General Motors Company (NYSE: GM) stock, down as much as 2.2% in early trading Thursday, recovered as investors saw some positives in the big earnings miss from the automaker.
The surprising results were a combination of the impact of slower than expected sales outside of North America and China as well as heavy investment in the company's restructuring efforts.
General Motors earnings were $0.57 a share for the December quarter, far below the $0.87 a share analysts had been expecting. Excluding one-time charges, GM earned $0.67 cents a share, still nowhere near expectations.
Revenue, however, rose 3% to $40.5 billion, although that also slightly misses expectations of $40.8 billion.
But investors soon recognized that GM's earnings miss isn't so much a story of a faltering company as it is one of a company in transition.
That's probably why Wall Street reconsidered as the day went on, with GM stock essentially unchanged by noontime.
Here's what we learned from the GM earnings report...
Why This Was Not a Typical Quarter for GM Earnings
"This was a relatively noisy quarter," Edward Jones equity analyst Christian Mayes told The Wall Street Journal. "There were a lot of one-time items, but stripping those out, GM missed earnings expectations by a wide amount. International operations looked weak, with Europe still losing money for GM and South America barely breaking. Perhaps what we're seeing is an element of clearing the decks for the new management team coming on board with some of the restructuring charges."
Breaking the numbers down, GM actually did very well in North America and China.
In North America GM gained market share and operating profit soared to $1.89 billion from $1.14 billion a year earlier. And in China, GM's largest market, the number of vehicles sold rose 13%, putting an exclamation point on a record year there.
But it was the rest of GM's international operations that undermined this quarter's earnings. Overall, operating profits in this segment plummeted 69%, to $208 million from $676 million a year earlier, driven by woes in India, South America, and Australia.
Even in some of the bad news there was good news...
GM's European operations lost $245 million, which was a big improvement over the $761 million loss in the year-ago quarter and an important step toward returning this segment to profitability.
But this other big drag on this quarter's earnings will benefit GM stock in the long run.
Why General Motors (NYSE: GM) Stock Will Bounce Back
GM has made huge investments in restructuring over the past year and made many changes in the process, like closing its Chevrolet operations in Europe.
In China, GM is spending $1.3 billion to build a Cadillac factory to increase its share of the luxury market. Building the cars there means GM avoids the import tariff, enabling the company to both lower the price and increase margins.
"The tough decisions made during the year will further strengthen our operations," said recently installed Chief Executive Officer Mary Barra. "We're now in execution mode and our sole focus will be on delivering results on a global basis."
Restructuring costs will continue to put a short-term hit on profits for the next few quarters. That will make it hard for GM stock to duplicate the 47% gain it enjoyed in 2013, but should set the company up for a much better 2015.
GM has also made other moves to make itself more competitive and, eventually, more profitable.
A number of model refreshes have both helped boost sales and allowed GM to raise prices, which has boosted margins.
For instance, the new Impala sedan is priced about $7,000 higher than the previous model; the Silverado pickup truck is about $6,000 more.
More good news for GM's margins is that sales of its light trucks have grown faster than sales for its cars, which will also help the company get to its stated goal of 10% pretax margins in North America from 8% now.
And a more immediate catalyst for GM stock could be the resumption of its dividend in March, which was suspended in 2008. The company will start paying $0.30 cents a share on a quarterly basis, which will provide a yield of about 3%.
Are you disappointed in #GeneralMotors earnings, or do you think their restructuring plans will pay off down the road? Tell us on Twitter @moneymorning or Facebook.
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.