter of 2003. Performance was primarily driven by lower production volumes and unfavorable product mix and pricing, partially offset by lower material costs and the reduction of approximately $250 million after-tax in the reserve set aside for product-liability matters.
In addition, health-care costs in the United States continue to increase at an excessive rate and are a growing burden on GM's financial results, the company said.
"These continuing large increases in health-care costs put GM, and many other U.S. businesses, at a significant disadvantage," Wagoner said . "Clearly, the current situation is not sustainable. All of us -- government, business, the health-care industry, labor and health-care consumers -- need to work together to find solutions that ensure U.S. competitiveness in today's global economy."
GM's market share in North America rose to 28.5% in the third quarter of 2004, from 28.2% in the year-earlier period. In the United States, GM finished the third quarter with strong sales, posting a 20% increase for the month of September. That led to a reduction in dealer inventories of 230,000 units during the quarter to 1.137 million cars and trucks, the company said.
Wagoner said GM’s “product renaissance,” including this month’s introduction of the Chevrolet Cobalt made at its Lordstown Complex, will enable to automaker to replace, in four years, “more than 90% of our portfolio in North America on a volume basis. Through the remainder of this year,” he continued, “we have important product introductions with the all-new Pontiac G6, the Buick LaCrosse, the Cadillac STS, the Chevrolet Cobalt, and the Opel/Vauxhall Astra GTC in Europe.
GM Europe reported a loss of $236 million in the third quarter of 2004, compared with a loss of $152 million in the year-ago quarter. "The pricing environment in Europe has deteriorated significantly this year, and growth in some of our largest markets remains weak," Wagoner noted. "In light of these factors, we need to move more aggressively to significantly reduce our cost structure in Europe, especially manufacturing and engineering."
Full Article Here:
http://www.business-journal.com/GMSt...ps130MLoss.asp
