Strong U.S. Sales Lift GM Income
Riding strong U.S. sales and aggressive cost management, General Motors Corp. said Tuesday that it beat expectations and earned an operating profit of $1.5 billion, or $2.63 a share. The results were about twice those of last year’s second quarter, when GM earned $766 million, or $1.37 per share.
Revenue for the quarter was $48.3 billion, up from $46.2 billion a year earlier.
GM continues to outpace its Detroit rivals, Ford Motor Co. and DaimlerChrysler’s Chrysler Group, both of which lost money last year and last quarter on a net basis. Its well-received truck lineup has added to GM’s image and its bottom line, whereas Ford, which lost $5.45 billion last year, and Chrysler Group are in the midst of wide-ranging restructuring programs that are limiting their product offerings. Ford and DaimlerChrysler also will report their earnings this week.
On a net basis, GM earned $1.3 billion, or $2.43 a share, including its El Segundo-based subsidiary Hughes Electronics, which is being bought by EchoStar Communications Corp., and took a $55-million charge for costs associated with end-of-life vehicle recycling in Europe. GM’s net earnings a year ago were $477 million, or $1.03 a share.
“The second-quarter results show that our strategy of bringing out great products, being aggressive in the marketplace and intensely focusing on reducing costs and improving quality is working,” Chief Executive Rick Wagoner said in a statement. “Because of our improved cost base, we are able to be competitive with our pricing and improve our financial performance at the same time.”
The world’s No. 1 auto maker also continued to increase its U.S. market share in the second quarter, climbing to 28.2% from 27.3% a year ago.
GM’s results beat Wall Street’s consensus, which had put earnings per share for the quarter at $2.42.
Earnings per share were “a bit better than expected and cash flow very strong,” said John Casesa, Merrill Lynch’s auto industry analyst, in a research note to clients. “GM is a complicated story, but earnings and cash are coming through and the stock is attractively valued.”
GM’s shares closed at $45.84, down $2.08 on the New York Stock Exchange.
Chief Financial Officer John Devine reiterated GM’s forecast of earning $6 per share for the full year, currently estimated at $6.05 by Casesa and $5.57 by analyst Steven Girsky of Morgan Stanley.
GM’s North American income more than doubled to $1.2 billion thanks to strong sales led by GM’s recently introduced line of mid-size sport utility vehicles such as the Chevrolet TrailBlazer and Saturn VUE, along with the Cadillac CTS sedan and Pontiac Vibe wagon, and traditionally strong pickup trucks.
“GM’s North American operations continue to perform well,” Girsky said. “Industry conditions, however, at the margin appear to be slipping. International operations continue to struggle.”
GM will probably take a “significant” third-quarter charge on its 20% in Italy’s Fiat Auto because of a sharp decline in European auto sales, CFO Devine said.
The deal struck two years ago allows Fiat the option of forcing GM to purchase loss-generating Fiat Auto from 2004 to 2009. Devine said that process would take nine to 12 months if it happened, but that GM was not seeking to take over Fiat Auto, which includes the Fiat, Alfa Romeo and Lancia brands.
Devine said GM needs to take the lead in luring American consumers to its showrooms, and hence announced a revival this month of no-interest loans for up to five years, deals introduced after the Sept. 11 attacks to get people buying cars and trucks after sales nose dived. “We like it, and that’s why we do it,” Devine said. “We can improve our profitability while remaining aggressive in the marketplace.”
