Earnings Preview: GM to report 4Q results Thursday

Earnings Preview: GM fourth-quarter earnings expected to rise when it reports results Thursday

Associated Press

DETROIT (AP) -- General Motors Co. reports fourth-quarter and full-year results for 2012 on Thursday. Earnings for the quarter are expected to be better than last year, despite growing losses for the company in Europe.

The Detroit automaker made a record $7.6 billion in 2011. It could top that this year if it books certain accounting changes in the fourth quarter.

For the fourth quarter, GM has predicted adjusted pretax earnings of about $1.1 billion.

For the past two years, GM's earnings have primarily come from big profits in China and even bigger earnings in North America. That's likely to continue in the fourth quarter:

WHAT TO WATCH FOR: Mark Reuss, GM's North American president, hinted that things were going well when the company reported its December sales last month. "Looking at what we're going to make from a financial standpoint as we close the year, I think we've done a great job in North America," he told reporters on a conference call.

But Europe is another story. So far this year, GM's European operations have posted $1.2 billion in pretax losses. GM has predicted European losses before taxes of $1.5 billion to $1.8 billion for the full year, meaning the company could have lost as much as $600 million in Europe last quarter. GM is in the process of cutting costs and rolling out new models there, but it still has too many factories making too many cars in a market with declining sales due to a faltering economy.

GM has been getting higher prices for its cars and trucks in the U.S., even though its sales aren't growing as fast as the U.S. market. In the fourth quarter, GM sales grew 4.4 percent, a little more than half the rate of the whole U.S. auto industry. GM's earnings should get a boost from a rebound in sales of higher-margin pickup trucks late in the year. Since 2010, GM has posted 11 straight quarters of profits, piling up $16 billion in net income.

GM also has warned that in the fourth quarter it may return some U.S. and Canadian deferred tax credits to its books because it has been solidly in the black for two years. The tax credits have allowed GM to avoid paying U.S. income taxes since it emerged from bankruptcy protection in 2009. The credits, called "deferred tax assets," are worth almost $39 billion. By moving the tax assets back onto its books, GM will dramatically boost net income for the fourth quarter, said Randy Paschke, an accounting professor at Wayne State University in Detroit.

Morgan Stanley Analyst Adam Jonas said in a note to investors that the tax assets mean GM likely won't pay cash taxes to the U.S. government until 2018.

WHY IT MATTERS: GM is smaller than before its trip through bankruptcy court, but still employs 213,000 people worldwide including 80,000 in the U.S. Its car sales are a major component of the U.S. economy. Also, the government still owns 19 percent of the company's stock, which it got in exchange for a $49.5 billion bailout. The government is still $21.5 billion in the hole on the bailout and it almost certainly will lose billions. Breaking even would require selling its remaining 300 million shares for an average of about $70 each — more than double the current trading price.

EXPECTATIONS: Industry analysts are expecting higher adjusted net earnings per share for the quarter. GM made 39 cents per share in the fourth quarter of 2011, and analysts polled by data provider FactSet are expecting 51 cents this year. Revenue is expected to be $39.2 billion, up 3 percent from a year ago. For the full year, analysts expect earnings of $3.23 per share, down from $3.92 in 2011.

GM stock fell to less than $19 last summer on worries in Europe. But it has rebounded of late, partly because GM bought 200 million of its shares back from the government for $5.5 billion in December. Morgan Stanley's Jonas has set a one-year price target of $47 per share, saying he expects GM's sales to grow 5 percent per year in the U.S. and in Brazil, Russia, India and China.

The shares closed Monday down 4 cents, or 0.1 percent, at $28.53.

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