Thursday 22 March 2018

GM beats expectation as cost-cutting takes sting out of profits dip

Ben Klayman and  Deepa Seetharaman

General Motors has posted a higher-than-expected quarterly profit as the US car maker narrowed its losses in Europe on aggressive cost-cutting and raised prices in North America.

Europe, where industry sales hit a 20-year low in the first half, remains "very challenging", chief financial officer Dan Ammann said. He added it was too soon to call any sort of improvement there.

"The biggest news in the quarter is just Europe is not as bad," said Guggenheim Securities analyst Matthew Stover, who has a "neutral" rating on GM's stock.

Net income in the second quarter fell to $1.2bn (€910m) from $1.5bn a year earlier, hurt by higher costs related to the rollout of its redesigned full-size pickup trucks and losses in Asia outside of China. Second-quarter revenue rose 4pc to $39.1bn, topping the $38.37bn analysts had expected.

In May, GM reported a stronger-than-expected first-quarter profit as it kept a tight grip on costs in its North American and European businesses. That grip was still in place in the second quarter in Europe, where the company cut costs by $40m compared with a year earlier. GM's Mr Ammann said the firm continued to be aggressive in those efforts.

GM's North American business had operating earnings of almost $2bn in the latest quarter, easily beating the $1.75bn that nine analysts polled by Reuters had expected.

Mr Ammann said the US market remains robust, but GM declined to raise its full-year forecast for industry-wide US sales.

GM was able to raise prices in North America, accounting for an earnings gain of $300m, but that was offset by a $400m increase in costs related mostly to the introduction in June of the 2014-model Chevrolet Silverado and GMC Sierra trucks, key profit generators for the company.

Profit margin slipped to 8.4pc in the second quarter from 8.8pc a year earlier, due largely to the launch costs for the new trucks. Mr Ammann said GM would benefit in the second half from increased sales of the trucks and other high-margin products such as the Cadillac CTS sedan and the Chevrolet Corvette Stingray.

Irish Independent

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