Analysts lower Q1 earnings forecasts for GM on recall costs

Article by Christian A., on April 25, 2014

General Motors was well expected to post a record $10 billion in profit this year. That expectation would have to wait longer to be realized as the carmaker’s prime focus to avoid posting a loss when GM releases its earnings for the first quarter of 2014 this week.

For the first three months of the year, analysts are now expecting less from GM, especially on its earnings – no thanks to the costs related to a recall of 2.59 million vehicles ties to the deaths of at least 13 people as well as to continued financial bleeding in Europe and new hurdles in Russia, Australia, Asia and South America.

Brian Johnson, an industry analyst with Barclays Plc, downgraded this week his earnings estimate at GM to a penny-per-share loss from a 20-cent profit. He expects GM to log its worst results since the fourth quarter of 2009, when the carmaker just emerged from government-backed bankruptcy reorganization.

All 11 analysts polled by Bloomberg downgraded their estimates for GM’s first-quarter adjusted EPS to 4 cents a share. His compares to a $1.18 billion net profit in the first quarter of 2013 or 67 cents per share on an adjusted basis.

GM has said it expects a $1.3-billion loss for costs tied to recalling 7 million vehicles, including cars with faulty ignition switches. The carmaker has stated it will take a $400 million in pretax charges for changes in Venezuela's currency.

The bleeding doesn’t stop at that as GM may still post losses in Europe and take restructuring costs in Asia and South America. Johnson wrote that they expect a 'kitchen sink' quarter for GM. Fourteen analysts polled by Bloomberg expect an average $5.58 billion in adjusted net income for the full year 2014.

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