GM and Ford Report Record First-Quarter Profits
General Motors Corp. and Ford Motor Co. reported record first-quarter profits Thursday as strong core North American auto sales offset weaker performances overseas.
GM earned a record $2.1 billion, or $3.04 a fully diluted share, in the first quarter, topping the Wall Street consensus estimate of $2.88 as polled by First Call Corp. The earnings were up 31 percent from the January-March period last year.
Excluding the automotive parts unit Delphi Automotive Systems Corp., which the automaker announced Monday would be completely spun off to shareholders as an independent company in May, GM earned a net $1.8 billion or $2.73 per share compared with net income of $1.4 billion or $1.96 in last year’s first quarter.
The impact of Delphi’s spin-off on GM earnings caused some confusion on Wall Street as traders and commentators believed that GM’s earnings fell below analysts estimates.
GM’s stock closed down $3.19 at $86.56 despite the fact that First Call clarified its initial view and said that the auto maker beat Wall Street estimates. Ford shares rose 6 cents to close at $62.81. Both trade on the New York Stock Exchange.
GM said it will count Delphi as a discontinued operation and will proceed next month with its spin-off. Delphi, as an independent company, will rank as one of the top 30 companies in the Fortune 500.
“We’re continuing to build momentum by leveraging the strength of the entire General Motors organization,” said GM Chairman and Chief Executive John Smith, Jr. “We’re particularly pleased with the strong performance of GM North America and General Motors Acceptance Corp. in the first quarter of 1999.”
GM’s consolidated net sales and revenues in the first quarter totaled $42.4 billion, up 6% from $40.0 billion in the first quarter of 1998.
In North America, GM had first-quarter profits of $1.41 billion, up from $841 million. Europe had a profit of $174 million vs. $99 million. Asia/Pacific had a loss of $60 million compared to a profit of $6 million. Latin America, Africa and the Middle East had a loss of $25 million compared with profits of $53 million.
GM’s hoard of cash, marketable securities and assets from its employee trust grew 23% to $16.2 billion compared with $13.1 billion at the end of the fourth quarter and $15.4 billion at the end of the first quarter last year.
GM Chief Financial Officer Michael Losh told analysts that the auto maker will slow its stock repurchase program in the second quarter to build up its cash reserves ahead of the expiry of the United Auto Workers contract in September, analysts told Reuters.
“He wants to have a nice piggy bank in case relations with the UAW sour,” said analyst Gary Lapidus of Sanford Bernstein.
During the first quarter, GM said it repurchased about 5 million of its common shares worth $480 million, completing 45% of its recent $4 billion share repurchase program.
Cross-town rival Ford reported a 20% gain in first-quarter operating earnings to a record $1.81 billion or $1.46 per fully diluted share, beating First Call estimates of $1.39 per share.
Ford, the No. 2 auto maker, said net earnings were $1.98 billion or $1.60 a share, down from last year’s $17.65 billion or $14.23, which included a $15.9 billion one-time non-cash gain.
Ford’s first quarter sales rose to $37.89 billion from $36.58 billion. The company’s results do not include results from Volvo Cars.
Ford’s automotive operations, including a $165 million gain from the dissolution of its AutoEuropa joint venture with Volkswagen earned $1.65 billion, a 34% gain from last year.
North American automotive operations had a profit of $1.59 billion, up 57%, giving the company an after-tax return on sales of 6.6%. Ford’s loss in South America widened to $165 million for the quarter from $45 million a year ago. Europe had a profit of $165 million, but would have only broken even without the AutoEuropa gain. Last year Europe earned $230 million.
Ford cut its total automotive costs from a year ago by $100 million during the quarter.
