GM Beats Profit Estimates Ahead of New-Model Wave
General Motors Co. (GM)’s second-quarter sales rose 3.9 percent, signaling the largest U.S. automaker is poised for growth with one of the biggest waves of new models in its history.
While net income dropped on falling profit from the unit that includes India and southeast Asia, earnings excluding some items beat analysts’ estimates. Revenue rose to $39.1 billion from $37.6 billion. The stock was little changed at $37.08 after touching the highest intraday price since January 2011.
Demand for new pickups in the U.S. as well as Cadillacs and Buicks in China made up for declines in southeast Asia and Australia, where the weaker yen hurt GM’s profit by $100 million. The Detroit-based automaker is bringing 18 new or refreshed vehicles into showrooms this year, transforming its lineup into one of the market’s newest from one of the oldest.
“I’ve been telling clients for a long time that GM’s stock is cheap today partly because they’re not operating at their full potential,” David Whiston, an analyst with Morningstar Inc. (MORN) in Chicago, said in a telephone interview.
The sales growth for GM, which follows yesterday’s positive report from Ford Motor Co. (F), is further evidence of the industry’s resurgence even after Detroit this month filed the largest municipal bankruptcy in U.S. history. Auburn Hills, Michigan-based Chrysler Group LLC releases earnings next week.
“There will always been currency shifts, recessions or unrest somewhere in the world that we have to manage through,” Chief Executive Officer Dan Akerson told analysts today. “But at GM the short-term challenges are no longer the tail wagging the dog.”
Profit excluding a one-time item was 84 cents a share, GM said, exceeding the 77-cent average of 13 estimates compiled by Bloomberg. That compares with 90 cents a share a year earlier. GM was down 0.2 percent at the close in New York time after reaching an intraday high of $37.71. The shares have soared 29 percent this year, outpacing the Standard & Poor’s 500 Index’s 19 percent gain.
GM’s North American operations reported adjusted earnings before interest and taxes that rose 4.5 percent to $1.98 billion. That exceeded the $1.73 billion average of three analysts’ estimates. Companywide net income fell 23 percent to $1.41 billion in the second quarter, the automaker said today in a statement.
“We’re just at the very beginning of our new launch cycle here,” Chief Financial Officer Dan Ammann told reporters today at the company’s Detroit headquarters. “A lot of the new product is yet to really come into the market at full-run rate.”
The redesigned Chevrolet Corvette and Silverado are among 18 new or refreshed GM vehicles arriving in U.S. showrooms this year. The surge will transform GM’s lineup into one of the newest in the industry from one of the oldest. One of the earliest new offerings, the 2014 Impala, was rated by Consumer Reports today as the best sedan on the market -- a first for a U.S. automaker in at least 20 years.
The product push is part of Akerson’s efforts to boost North American profit margins to 10 percent, stem European losses and increase China sales to 5 million, all by mid-decade.
GM’s European unit, which includes the Opel brand, lost $110 million before interest and taxes, compared with a $394 million Ebit loss a year earlier and the $175 million deficit in the first quarter. The European operations were helped by $400 million in cost reductions, the company said.
The second half may face seasonal challenges in Europe and the company expects results “to exhibit some seasonal decline,” Ammann said.
The company’s international operations, which include China, India and other markets, reported that adjusted Ebit fell 64 percent to $228 million from $627 million a year earlier even as profits from China increased.
The unit’s results were weakened by falling sales in markets such as India, and by Japanese automakers’ use of the weak yen to pressure GM in ASEAN and Australian markets, Ammann said.
The region was also hurt by recall and warranty costs, GM said.
“More than half of the impact is market related and less than half is the warranty and other expense related,” Amman said.
In China, where GM is the largest foreign automaker, Ebit rose 26 percent to $418 million, according to a regulatory filing today.
In South America, GM’s operating profit more than tripled to $54 million from $16 million a year earlier, the company said. The company’s South American operations have been hurt by political unrest in Venezuela and weakening currencies, including in Brazil, Ammann said.
Year-earlier regional results were revised as part of GM’s previously announced financial reporting change implemented during the first quarter, said Tom Henderson, a company spokesman.
Total revenue rose to $39.1 billion, beating the $38.57 billion average estimate of six analysts.
The one-time expense came from April when GM Korea paid $700 million to acquire preferred shares that had a carrying value of $500 million, GM said in a filing.
While GM’s lineup may be old, it’s still making some of the best vehicles it has produced in a generation along with Ford and Fiat SpA-controlled Chrysler, helping all three gain U.S. market share during the first half for the first time in 20 years.
GM’s second-quarter performance in its home market, where it’s No. 1 in sales, was bolstered by sales of its old pickups.
Combined deliveries of the Silverado and the Sierra, the GMC brand equivalent, rose 26 percent. The average transaction prices of GM’s full-size pickups in the quarter rose 5.3 percent to $36,641 from a year earlier, according to Edmunds.com, a website that tracks auto sales. That trails Ford’s F-150, which averaged $38,841.
GM’s pickup growth was in line with the gain posted by Ford’s F-Series, the market’s top-selling line of vehicles. The high-volume F-150 is due for a redesign next year.
Ford yesterday reported second-quarter net income of $1.23 billion. Excluding some items, Ford’s per-share profit was 45 cents, exceeding the 37-cent average of 17 analysts surveyed by Bloomberg. Shares of the Dearborn, Michigan-based automaker closed at the highest level since January 2011.
Ford raised its full-year pretax profit forecast to equal or exceed last year’s $8 billion after earning $4.7 billion in the first half. The company had previously projected its annual result would be in line with last year’s. Ford also narrowed its loss forecast for Europe to about $1.8 billion from $2 billion. Its pretax loss in the region narrowed to $348 million from $404 million a year ago.
GM has predicted modest profit improvement this year because it didn’t expect the new models to boost earnings until the second half.
Goldman Sachs Group Inc. last week swapped GM for Ford on its Americas Conviction Buy list and projected that the largest U.S. automaker’s shares may rise to $45 in the next year. Patrick Archambault, a New York-based auto analyst for Goldman Sachs, said the new pickups will boost GM’s profit margins and that the automaker may pay a dividend by the end of the year.
“We see GM as one of the most attractive product stories in the sector,” he wrote.
The new Silverado Crew Cab began trickling into showrooms in May with plans for the double cab to arrive in the third quarter, followed by the regular cab a month to 45 days later, GM has said. It won’t be until the fourth quarter when GM is selling more of the 2014 models than 2013s.
Other new GM vehicles arriving in the fourth quarter include the redesigned Cadillac CTS sedan and refreshed Buick Regal car. The new Chevrolet Impala sedan began arriving in showrooms in the second quarter.
GM returned to the Standard & Poor’s 500 Index during the second quarter, a milestone triggered in part by the U.S. Treasury reducing its stake in the automaker. GM said in December that the U.S. planned to divest its holding within 15 months.
Shares on May 17 topped the $33 initial public offering price for the first time in two years, and a union retiree medical trust has begun selling its stock.
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