General Motors – From Death to Glory
Perhaps one day they will make a movie about it. The Big 3 of Chrysler, Ford (NYSE: F) and General Motors (NYSE: GM) has now become an all-too-comfortable metaphor for the three companies' hometown of Detroit. Staring the end of the line in the face, insolvency a very real threat and bankruptcy accepted as inevitable, the idea of recording record profits only 24 months later would have, at the time, seemed as realistic as expecting Bill Gates and Warren Buffett to swoop in and, in an unprecedented move, save the day between them.
Yet only two years after bankruptcy, General Motors (NYSE: GM) reported the largest annual profit in the company's history on Thursday. Of course, there will be those that say that, without that government bailout, there is a good chance that GM would still be in deep trouble. But still, to go from that level of trouble to record profits is something that has to be applauded.
Perhaps a large part of GM's recent success comes from the high bar the company is setting for itself and, despite breaking records this week, GM still said that the results missed internal financial targets it set for the year and its most recent quarter profit fell short of analysts' forecasts.
Despite that, the record results show just how positive the changes made by GM during the bankruptcy program were. It perhaps would have been easy to take the money and carry on as normal, hoping that things work out better this time. Rather, it took the brave decision to close plants, win changes in labor contracts and shed weaker brands and dealerships. If some of those things sound harsh on GM employees, it will surely benefit more people in the long run if the company is profitable and, in truth, in business.
Ford and Chrysler have already reported profits, and this is the first time that all three are profitable at the same time since 2004.
GM reported full-year net income of $7.6 billion, or $4.58 per share. In 2012, the company earned $4.6 billion.
“In our first full year as a public company, we grew the top and bottom lines, advanced our global market share and made strategic investments in our brands around the world,” G.M.'s chief executive, Daniel F. Akerson, said in a statement. “We will build on these results as we bring more new cars, crossovers and trucks to market, and make G.M. a far more efficient global team.”
In a research report on Wednesday, J.P. Morgan said that GM is caught between what they don't know and what they should not promise. “Ford targeted flat profit for 2012 with higher NA profit. GM would have a difficult time promising the same given the restructuring efforts in Europe, the disruption of the truck changeover and pension headwinds. We expect GM to target 'solid profitability' and positive if not higher free cash flow vs. the prior year.”
Meanwhile, Deutsche Bank said on Tuesday that, GM guided (on November 9) the Street to expect flat adjusted EBIT (vs. 4Q10 of $1,021MM). “This should equate to EPS of ~$0.40; consensus is $0.41. Our forecast of $868MM EBIT/$0.32 EPS is a bit below guidance. Although GM typically doesn't provide detailed guidance for the upcoming year, we'd expect the company to provide a broad outlook.”
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