GM Earnings Beat Shadowed by Recall - Analyst Blog

General Motors Co. GM recorded adjusted earnings of $1.8 billion or 77 cents per share in the first quarter of 2014, beating the Zacks Consensus Estimate of 47 cents per share. In comparison, the company generated earnings of $1.1 billion or 67 cents per share in the first quarter of 2013.

Including the unfavorable impact of $0.4 billion or 23 cents per share from special items and $1.3 billion or 48 cents per share for recall-related repairs in the reported quarter, net income (on a reported basis) amounted to $0.1 billion or 6 cents per share, compared with $0.9 billion or 58 cents per share in the year-ago quarter.

Revenues in the quarter grew 1.4% year over year to $37.4 billion, marginally lagging the Zacks Consensus Estimate of $37.8 billion.

Worldwide wholesale unit sales inched down 5.5% to 1.47 million vehicles in the quarter. Worldwide retail unit sales rose 2.3% to 2.42 million vehicles. The automaker occupied a global market share of 11.1% during the quarter, down from 11.3% in the prior-year quarter.

Adjusted earnings before interest and tax (EBIT) went down 72.2% to $0.5 billion from $1.8 billion in the first quarter of 2013. The decline was mainly due to a $1.3 billion pre-tax charge for recall-related costs and $0.3 billion in restructuring costs included in the first quarter of 2014.

The company logged pre-tax charges of $0.1 billion for recalls and $0.1 billion in restructuring costs in the year-ago quarter. Operating loss amounted to $535 million crashing down from a profit of $959 million a year ago.

Segment Results

GM North America (GMNA) reported a 6.2% rise in revenues to $24.4 billion during the quarter. Adjusted EBIT declined to $0.6 billion from $1.4 billion in the first quarter of 2013.

GM Europe GME witnessed a 6.6% increase in revenues to $5.6 billion. The region reported a wider year-over-year adjusted loss of $0.3 billion compared with $0.2 billion in the year-ago quarter.

GM International Operations (GMIO) results were disappointing. It reported a 26% decline in revenues to $3.2 billion. Adjusted EBIT plunged to $0.3 billion from $0.5 billion in the comparable quarter of 2013.

GM South America (GMSA) witnessed an 18% decrease in revenues to $3.0 billion. Adjusted loss was $0.2 billion in the quarter compared with break-even adjusted results in the first quarter of 2013.

GM Financial reported an impressive 103.2% rise in revenues to $1.1 billion during the quarter. EBIT in the segment was $0.2 billion, in line with the first quarter of 2013.

Financial Position

GM had cash and cash equivalents of $19.4 billion as of Mar 31, 2014 compared with $20 billion as of Dec 31, 2013. Total debt (Automotive and Financial) increased to $37.8 billion as of Mar 31, 2014 from $36.2 billion as of Dec 31, 2013. Consequently, the debt-to-capitalization ratio increased to 47.2% as of Mar 31, 2014 from 45.9% at the end of 2013.

During the first quarter of 2014, the company had a net cash flow of $2 billion from automotive operations, up from $0.5 billion in the comparable year-ago period. Capital expenditures amounted to $1.75 billion in the reported quarter and $1.94 billion in the prior-year period. The company's adjusted automotive free cash flow was $0.2 billion during the quarter as against a negative $1.3 billion in the year-ago period.

GM currently holds a Zacks Rank #5 (Strong Sell). Some better-ranked automobile stocks worth considering are Fox Factory Holding Corp FOXF, PACCAR Inc. PCAR and Harley-Davidson Inc. HOG. All these stocks carry a Zacks Rank #2 (Buy).