Thursday, February 24, 2011

General Motors (GM) Falls Below IPO Price on Earnings

Not a good day in the auto sector; General Motors (GM) just fell below its IPO price making a lot of instiutional investors unhappy.  This despite a beat on earnings - the reasoning is much the same as I mentioned with Magna earlier in the day.  They also rewarded their workers to the tune of $200M, which in Wall Street's short term focused objectives, is a negative.

Via Reuters:
  • General Motors Co posted fourth-quarter results that topped Wall Street expectations, but its shares fell below their IPO price as investor concerns shifted to the pressure from rising oil prices and higher costs of launching and selling new cars.  GM posted a profit of $4.7 billion for all of 2010, its first full year after a landmark bankruptcy that scoured costs and debt from its balance sheet.
  • That marked the automaker's first full-year profit since 2004 and its largest profit since 1999, when it earned $6 billion on booming sales of trucks and SUVs.
  • GM's fourth-quarter net income of $510 million represented a slowdown from the previous three quarters, but topped analyst expectations after adjusting a one-time charge to buy back preferred shares held by the U.S. Treasury.
  • Revenue rose nearly 15 percent from a year earlier to $37 billion.
  • Barclays Capital analyst Brian Johnson said GM's fourth-quarter results represented "somewhat of a mixed bag" that would call into question the "upper end of investor expectations."  The most bullish forecasts for a recovery in the cyclical auto sector had been under scrutiny since last month when GM's closest rival, Ford Motor Co, reported a fourth-quarter profit that fell far short of expectations.
  • Ford's results touched off a slide in shares of both companies as investors worried that higher costs for everything from steel to plastic to the engineering teams behind new vehicles would erode profitability in future quarters.  
  • The surge in oil prices to 2 1/2 year highs near $120 a barrel on Thursday added to the pressure on GM and other auto-related shares, analysts said.  
  • In addition to higher commodity costs, analysts have questioned GM's higher spending on incentives since the start of 2011, with some rivals saying the automaker was at risk of slipping back into its old ways of pushing volume by sacrificing profit per car.  GM said it had pushed its spending on incentives up by almost 13 percent in January, but executives said that was a temporary move that would be reversed. 
  • Separately, GM said it would pay more than $200 million in bonuses to hourly workers, including payouts of about $4,300 for each of its roughly 45,000 U.S. factory workers represented by the United Auto Workers union.
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