General Motors (NYSE:GM) on Thursday reported net income of $945 million for the first quarter, a significant improvement over the $213 million it earned a year ago.
But it was less than Wall Street expected. Excluding special items, GM earned $0.86 a share. Analysts had expected earnings of $0.96 a share.
GM's shares fell more than 3% in early trading on Thursday.
GM missed analysts' estimates primarily because of some unfavorable exchange-rate moves, weakness in some South American markets, and taxes that were higher than expected.
But looking a little deeper, there's some encouraging news for shareholders in today's numbers: GM is still on track.
Good results at home, a mixed bag overseas
The good news is that GM's ongoing work to improve profitability in North America is still yielding results. Thanks in large part to strong sales of pickups and SUVs in the U.S., GM earned $2.18 billion in North America.
GM's operating margin in its home region was 8.8%, making this the seventh quarter in a row in which GM has posted a year-over-year margin increase in North America. One negative: GM's U.S. sales of cars were down, not a surprise as key models are nearing the ends of their runs. An all-new (and much improved) Chevy Malibu, due this fall, should help.
Elsewhere, the picture was less rosy. In Europe, GM lost $239 million, a modest improvement over the $284 million it lost a year ago. Overall sales were down, as a dramatic decrease in new-vehicle sales in Russia was partially offset by improvements in Western Europe. GM wound down much of its business in Russia during the quarter, generating a one-time charge of $428 million. But GM's restructuring in Europe continues to gain ground, and CEO Mary Barra said the region is still on track to be profitable next year.
GM South America lost $214 million, a little worse than the $156 million loss it posted a year ago, as a recession in Brazil took a big bite out of car sales in the region. But GM's market share in South America rose 0.4 points to 16.7%, and it is continuing to take steps to cut costs and reduce losses.
GM's International Operations unit includes its big joint ventures in China, which continue to perform well. The unit earned $371 million during the quarter, up from $252 million a year ago. Sales in China were up, but GM's overall equity income from its Chinese joint ventures fell a bit on new-product launch costs. Profits from the introduction of GM's new full-size trucks in the Middle East helped boost results.
Special items, cash -- and that fund for accident victims
GM took $547 million in one-time charges in the first quarter. Much of that was attributable to its decision to largely withdraw from the Russian market. The rest was an adjustment to the reserve that GM is holding for its fund to compensate victims of accidents related to its now-recalled ignition switches.
GM has now committed a total of $550 million to that fund; $200 million of that has already been paid to victims and their families. CFO Chuck Stevens said the company expects to make an additional adjustment to the fund, if needed, in the third quarter.
GM ended the quarter with $22.1 billion in cash on hand, down from $25.2 billion at the end of 2014. GM said the quarter included one additional weekly payment to suppliers versus the year-ago quarter; that, and some costs related to restructuring and the ongoing recalls, cut its cash flow by almost $2 billion as of quarter-end. GM should make that up as the year goes on.
GM also spent close to $400 million on the purchase of about 10 million of its own shares. That's the first step in a $5 billion share-buyback program that it has promised to complete by the end of next year.
Including its standing lines of credit, GM had $34.2 billion of liquidity available to its auto business as of the end of the quarter, an ample reserve.
The upshot: For GM investors, some patience will be required
Barra reaffirmed GM's previous full-year guidance. She still expects GM's total pre-tax earnings and operating profit margin to be better in 2015 than in 2014, even after adjusting for the impact of recall costs on last year's earnings. She also expects improved full-year results in all four of GM's regional automotive business units.
But cash flow is likely to be flat (or possibly slightly higher) year over year, Barra said, as GM is spending big on a slew of new-product launches.
Barra and her team have set ambitious goals for GM over the next several years. The message today is that despite some bumps in the road, GM is still on track for meeting those goals.
Here's an indicator that sums things up nicely: GM's overall operating profit margin improved to 5.8%. That's still far from the 10% Barra has targeted by early next decade, but it's up a full point from a year ago.
That's real progress. Slowly but surely, the General continues to move in the right direction. In time, its share price will follow.