The High Cost of Reorganization: GM Waves Bye-bye to Profit Growth in 2014
GM (NYSE: GM) posted fourth-quarter revenue of $40.5 billion in 2013, compared to $39.3 billion in 2012. Yet, the company’s Q4 profit of $1.04 billion (67 cents per share) was down from the previous year’s $1.19 billion, mainly due to steep reorganization costs and higher tax rates. What’s particularly interesting here is that GM posted record sales from its North American division and was profitable in China. Yet investors seemed to give more importance to the re-organization fees, new tax assessments and one-time charges-offs, which resulted in the company’s share price dropping 3.2 percent, to finish at $34.12 yesterday. While investors had hoped that the re-org costs would be compensated for by year’s end, the reality is that the company missed estimates by a large amount, and the re-org charges will linger into 2014. So the question to investors is this: will you hang onto the stock long enough to clear the re-organization effects?