GM reports $891 million in earnings
General Motors Corp. is the second U.S. automaker to report surprisingly strong results for the second quarter.
GM, the No. 1 U.S. car company, posted its third straight quarterly profit Tuesday, blowing away Wall Street forecasts a week after Ford Motor Co. reported a profit when analysts had expected a loss.
Excluding one-time items such as charges related to the bankruptcy of its former auto parts subsidiary Delphi Corp., GM said it earned $2.48 a share. The consensus Wall Street forecast had been a profit of $1.08 a share, according to Reuters Estimates.
Net income was $891 million, or $1.56 a share. Detroit-based GM recorded a $3.4-billion loss in the same period a year ago.
Robust results outside North America were key. GM had its best quarter in Europe since the second quarter of 1996, Chief Financial Officer Fritz Henderson said. GM reported a net profit of $217 million in Europe; in the year-earlier period, there was a loss of $39 million.
The company’s Latin America, Africa and Middle East unit saw “explosive” growth, with vehicle sales rising 20%, Henderson said. Sales rose 8.2% in Asia and 4.7% in Europe.
“Our heavy commitment to key growth markets around the world really paid off in strong growth and earnings,” Chief Executive Rick Wagoner said in a statement.
Another factor was the strong performance by GM’s core North American automotive operations, where the $3.95-billion net loss in the second quarter of 2006 narrowed to $39 million.
GM’s share of the North American vehicle market continued to decline, in part because of a planned reduction in sales to rental and corporate fleets, but also because of slower retail sales, particularly in June. Its North American sales fell 7% in the quarter.
Like other U.S. automakers, GM is in the midst of a wide-ranging restructuring of its North American auto operations with plans to cut 34,000 jobs and close 12 plants.
Cost cutting during the second quarter boosted the company’s North American results, “but our current earnings clearly demonstrate we’ve got more work to do,” Wagoner said.
“GM has been very successful at reducing costs in every area of the business where costs are under its control,” John Casesa of Casesa Strategic Advisors told Bloomberg News.
The Big Three U.S. car companies just started talks with the United Auto Workers on a new four-year contract.
They are expected to seek concessions from the union to make their operations more cost competitive with Japanese rivals.
GM’s revenue fell to $46.81 billion from $53.9 billion a year earlier, although revenue from auto operations rose nearly 2.5% to $45.9 billion.
Hurting results was a 63% drop in earnings at GM’s former financial arm, GMAC Financial Services. GM still owns 49% of the unit, which saw its quarterly profit drop to $293 million from $787 million a year earlier.
Looking forward, CFO Henderson was cautious about the remainder of the year, noting that weakness in the U.S. housing market and volatile gasoline prices were hitting consumers. High raw-material costs are also affecting the company’s manufacturing costs, he said.
GM executives described the overall industry environment as “pretty tough.”
GM shares were up almost 4% in midmorning trading, but slipped as the market sold off later in the day. The stock closed down 21 cents to $32.40.
The quarterly results exclude Allison Transmission, which GM intends to sell during the current quarter.
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