USA: General Motors second quarter profit falls 30.7% year on year
General Motors on Thursday reported net profits of $US901 million, or $1.58 per share, in the second quarter of 2003, 30.7% down compared with $1.3 billion, or $2.43 per share, in the second quarter of 2002. Total revenues of $48.3 billion were essentially unchanged from the prior-year quarter.
GM's adjusted income, which excludes results from Hughes, totalled $879 million, or $1.57 per share compared with $1.5 billion, or $2.63 per share, excluding Hughes and special items.
In a statement, GM said its second-quarter performance reflected continued strong automotive cash flow, record results at finance arm General Motors Acceptance Corporation (GMAC) where earnings of $834 million were nearly double the prior-year quarter, record net income of $163 million at GM Asia Pacific, an overall profit decline in the automotive sector primarily caused by difficult economic conditions in most of GM's automotive regions, and the effects of unfavourable currency-exchange rates in certain regions.
"Overall we had reasonable financial results in a challenging global economic environment," GM chairman and chief executive officer Rick Wagoner said.
"We're especially pleased with the strong cash generation by our automotive operations and continued strong performance at GMAC, which set another new quarterly earnings record. Our Asia-Pacific automotive operations continue to grow and generated record profits."
Continued cost reductions and a revised product line drove improved financial performance to approximately breakeven at GM Europe. However, lower volumes and continuing pricing pressures in North America eroded profits despite aggressive cost reductions and improved revenue per unit.
GM's global automotive operations profits plunged 87% to $140 million in the second quarter of 2003, compared with $1.1 billion in the prior-year period. Global production declined 6.6% in the second quarter, compared with the same period in 2002.
GM North America (GMNA) earned $83 million in the second quarter of 2003, compared with $1.3 billion in the second quarter last year. Improvements in sales mix, material cost, and productivity were more than offset by a production decline of nearly 12%, intense pricing pressure due to the incentives war, increased pension costs, and currency-exchange losses versus the year-ago period.
The results also include the $168 million after taxes, or $0.30 per share, unfavourable effect of the storm damage and resulting loss of production at GM's Oklahoma City SUV assembly plant. Strong quality performance allowed the corporation to reduce its policy and warranty reserves in the second quarter by $199 million after taxes, or $0.36 per share.
GM Europe (GME) reported a loss of $3 million in the second quarter of 2003, a significant improvement from a year ago when GME recorded a $115 million loss. Aggressive cost reductions and increased vehicle sales at Opel/Vauxhall and Saab drove these improved financial results, despite significant currency-exchange losses.
On the other hand, GM Asia Pacific earned a record $163 million in the second quarter of 2003, more than four times the $39 million earned in the year-ago quarter. Strong financial results at Shanghai GM and GM's Australian arm Holden helped improve financial results along with improved equity earnings from GM's Japanese automotive alliances and lower-than-expected start-up losses at GM Daewoo Auto & Technology Co.
Continuing economic weakness in Brazil was the primary factor in GM Latin America/Africa/Mid-East (GMLAAM) region's $103 million loss in the second quarter of 2003, which compared with a loss of $73 million in the year-ago period.
GMAC earned $834 million in the second quarter of 2003, its best-ever quarterly performance. The results were nearly double the $431 million earned in the same period last year.
Strong volumes in the residential and commercial mortgage sectors, and continuing strength in GMAC's financing operations were key drivers in GMAC's record performance.
Mortgage operations generated income of $415 million in the second quarter of 2003, up $357 million from the year-ago period, while earnings from financing operations were $396 million, up $49 million from the same period last year.
Hughes Electronics earned $22 million in the second quarter of 2003, compared with a loss of $156 million in the prior-year period, led by a strong performance at DirecTV. Revenues increased 6.6% to $2.4 billion.
GM expects improving economic growth during the balance of 2003 in the United States, with total US industry vehicle sales expected to be at least 16.5 million units for the calendar year. In Europe, especially Germany, economic and market conditions are expected to remain challenging in the second half of the year. Total European industry vehicle sales are estimated to be about 18.5 million units for 2003.
GM expects to beat the current analysts' consensus for the third quarter of approximately $0.50 per share, excluding Hughes and any special items, and expects automotive operations to be profitable. Despite the continuing economic uncertainty, GM is more optimistic about the outlook for the year, and now expects full-year 2003 earnings could range from the current analysts' consensus of approximately $4.50 up to $5.00 per share, excluding Hughes and any special items.