Recall Costs Only Dampen GM’s First Quarter

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With first-quarter earnings of 29 cents per share surpassing analyst expectations by 8 cents, General Motors, plagued with a number of substantial recall efforts, was able to remain positive thanks largely to strong core operations performance that stood up to a number of special-item losses. Recall-related expenses for the quarter are estimated (by GM’s figures) to be around $1.3 billion.

A strong pricing trend in North America brought good tidings for the company, which is reeling from foreign exchange fluctuations regarding Venezuela; GM said that special items aside from the recall-related charges were owed to the changing of the exchange rate that the company uses for re-measuring the net assets of its Venezuelan subsidiaries.

“The performance of our core operations was very strong this quarter, reflecting the positive response of customers to the new vehicles we are bringing to market,” said GM CEO Mary Barra. “Our focus remains on creating the world’s best vehicles with the highest levels of safety, quality and customer service, while aggressively addressing our business opportunities and challenges globally.”

Overall, revenue advanced to $37.4 billion for the quarter, comfortably above the $36.9 billion of the year-ago first quarter. However, it fell a bit short of the $37.9 billion that analysts were expecting, but given the headwinds faced by the company this quarter, we think the shortfall can be forgiven this time.


Regionally North America was a strong performer for GM, logging an EBIT-adjusted figure of $0.6 billion, which included the $1.3 billion pre-tax charge for recall costs in the quarter. International Operations fell year-on-year with an EBIT-adjusted $0.3 billion, compared with EBIT-adjusted of $0.5 billion in the first quarter of 2013, though it remained in the black. Europe slid largely due to restructuring costs, and South America struggled as well, posting a loss of $0.2 billion.

Shares are showing some frisky activity — up almost 3.5 percent in pre-market — as GM’s results didn’t show any particular surprises to the bad news; investors and analysts knew that the recall would be expensive and are celebrating that GM’s core business and operations were strong enough to withstand the negative consequences and post positive results in the end.

Our revenue and cash flow improved this quarter and our underlying business performance remains on plan,” said Chuck Stevens, GM executive vice president and CFO. “Executing flawless launches and using our strength in the U.S. and China to restructure key global operations will continue to be our focus this year.

Clearly the headline results are overshadowed by the recall campaign charges — $1.3 billion — but when you look underneath that we had strong performance across the board,” he added.