GM's quarterly profit drops 90% to $62M

0 Comments | Deseret News (Salt Lake City), May 4, 2007 | by Tom Krisher Associated Press

DETROIT -- The troubled mortgage market spilled onto General Motors Corp.'s balance sheet Thursday as first-quarter profits dropped 90 percent from a year ago due mainly to losses at GM's former financial arm.

But the fact that the nation's largest automaker still lost money on its North American operations seemed to trouble industry analysts more than losses at GMAC Financial Services, because GM is more than a year into a massive restructuring plan that includes cost cuts and multiple new products.

The net profit of $62 million, or 11 cents a share for the January-March period, was GM's second consecutive quarterly profit, although it was down from $602 million, or $1.06 per share, a year ago.

GM said in Thursday's report it had record vehicle sales of 2.26 million worldwide and showed improvements in its automotive operations in the latest quarter.

Its earnings excluding one-time items fell short of Wall Street expectations, and its shares fell more than 5 percent.

The company attributed the year-over-year decline to losses in GMAC's residential mortgage business. GM sold a 51 percent stake in GMAC to private equity investors last year, but still owns 49 percent of the business.

Chief Financial Officer Fritz Henderson attributed the decline primarily to a $115 million loss from the company's stake in GMAC. The financial company on Wednesday posted a first-quarter loss of $305 million, mainly due to a $910 million loss from its troubled residential loan business.

While GM's North American performance improved, the company still lost an adjusted $85 million on its core operations. A year ago, GM reported an adjusted loss of $251 million in North America.

Investors appeared skeptical of GM's performance, sending its stock price down $1.75, or 5.3 percent, to $30.69 on Thursday.

Industry analysts focused on North America, with some questioning whether GM's earnings would continue to be dragged down by GMAC, and whether GM had cut its costs enough.

KeyBanc Capital Markets analyst Brett Hoselton downgraded GM to "Hold" from "Buy" because of the credit deterioration in GMAC's residential mortgage operation. He had rated GM favorably because he anticipated cost savings and better sales from the launch of new pickup trucks.

Lehman Brothers analyst Brian Johnson also questioned his earlier assumption that GM would see improvement from the rollout of new pickups.

"Without substantial labor concessions, meaningful improvements in profitability are unlikely in our view," he said in a note to investors.

Excluding special items, GM's net income was $94 million, or 17 cents per share, compared with net income of $350 million, or 62 cents per share, in the first quarter of 2006.

GM's revenue fell to $43.9 billion for the quarter, down 16 percent from $52.4 billion in the same period a year ago. GM said the decline was almost entirely due to GMAC revenue no longer being included in GM's consolidated results.

Automotive revenue for the quarter was $42.9 billion, down from $43.6 billion a year ago.