Despite boffo earnings, GM gets no respect on Wall Street – USA TODAY
Once again, investors are treating General Motors like Rodney Dangerfield — remember him? “no respect?” — even after the company asserted it will post a record pre-tax profit for all of 2016.
GM earned $1.95 billion in the first quarter, more than double the year-earlier $953 million when it reported Thursday. It beat Wall Street expectations. On an earnings per share basis, GM made $1.26, well above the $1.00 consensus of more than 12 analysts’ estimates
It was the company’s best first-quarter profit ever. But the automaker’s stock rose only modestly.
GM shares closed Thursday at $32.66, a 1.5% gain for the day and its highest closing price since Jan. 4.
Even as new vehicle sales in the U.S. remain on pace to break last year’s record of 17.5 million, many investors worry that the industry’s cycle is near its peak. There also is concern about the profitability of GM’s investments in ride-sharing, car-sharing and autonomous vehicles will prove to be.
“The best thing we can do is continue to execute our short-term and long-term strategies, put the results on the board, continue our focus on the future with our investments in Lyft ($500 million) and Cruise Automation and our share price will reflect that over time,” said Chuck Stevens, GM chief financial officer.
Another better-than-expected number was total revenue, which rose 4.5% to $37.3 billion, despite selling 2.5% fewer vehicles worldwide with most of the decline coming in South America.
Globally GM’s pre-tax profit margin was 7.1%. In North America it was 8.7%, down slightly from 8.8% a year earlier and below the 10% to 11.8% range reported over the last nine months of 2015.
Stevens officer, said the North American profit margin was reduced by $300 million in restructuring costs, most of which related to an early retirement program negotiated last fall with the United Auto Workers union.
“We’re growing where it counts, gaining retail market share in the U.S., outpacing the industry in Europe and capitalizing on robust growth in SUV and luxury segments in China,” said CEO Mary Barra in a statement.
While North America provided the overwhelming share of worldwide profits — $2.3 billion before taxes — GM improved results in all four regions, nearly breaking even in Europe — $6 million pre-tax loss, compared with a $239 million loss in the first-quarter of 2015.
The automaker narrowed its loss in South America to $67 million from $214 million. Profit from international operations was about the same at $379 million, much of which reflects China where GM’s equity income from its joint ventures was $518 million, about even with a year earlier.
New vehicle prices are expected to fall in China by 4% to 5% this year, Stevens said, but GM and its partners are able to offset that by launching such new luxury models as the Buick Envision SUV and Cadillac CT6 fullsize sedan.
Back in the U.S. GM has pulled back intentionally on sales to daily rental fleets, a segment of the market in which automakers sometimes boost their market share. But it did fairly well in retail sales which tend to generate larger profit margins.
The increased profitability came on a smaller U.S. market share of 16.4%, down from 16.9% in the first quarter of 2015 and a fraction of the 51% it held in 1962 and about half of the 31% it had in 1997.
Also bolstering profit margins were consumers’ growing preference for larger vehicles, including pickup trucks and fullsize SUVs, as well as the introduction of redesigned models such as the 2016 Chevrolet Malibu which carry higher sticker prices than the models they replace.
The average GM vehicle sold or leased in the U.S. during the quarter was priced at $34,600, about $3,000 higher than the industry average.
European results were helped by the introduction of the Opel Astra, one of the company’s highest-volume vehicles in that region.
During a conference call one analyst asked if GM had considered placing “new mobility” investments, such as its stake in Lyft, the pending Cruise Automation purchase and its car-sharing venture Maven into a separate subsidiary that wouldn’t be tied to the finances of the parent company.
“These investments are an opportunity for us,’ Barra said. “But looking at how the business is going to evolve these technologies are integral to our vehicles” and are likely to be run as part of the larger company.
Another analyst asked what was GM getting from Cruise Automation that was worth the reported $1 billion priced it has offered for the three-year-old San Francisco startup.
Barra said the acquisition hasn’t closed yet, but GM will provide more details as that date approaches.
The deal could be delayed by competing lawsuits brought by and against Cruise co-founder and CEO Kyle Vogt involving a disgruntled former partner, Jeremy Guillory, who claims he is entitled to a substantial portion of the purchase price.