General Motors (NYSE: GM) reported its first-quarter earnings on Thursday morning, and they were better than expected: Profit, excluding some special items, was $1.6 billion, or $0.93 a share, solidly ahead of the $0.85 analysts predicted.
All things considered, that's a pretty decent result in challenging conditions. But as CEO Dan Akerson would be the first to point out, GM still has quite a bit of work to do.
Around the world, improvements continue
While Akerson said on Thursday morning that he was pleased with the quarter, he was also blunt: "This management team is not getting ahead of itself," he said. As with ancient rival Ford (NYSE: F), GM's core North American business is fairly healthy -- but overseas challenges will continue to weigh for a while.
That said, GM still has room for improvement in North America as well. Here's how the company's regional divisions shook out in the first quarter:
- North America. GM North America reported adjusted pre-tax income of $1.7 billion in the quarter, a roughly $400 million improvement over the first quarter of last year. While the company's "mix" of models sold during the quarter was somewhat unfavorable because of increased sales of small and midsized cars, profits went up because GM is able to make more money on its new small cars like the Sonic subcompact. During a call for media and analysts on Thursday, Akerson noted that GM makes about $1,000 more per car sold on the Sonic versus its predecessor, the Aveo. Other new models will bring similar improvements, and that will help GM's profits as those new models hit the U.S. market in coming quarters.
- Europe. GM was able to eke out a slight profit in the first quarter of last year but this time posted a $256 million loss. That's not a surprise given the difficult conditions in the region and the company's well-publicized efforts to restructure its German subsidiary, Opel. The problems are pretty straightforward: GM is selling fewer vehicles in Europe because of tough economic conditions, and reducing fixed costs has been a struggle. Work to improve the situation is intense and ongoing, but Akerson and his team had no noteworthy updates to share on Thursday.
- Asia. GM's "International Operations" division, a catch-all that is mostly driven by Asia, earned $529 million, down a bit from $586 million a year ago on increased costs and some pricing pressures in the hypercompetitive Chinese market. Most of that profit was equity income from GM's joint ventures, especially its massive efforts with SAIC in China. GM's market share in China was up to 15.1% in the first quarter, a significant gain as the company continues to invest big for further growth to try to stay ahead of rival Volkswagen (OTC: VLKAY.PK). Meanwhile, sales in Russia, where GM is seeking to expand its presence, were up 29%, Akerson said.
- South America. A money-loser last quarter, GM South America is now profitable and "gaining traction," Akerson said. The region made $83 million during the quarter, down from $90 million a year ago. New product introductions in the region have made a big difference -- while overall sales volumes were down, the newer products are significantly more profitable. More key new-product launches, including the arrival of the subcompact Sonic, are still to come later this year. CFO Dan Ammann hinted that additional cost reductions could be forthcoming as well.
Long story short: Sales in Asia continue to be strong and growing. GM is generating good profits in the U.S. despite a resurgence from Toyota (NYSE: TM), and those profits should go up as new products arrive at dealers over the next year. South America is on an upswing. Europe, as discussed elsewhere, remains a work in progress.
Work continues on GM's balance sheet
GM's strong cash position was little changed from last quarter -- it now stands at $31.5 billion, and the company has another $5.9 billion of credit lines that it could call upon if needed. Debt is up a bit to $5.4 billion, not a concern -- but the company's pensions are still underfunded by well over $20 billion.
That's not yet a crisis, as GM won't be required to make additional cash contributions to the pension plans until 2015 -- but it could become one, and it's likely weighing heavily on GM's stock price. Ford recently announced an attempt to deal with its own pension shortfall by offering buyouts to current and retired salaried workers, an initiative that GM is surely watching closely.
The upshot
Long story short, GM's turnaround is still a work in progress -- but the work that was done during the last quarter looks solid. Given that GM's U.S. sales are more or less treading water as the company awaits key new products, the profit improvement in North America was impressive.
For shareholders concerned about GM's stubbornly low share price, there was some encouragement in this quarter's results -- but also a reminder that dramatic bottom-line progress is still at least a few quarters away, as the company continues to overhaul its products and restructure its operations around the world. I think it's worth holding on -- I'll be holding my own GM shares for a while -- and waiting for this story to unfold further.
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