GM First Quarter Earnings Slump Despite Strong U.S. Sales

General Motors Company (NYSE: GM), the world's largest auto company, reported profits down 69 percent for the first quarter, but the loss resulted from outsized, one-time profits the year before. Overall performance for the company was strong, with improving global margins and revenue driven 4.4 percent higher by strong U.S. sales.

GM's net income fell 69 percent to $1 billion, or 60 cents per share, compared with $3.15 billion, or $1.77 a share, a year earlier.

Excluding one-time charges of 33 cents a share, the company earned $1.6 billion or 93 cents a share. GM beat analyst predictions of $1.4 billion or 85 cents per share.

Revenue rose 4.4 percent to $37.8 billion, beating analyst predictions of $37.6 billion. Global profit margins improved 0.2 percentage points to 5.8 percent.

Despite strong global sales and rising revenue, GM profits were down because of the enormous profit recorded in the first quarter of 2011 from selling its $1.6 billion ownership stake in Delphi Automotive PLC and $300 million in Ally Financial Inc. preferred shares. In the first quarter of 2011 almost half of GM's profits came from special items like the Delphi Automotive sale, a situation not replicated in 1Q 2012.

The U.S. economic recovery, record demand for GM vehicles in China and the global growth of the Chevrolet brand helped deliver solid earnings for General Motors, Dan Akerson, chairman and CEO of GM said Thursday.

GM credited strong North American numbers as the major driving force for the quarter, earnings of $1.69 billion an improvement of almost 35 percent or $438 million over the year before. Impressive industry-wide sales which reached a seasonally adjusted annual rate of 14.5 million in the first quarter, an improvement from 13.5 million to 14 million, boosted GM's North American operations. Pent-up demand and unseasonably warm weather pushed more consumers to buy GM cars and trucks during the quarter.

However, while overall U.S. car sales expanded more than 13 percent industry wide in the first quarter, GM sales only grew 2.7 percent, according to The Associated Press. Likewise, GM's U.S. market share dropped from 19.4 percent to 17.5 percent.

GM's North American margins are expected to rise to 6.9 percent from 6.5 percent in the fourth quarter of 2012, a steady improvement for the company, according to a report from Barclays.

Muted sales growth in the U.S. combined with increased production during the first quarter to leave GM with surplus inventory and poor mix of models, which may have depressed earnings, according to Barclays. Car companies frequently produce extra cars early in the year to allow down-time to retool factories later in the year. However, there is skepticism about the extent that GM has produced extra capacity. GM produced 294,000 vehicles in the first quarter of 2012, compared with 248,000 the year before.

We are aggressively eliminating complexity to reduce our costs, and at the same time, we are preparing for more than 20 major vehicle launches around the world in 2012 to drive revenue this year, Dan Ammann, senior vice president and CFO at GM said.

In Europe, GM reported a loss of $256 million, compared to a profit of $5 million the year before. However, GM beat predictions of losses as high as $391 million in Europe, according to Barclays. The company is currently in the throes of restructuring its failing Opel division and was reportedly in talks with labor officials in Europe during much of the quarter. The company has been unable to close any Opel factories.

South American earnings fell 7.8 percent to $83 million. However, the company focused on product launches and cost cutting in South America, and the changes began to gain traction there during the first quarter, despite launch expenses, according to Citi.

The redesigned Cobalt and Cruze sedans have dominated in the Brazil, the largest South American automobile market, since their release. The Cobalt made up 23 percent of the Brazilian market share for sedans its size in the first quarter, according to Reuters.

New products are starting to make a difference in South America, but Europe remains a work in progress. We'll continue to work on both revenue and cost opportunities until we have brought GM to competitive levels of profitability, Akerson said.

GM's international operations, which include the world's largest automotive market, China, reported profit of $529 million, down 9.73 percent from $586 million. However, the company performed exceptionally well in the Chinese market where it weathered an overall 3.4 percent downtrend in the automotive market. The company increased Chinese sales by 8.7 percent, making the quarter GM's best ever in China.

GM Financial reported earnings of $181 million, up 39 percent from $130 million.

The company finished the quarter with $31.5 billion in automotive liquidity, down from $31.6 billion at the end of the fourth quarter.

General Motors Company (NYSE: GM) shares fell 55 cents, or 2.4 percent, to $22.38 in midday trading.