General Motors Beats Earnings Expectations, Investor Fears Linger
General Motors Co shares fell over 3 percent on Tuesday despite better-than-expected third-quarter results amid fears that a slowdown in U.S. vehicle sales and currency turmoil in Europe will undercut future profits.
GM Chief Financial Officer Chuck Stevens told reporters that the overall U.S. car and light truck market is a “plateaued environment,” with sales flat for the year.
But he said GM expects to continue delivering 10 percent or better North American margins by cutting the costs of discounts needed to close deals, reducing production costs and refreshing its compact and mid-size sport utility vehicles.
The largest U.S. automaker said it expected full-year results would be on the “high end” of its previous forecast of $5.50 to $6.00 a share.
But analysts said they remain concerned about U.S. sales, currency costs related to the fall of the British pound and uncertainty about China.
GM shares were down 3.8 percent in early New York trading at about $31.69 a share, giving back premarket gains that briefly pushed the stock above its 2010 initial public offering price of $33.
Despite $5 billion in stock repurchases during the past year, GM shares are down 4.8 percent for the year, reflecting investor fears that established automakers face a slowing market and ever-rising costs to meet climate regulation and challenges from new technology.
Rival Ford Motor Co, due to release third-quarter results on Thursday, warned in July that a slowing U.S. auto market would put its full-year profit forecast at risk. Ford shares also dipped Tuesday.
GM’s results and its outlook depend primarily on strong U.S. and Chinese economies. The company said it lost money in Europe, South America and in Asian markets outside of China.
The third-quarter loss in Europe totaled about $100 million. Chief Financial Officer Chuck Stevens told reporters on Tuesday that achieving break-even results for Europe this year will be “very, very challenging.”
GM is “prepared to take whatever action is necessary” to return European operations to profitability, Stevens said. Stevens said GM raised vehicle prices in the UK by 2.5 percent on Oct. 1.
Overall, GM said third-quarter net income more than doubled to $2.8 billion, or $1.76 a share, from a year earlier.
Excluding a $110 million gain from litigation, earnings of $1.72 a share beat the analysts’ average estimate of $1.45, according to Thomson Reuters I/B/E/S.
Revenue for the third quarter rose 10 percent to a record $42.8 billion, boosted by production of vehicles that went onto lots at GM’s U.S. dealers. The company said that compared to a year ago, it had 110,000 more vehicles in stock at U.S. dealers as of Sept. 30.
Chief Executive Mary Barra has sought to convince investors that GM is not as vulnerable to the cyclical nature of U.S. vehicle sales as in the past, and is defending against challenges from technology companies and rivals such as Tesla Motors Inc.
REUTERS