GM Forecasts ‘Modest’ Profit Gain in 2014 From New Models – Bloomberg

Posted: Wednesday, January 15, 2014

General Motors Co. (GM), which announced
a 30-cents-a-share dividend yesterday, forecast 2014 profit to
“modestly” improve this year as it introduces 15 new or
refreshed vehicles in the U.S. and 17 in China.

Improved operating performance should offset $1.1 billion
in additional restructuring costs, leaving margins for adjusted
earnings before interest and taxes similar to 2013, GM said
today in slides on its website. GM forecast 2 percent
industrywide global sales of more than 85 million vehicles and
U.S. sales growth to 16 million to 16.5 million light vehicles.

The outlook follows yesterday’s announcement that GM will
issue its first quarterly payment since 2008, and appointed
Chuck Stevens as its new chief financial officer. Mary Barra,
who had been the company’s product chief, today becomes the
first female chief executive officer of a global automaker,
succeeding Dan Akerson, who is retiring.

“The main theme here for 2014 is that we are taking
advantage of the strength in North America and in China to fund
restructuring activity elsewhere,” Dan Ammann, GM’s former
chief financial officer who became president today, told
analysts at a Deutsche Bank conference in Detroit, where the
company is based.

GM, which will probably report its 16th straight quarterly
profit next month, is benefiting from 18 new or refreshed
vehicles introduced last year in the U.S. as the automaker
rebounds from its 2009 government-backed bankruptcy
reorganization.

Forecast ‘Disappointment’

This year, GM’s adjusted EBIT should rise in the Americas
while being down in Europe and its international operations, the
company said. Shares of GM slid 1.7 percent to $39.35 at 10:21
a.m. New York time. The shares gained 42 percent last year.

GM’s guidance “will likely be viewed as a disappointment
to most investors,” Brian Johnson, an analyst with Barclays,
said today in a note to clients.

The restructuring costs are higher than the $900 million
Barclays had estimated and GM’s forecast for European earnings
wasn’t as robust as expected, he said.

While GM reiterated its goal of reaching North America EBIT
margins of 10 percent by mid-decade, “we expect investors to
question the ability of GM to reach this target given 10 percent
is likely not expected for 2014, which should be a great year
from a product standpoint,” Johnson said.

Adjusted EBIT will be softer in the first quarter, because
of currencies and costs for restructuring and truck-model
changes, GM executives said in a presentation to analysts. The
second and third quarters are forecast to be the most profitable
for its North American operations.

South America

GM also sees volatility in Venezuela and other parts of
South America that may affect the first quarter, Ammann told
analysts at the Deutsche Bank Global Auto Industry Conference.

The automaker plans to spend about $7.5 billion on capital
expenditures
this year, which is less than GM’s normal $8
billion to $9 billion “due primarily to program cadence and
timing,” Ammann said.

The new products for China will primarily arrive in
showrooms late in the year, helping GM’s earnings in 2015,
Stevens said at the conference.

GM’s booming U.S. and China business comes as the automaker
continues to target breaking even in Europe by mid-decade and
restructuring other parts of Asia operations, including
Australia. Much of the $1.1 billion in expected restructuring
costs will be for closing the first auto factory in Germany
since World War II and pulling the Chevrolet brand from the
region, the company said today.

‘Wiggle Room’

“While the guidance was slightly disappointing, we think
this set up could create a good entry point and better frames GM
heading into the rest of the year,” Joseph Spak, a New York-based analyst for RBC Capital Markets, said today in a note to
investors. “The guidance also gives the new management team a
little more wiggle room to deal with in their first year.”

Stevens succeeded Ammann as finance chief, GM said
yesterday in a separate statement. Stevens, 54, began his GM
career at the Buick division in 1983 and held positions in
China, Singapore, Indonesia and Thailand. He reports to Barra.

The dividend is payable March 28 to all common stock
holders of record as of March 18, the company said in a
statement. GM last made a payout in June 2008 and suspended it
the following month.

“I view it positively and as a signal that GM is confident
in their capital position and future cash-generating
capability,” Spak said yesterday in an e-mail.

Optimism for GM has been building for the past year after
the U.S. Treasury began unwinding its ownership stake in the
automaker, one of the last vestiges of the U.S. government’s $50
billion bailout and bankruptcy reorganization in 2009.

“A dividend yield of 3 percent will reward shareholders
well, especially from a company that is in a growth phase,”
David Kudla, chief executive officer and chief investment
strategist of Mainstay Capital Management LLC, said in an e-mail.

To contact the reporter on this story:
Tim Higgins in Southfield, Michigan, at
thiggins21@bloomberg.net

To contact the editor responsible for this story:
Jamie Butters at
jbutters@bloomberg.net

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