GM's Profit Sinks on Restructuring, Other Costs -- 2nd Update
April 26 2018 - 08:35AM
Dow Jones News
By Mike Colias
General Motors Co.'s first-quarter net income sank 60% amid
hefty restructuring costs in South Korea and lost production in the
U.S. from planned factory downtime, but the auto maker handily beat
Wall Street profit forecasts.
GM on Thursday reported net income attributable to common
shareholders of $1 billion for the January-to-March period, down
from $2.6 billion a year earlier. The result reflected nearly $1
billion in restructuring costs mostly related to GM's operations in
Korea, where the auto maker is closing a plant and negotiating for
government aid to continue operations in the country.
GM's first-quarter operating profit excluding one-time factors
was $1.43 per share, surpassing analysts' expectations of $1.24 a
share.
Revenue from continuing operations declined 3% to $36.1 billion,
higher than the average analyst forecast of $34.6 billion.
On Thursday, GM finance chief Chuck Stevens told reporters the
auto maker's labor union in Korea ratified an agreement that will
save up to $500 million in annual costs. Mr. Stevens also said GM
has a preliminary deal with Korea Development Bank, a GM Korea
minority shareholder, for an infusion of $750 million.
GM in February said it would close one of its four plants in
Korea and raised the possibility of withdrawing operations
altogether if it couldn't cut losses. The moves will allow the
Korea unit to turn a profit in 2019, Mr. Stevens said.
GM executives in February also signaled first-quarter results
would be relatively weak, largely from cuts in North American
production related to factory work being done to prepare for the
autumn launch of redesigned pickup trucks. GM produced about
809,000 vehicles in the region during the quarter, down 8% from a
year earlier, according to WardsAuto.com.
The company also said higher commodity prices and costs related
to the planned truck rollout weighed on results. The auto maker is
undertaking the most extensive revamp of its large pickup trucks --
the Chevrolet Silverado and GMC Sierra -- in two decades, requiring
construction-related production pauses at three North American
factories.
The heavier costs and lost production held GM's operating profit
in North America to 8%, below the 10% target the company has
consistently cleared in recent quarters. GM said it expects to
finish the year above that level in the region and reaffirmed its
2018 profit outlook of mid-$6-per-share range.
GM got a lift in China -- its No. 2 profit generator and top
market by sales volume -- with record income of $597 million from
GM's joint ventures in the region, up 18% from a year earlier. GM's
China sales rose 8% in the quarter on strong demand for Chevrolet
SUVs and the Cadillac luxury brand.
GM has strung together back-to-back years of record adjusted
pretax profit on the strength of truck and SUV sales in North
America and a steady income stream from China. Executives expect a
similar result this year, but they must overcome several obstacles,
including higher commodity costs, price pressure in China and the
pullback in North American production.
The launch of the new trucks is expected to give GM momentum
heading into 2019, when GM expects profits to rise. The trucks,
along with four SUV models built on the same mechanical
underpinnings, generate the bulk of GM's bottom line.
Still, major product launches are prone to pitfalls. During GM's
last major rollout of a redesigned truck, in 2013, the auto maker
struggled with production bottlenecks, leaving profits on the
table.
Also, like its competitors, GM must course correct in response
to sharply lower demand for passenger cars, amid a consumer
migration to SUVs and trucks. GM has cut thousands of jobs at car
factories and will eliminate some models from its lineup, people
familiar with the plans say, though executives seem committed to
remaining in the most popular car segments. Ford Motor Co. said
Wednesday it will eventually phase out cars in the U.S. with the
exception of sporty models.
While building fewer passenger cars cuts into GM's revenue, it
may not hurt profitability. GM executives have said the car
portfolio in North America is low margin and that they are
re-evaluating the vehicle lineup, though they've indicated an
unwillingness to walk away from major categories like midsize
sedans. Ford said Wednesday that it would kill once-popular car
lines like the Ford Fusion in a bid to boost profit margins.
Write to Mike Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
April 26, 2018 08:20 ET (12:20 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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