GM shares hit post-IPO low, oil risk trumps profit
General Motors Co posted fourth-quarter results that topped Wall Street expectations, but its shares fell below their IPO price as investor concerns shifted to the pressure from rising oil prices and higher costs of launching and selling new cars.
GM posted a profit of $4.7 billion for all of 2010, its first full year after a landmark bankruptcy that scoured costs and debt from its balance sheet.
That marked the automaker's first full-year profit since 2004 and its largest profit since 1999, when it earned $6 billion on booming sales of trucks and SUVs.
Analysts said the results showed GM's success in completing the first stage of a turnaround funded by the U.S. government even as investor attention shifts to a range of new risks, including the prospect that higher oil prices drives consumers away from more profitable trucks, crossovers and SUVs.
The story is changing for them and shifting away from the trauma and pain of 2008 and 2009 and to 'How do they compete in a very competitive marketplace?' said Bernie McGinn, chief investment officer at McGinn Investment Management, who holds Ford shares in a fund he manages.
Shares closed down 4.5 percent at $33.02, just above the $33 level at which they went public last November. At one point, the stock was down as much as 7.3 percent to hit a new, post-IPO low of $32.05.
GM shares have lost 15 percent since late January, pushing the remaining U.S. Treasury investment in the automaker into a deeper loss.
Over the same period, shares of GM's closest rival, Ford Motor Co, have lost nearly 22 percent.
For GM to keep the U.S. Treasury from taking a loss on its $52 billion bailout, the remaining 33 percent U.S. government stake in GM would have to be sold at about $53 a share.
Josef Schuster, founder of IPOX Schuster LLC and a fund manager specializing in IPOs, said GM shares were hit by a wave of selling by investors as the stock price approached the $33 IPO price.
I think GM will probably underperform here for a while, said Schuster, whose funds hold GM shares.
'SOMEWHAT OF A MIXED BAG'
GM's fourth-quarter net income of $510 million represented a slowdown from the previous three quarters, but topped analyst expectations after adjusting a one-time charge to buy back preferred shares held by the U.S. Treasury.
Revenue rose nearly 15 percent from a year earlier to $37 billion.
Barclays Capital analyst Brian Johnson said GM's fourth-quarter results represented somewhat of a mixed bag that would call into question the upper end of investor expectations.
The most bullish forecasts for a recovery in the cyclical auto sector had been under scrutiny since late January when Ford's quarterly earnings fell far short of expectations.
Ford's results touched off a slide in shares of both GM and Ford as investors worried that higher costs for everything from steel to plastic to the engineering teams behind new vehicles would erode profitability in future quarters.
The surge in oil prices to 2 1/2 year highs near $120 a barrel on Thursday added to the pressure on GM and other auto-related shares, analysts said.
Shares of major auto suppliers including BorgWarner Inc and TRW Automotive Inc and Lear Corp closed down on Thursday.
GM Chief Executive Daniel Akerson said the automaker would keep a hard line on cost increases even as it ramps up spending on engineering and marketing.
As we expand production with growing industry demand, it will be critical for us to stay very focused on managing fixed costs, he told analysts.
Akerson said the automaker was better-positioned than it had been in 2008 when gasoline prices last spiked and GM was caught without competitive small cars.
We were concerned about this well before it was on the front page of any paper in the United States or around the world, said Akerson, when asked about higher oil prices. In fact, we've been contingency planning going back prior to the IPO. What we would do? How we would react?
He added: Energy is going to be more expensive, so we've got to prepare for that and it's come a little bit earlier maybe than the industry or the economy ... expected or wanted, so we're going to have to react.
INCENTIVE SPENDING IN FOCUS
GM is counting on new small cars to buffer the impact of higher gasoline prices. Those include the Buick Verano compact and an upcoming subcompact, the Chevy Sonic, that will compete against the likes of the Hyundai Elantra and the Ford Fiesta.
The new product that they have positions them well for higher gas prices, said Morningstar analyst David Whiston, who said he sees the GM share decline creating a buying opportunity for longer-term investors.
GM's European Opel unit posted a loss of $568 million for the fourth quarter and a loss of $1.7 billion for the year. The automaker repeated that it plans for the unit to break even this year.
The automaker has retained Alix Partners to help in the restructuring of Opel, which GM opted to keep rather than sell in 2009.
In addition to higher commodity costs, analysts have questioned GM's higher spending on incentives since the start of 2011, with some rivals saying the automaker was at risk of slipping back into its old ways of pushing volume by sacrificing profit per car.
GM said it had pushed its spending on incentives up by almost 13 percent in January, but executives said that was a temporary move that would be reversed.
Liddell said GM's incentive spending would run at industry averages over the medium term.
Akerson said the round of discounting was part of an attempt to make the company a little more agile, a little quicker in the marketplace and, quite frankly, a little less predictable.
GM ended 2010 with nearly $28 billion in cash and about $5 billion on an undrawn credit facility. Its U.S. pension plans were underfunded by about $12 billion, Liddell said.
The Detroit-based automaker suspended some of its vehicle development efforts as it tried to conserve cash in the run-up to bankruptcy. It faces higher costs now to revive those programs, including efforts to broaden its offering of electric cars beyond the just-released Chevy Volt.
Separately, GM said it would pay more than $200 million in bonuses to hourly workers, including payouts of about $4,300 for each of its roughly 45,000 U.S. factory workers represented by the United Auto Workers union.
(Reporting by Kevin Krolicki; editing by John Wallace and Matthew Lewis)
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