GM Earns Record $1.6 Billion
General Motors Corp. on Tuesday reported record fourth-quarter earnings of $1.6 billion, highlighting its continuing turnaround in the face of a weaker auto market worldwide.
But the results were inflated by one-time tax gains, and analysts said GM’s profit is likely to fall this year as the company is hit with higher marketing costs and the expense of launching several all-new models.
GM, the world’s largest auto maker, said all parts of its businesses--North American and international vehicle production and its electronics, computer services and financial subsidiaries--showed improvement in 1995 and in the year’s final quarter.
The company’s quarterly profit was up 19% from a year ago, and yearly earnings soared 40% to $6.9 billion. Both the fourth-quarter and yearly profit broke records established just a year ago.
GM, whose then-staggering North American car and truck business drove the company to the brink of financial disaster four years ago, benefited from an improved performance in its recovering automotive operations and lower tax rates.
“We are particularly pleased with the continued improvement in our North American operations,” said John F. “Jack” Smith Jr., GM chairman and chief executive.
For the second consecutive year, GM reported profit in its North American automotive operations, which lost $18 billion from 1990 to 1993. It earned $2.4 billion last year and $677 million in 1994.
Wall Street, which has turned bearish on auto stocks because of the weakening sales market, was a bit surprised by the strong earnings. GM shares rose $1.375 to a new 52-week high of $53.625 on the New York Stock Exchange.
“They did better than I anticipated,” said David Garrity, analyst for Smith Barney.
But Burnham Securities analyst David Healy noted that much of the earnings improvement came from favorable tax treatment. GM said its effective tax rate was 11% in the fourth quarter, compared with 34.9% a year ago. The tax changes were worth 44 cents a share in the quarter.
GM said the lower tax burden was largely due to the settlement of several outstanding tax issues overseas dating as far back as 10 years and to a greater contribution of earnings from countries with lower tax rates.
GM is the second of the three U.S.-based auto makers to report earnings. Chrysler also posted better-than-expected fourth-quarter earnings of $1 billion, bringing its full-year profit to $2 billion. Ford Motor Co. is to report today, and analysts expect its fourth-quarter performance to be weaker than those of its U.S. competitors.
GM’s fourth-quarter earnings of $1.9 billion, or $1.98 per share, compare with earnings of $1.6 billion, or $1.74 a share, a year ago. The full-year profit of $6.9-billion, $7.21 a share, compares with earnings of $4.9 billion, $5.15 a share, in 1994.
Fourth-quarter sales rose 3% to $43.9 billion; 1995 revenue climbed 9% to $169 billion.
GM Chief Financial Officer J. Michael Losh said that although North American car and truck operations improved, they still trail GM’s other divisions in financial performance. Overall, GM’s net profit margin was 4.7%, but just 2.4% in North America.
Still, the North American improvement came amid a slow sales market and GM’s poor model mix, one skewed more toward low-profit cars than high-profit trucks. Losh attributed the operating gains to continuing strides in manufacturing efficiency and material cost savings.
GM also continued to improve its balance sheet. Losh said the company has essentially fully funded its pension plans. It also has a cash reserve of about $11 billion, money set aside as a cushion against the next economic slump.
In addition, GM benefited from lower U.S. marketing costs. Its average rebate per vehicle was $633 in the fourth quarter, down from $671 in the third quarter and $738 in the fourth quarter of 1994.
But there are warning signs. The company’s vehicle inventories have climbed well above normal, which in recent weeks has forced it to cut back production of some slow-selling models. Analysts expect slow sales to force the company to increase rebates, cutting into 1996 profits.
“Last year is likely to be the peak for GM’s earnings,” said Maryann Keller, analyst at Furman Selz in New York.
Internationally, GM said profit increased 4% despite a weak European market and problems in Brazil and Mexico.
GM’s subsidiaries--Hughes Electronics Corp., Electronic Data Services Corp. and General Motors Acceptance Corp.--continued to perform well. Together they earned $827 million in the fourth quarter and $3 billion for the year.
