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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