Truck Sales Boost GM’s Earnings
General Motors Corp. outpaced Wall Street’s expectations Tuesday in reporting earnings of $791 million, or $1.39 a share, for the first quarter. The company credited a greater mix of high-profit trucks and continuing efforts to cut costs.
GM also raised its earnings forecast for the year for the second time in six weeks, from $3.50 to $5 a share.
The quarterly results, on revenue of $46.3 billion, beat analysts’ consensus of $1.24 a share and far exceed what is expected from Big Three rivals Ford Motor Co. today and DaimlerChrysler’s Chrysler Group next week.
GM got an immediate boost from Wall Street, where its shares rose $2.95, or nearly 5%, to $64.05 on the New York Stock Exchange, its highest price since July. The stock has risen 32% year to date.
The results for the world’s largest auto maker excluded one-time charges and GM’s Hughes Electronics Corp. subsidiary, which is in the process of being acquired by EchoStar Communications Corp. Including Hughes and charges, GM earned $228 million, or 57 cents a share.
The special charges included $407million to help restructure GM’s flagging European operations, where the company is trying to cut the number of dealers in half to about 450, and $10 million at Hughes.
“Given the charge, it’s hard to say whether Europe has improved at all from last year,” said John Casesa, Merrill Lynch’s senior auto analyst. GM Europe, which consists primarily of the Adam Opel and Vauxhall brands, lost $125 million last quarter.
But GM executives were upbeat about the results.
“Strong vehicle sales in North America coupled with cost reductions drove our profit improvements,” Chief Executive Rick Wagoner said in a statement. “The quality of our market share keeps improving with a richer mix of more profitable vehicles and a higher percentage of retail sales.”
GM Chairman Jack Smith added, “Momentum is on our side, and we plan to build on our success.”
The auto maker’s fortunes have been improving for two years. Last year GM stemmed an 11-year slide in U.S. market share, and in 2000 the company posted record revenue of $183 billion.
Analysts credit GM’s focus on reducing costs and building up its high-margin truck lineup despite difficulties in overseas markets, including Asia-Pacific.
“Fortunately, it was able to increase its mix of light trucks from 53% to 57%,” analyst Casesa said, referring to the proportion of GM’s sales represented by pickup trucks, sport utility vehicles and minivans. “GM is doing now what Ford did in the 1990s--driving earnings improvement with a richer truck mix.”
Pricing pressures, however, will remain tough, as rebates and cheap loans continue to sap profit and Japanese importers resist significant price increases.
“The big driver for pricing is the competition,” Chief Financial Officer John Devine said in a conference call. “The ones we’re really worried about are the ones with yen-based cost. It’s a tough environment, and we’re not going to give away volume based on someone undercutting our prices. We have to be competitive.”
GM saw a strong showing from its finance arm, General Motors Acceptance Corp., which earned $439 million in the first quarter, up 2% from a year earlier, thanks to an increase in earnings from mortgage operations.
Hughes lost $146 million, worse than last year’s loss of $96 million, because of the cost of adding DirecTV satellite television subscribers, although Hughes’ revenue increased 6.5% to $2 billion.
