GM Swings to 4Q Profit on Cost Cuts, Higher Automotive Revenues, Gain on Finance Division Sale
DETROIT (AP) -- General Motors Corp. accomplished something in the fourth quarter of 2006 that domestic automakers have been unable to do for some time: it reported a profit. Now comes the hard part -- repeating that success. The company's chief financial officer stopped short of promising it this year, but he did pledge continued improvement over last year's numbers.
For the quarter, the world's biggest automaker on Wednesday reported net income of $950 million due to the benefits of cost cuts, higher automotive revenues and a gain on the sale of its finance division. It was a turnaround from a $6.6 billion loss in the same period a year ago.
GM, which is undergoing a massive overhaul that includes shedding thousands of jobs and closing plants to become more competitive with Asian automakers such as Toyota Motor Corp., wound up with a loss of $2 billion for all of 2006 compared with a restated loss of $10.4 billion in 2005.
Chief Financial Officer Fritz Henderson said despite the fourth-quarter profit, no one at GM is declaring victory over the company's financial woes.
He would say only that he expects GM's year-over-year performance to improve in 2007, and he would not predict whether the company would continue to be profitable through the year.
"The objective is to build a successful and profitable enterprise going forward," he told reporters Wednesday after the earnings report was released.
The positive fourth-quarter results included $770 million in special items attributed mainly to the sale of a 51 percent stake in GM's financial arm, General Motors Acceptance Corp., to an investment group led by Cerberus Capital Management. But GM said it would have made $180 million in the quarter without the GMAC proceeds and other items.
Henderson said GM's automotive operations performed better than expected for the quarter with increased revenue in North America due to higher transaction prices and higher sales volumes and revenues overseas.
Worldwide, the company said it made $228 million selling cars and trucks for the quarter and $422 million for the calendar year. Its North American automotive operations lost $14 million for the quarter and $779 million for the year, but the annual figures were $5 billion better than the previous year, Henderson said.
The company also cut structural costs by $6.8 billion last year due mainly to buyouts and early retirement offers accepted by more than 34,000 hourly workers. It expects to reap the results of $9 billion in cost cuts this year.
But GM still is losing money in North America and has $47.4 billion in employee health care and other long-term liabilities, as well as other challenges that will have to be addressed in contract talks this year with the United Auto Workers, Henderson said. He would not answer questions about what GM would seek in the bargaining.
GM also said it had a year-end cash balance of $26.4 billion.
"We still expect to have negative cash flow in 2007," Henderson said.
GM's fourth-quarter profit amounted to $1.68 per share with special items, and 32 cents per share without them. Without the GMAC sale proceeds, GM fell short of Wall Street expectations for the quarter. A dozen analysts surveyed by Thomson Financial predicted earnings of $1.19 per share, excluding special items.
For the year, GM's loss amounted to $3.50 per share including special items and $3.88 per share without them. Excluding special items, GM also fell short of Wall Street expectations for the year. Ten analysts polled by Thomson Financial predicted a profit of $4.39 per share excluding the special items.
GM's financial results were delayed by accounting troubles and last year's sale of the GMAC stake. Overall, its revenue for the quarter declined to $51.2 billion from $51.7 billion in the last quarter of 2005.
GM attributed the decline to the exclusion of GMAC revenue starting Dec. 1.
The company also took a $284 million loss from GMAC to its bottom line in the fourth quarter due mainly to problems with GMAC's residential mortgage division.
Also Wednesday, GM said that as part of the GMAC sale, it will pay $1 billion to GMAC by the end of the month to bring up its equity to where it was on Nov. 30 when the deal closed. The payment is necessary because of deterioration in GMAC's residential mortgage results due in large part to subprime loans, and earnings restatements by GMAC, GM said.
GM also said it would restate its net earnings from the first three quarters of 2006 back through calendar year 2002 due to the accounting problems.
The changes ranged from an 8.7 percent decrease in 2003 to a 10.2 percent increase in 2002.
GM shares fell 26 cents to close at $30.25 on the New York Stock Exchange. They have traded in a 52-week range of $19 to $37.24.
General Motors Corp.:
http://www.gm.com
<~~~~PWN3D!!