GM’s Profit More Than Doubles – Wall Street Journal

Posted: Thursday, April 21, 2016

The GM Buick Envision sports utility vehicle is displayed during the 2016 New York International Auto Show in New York on March 24. Healthy sales of trucks and sport utilities in North America continued to drive GM’s profits
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General Motors Co.
GM


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’s first-quarter profit more than doubled compared with the same period a year ago, as strong U.S. truck sales and improved performance in Europe overshadowed weaker results in emerging markets.

The largest U.S. auto maker by sales reported profit of $1.95 billion, or $1.24 a share, up from $900 million, or 56 cents a share a year earlier. Excluding special items, GM said its operating profit was $2.7 billion compared with $2.1 billion in the first quarter of 2015.

Revenue increased 4% to $37.3 billion, from $35.7 billion in the same period year ago, higher than Wall Street expectations. Last year’s first-quarter earnings were negatively affected by currency exchange and charges related to a safety crisis that first emerged in early 2014.

Thursday’s earnings report was another building block for Chief Executive Mary Barra as she pursues a goal of making the company the most valued car company in the world. Profit growth is one of the pillars of a strategy that also includes investing heavily in future technology and narrowing the company’s focus on more lucrative markets and vehicle segments.

First-quarter profit results beat analyst expectations of $1 a share by nearly 25 cents, and GM reported higher pretax earnings in every segment and geographic region versus a year ago. The company’s stock traded up 2% to $32.78 in morning trading on Thursday.

A modest drop in its North American margin to 8.7% of sales from 8.8% came after GM worked to boost the profitability of its U.S. business during the period. The auto maker has been dialing back on sales to rental car fleets, focusing instead on retail deliveries.

Chuck Stevens, GM’s finance chief, said the margin decline in its North American automotive business is attributable to the decision to include a restructuring charge of $250 million in the first quarter related to its recent labor agreement with United Auto Workers in the operating result. Absent that charge, Mr. Stevens said GM’s North American margins would have been 9.5%.

GM’s U.S. market share slipped below 17% during the quarter, one of only two of the six major auto makers to not book a sizable market share increase. Earnings at GM Financial, a unit heavily dependent on U.S. retail sales, reported flat income of $200 million—the auto maker had previously forecast 2016 as a breakout year for the finance arm in terms of profitability.

Still, GM said the most recent financial performance represents the most profitable first quarter to date on a net earnings basis.

Healthy sales of trucks and sport-utility vehicles in North America continued to fuel GM’s profits. The Detroit auto giant earned $2.3 billion in the region, about even with a year ago even as signs emerged that U.S. market growth is cooling after years of rapid growth.

GM also broke even in Europe, up from a $200 million loss in the same period a year ago. The company appears on target to make money in the region this year in Europe after more than a decade of losses in the region—representing an important milestone in Ms. Barra’s long-term plan.

However, Mr. Stevens said GM is tracking the U.K.’s potential exit from the European Union closely. He said GM is long on the pound sterling, so any weakening of the currency would impact GM’s short-term result.

Equity income from GM’s Chinese joint ventures was flat compared with the same period in 2015 at $518 million, amid stagnant sales in the world’s largest market.

GM South America trimmed its losses by roughly $150 million over a year earlier. While South American performance has improved, Mr. Stevens said the environment in Brazil in particular continues to be very challenging, and noted that GM reduced its South American head count by 20% last year.

GM also took a special pretax charge of $60 million related to its ignition-switch safety crisis.

Mr. Stevens said the company’s middling stock performance reflects investor anxiety about a downturn in the industry, and isn’t targeted at GM specifically.

“At the end of the day, there is a significant amount of negative sentiment from the investor perspective around the auto industry,” Mr. Stevens said. “We’ve performed reasonably well in a difficult environment.”

Write to Gautham Nagesh at gautham.nagesh@wsj.com

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