Truck, SUV Sales Power GM's Profit--Update
April 28 2017 - 8:58AM
Dow Jones News
By Mike Colias
General Motors Co.'s first-quarter net income rose 34%, as
strong sales of pickup trucks and SUVs in the U.S. continue to
offset softening in the car market and troubles in regions like
South America.
GM on Friday reported net income of $2.6 billion for the
January-to-March period, a record for the quarter and up from $2
billion a year earlier.
The nation's largest auto maker by sales posted first-quarter
operating profit of $1.70 per share, breezing past Wall Street
expectations of $1.47 per share.
Revenue rose 11% to $41.2 billion, topping analysts' forecasts
of $40.3 billion, as GM grew both sales and pricing on trucks and
large sport utilities in North America, its most profitable vehicle
lines.
GM continues to cash in on brisk demand for pickup trucks and
SUVs, stoked by sustained low gas prices and steady economic
growth. Profits from China remained steady as sales improved after
a sluggish start to the year, while GM's sales mix in the world's
largest car market tilted toward higher-priced SUVs, Buicks and
Cadillacs.
The company continues to lose money in Europe, a region it will
exit later this year upon the expected closure of the sale of its
Opel division to French car maker Peugeot. GM's first-quarter loss
in Europe was $206 million, versus just $6 million a year earlier,
amid exchange-rate pressure stemming from Brexit.
Losses in South America widened to $115 million, from $67
million, as conditions in Brazil remain difficult despite GM's
expectations for improved performance in the region this year.
GM continues to generate the bulk of its profits in North
America, where it is commanding high prices for pickup trucks and
big SUVs like the Chevrolet Suburban even as pricing erodes on
passenger cars and smaller SUVs industrywide. GM's average prices
in the U.S. slipped overall in the first quarter compared with a
year ago, but the average price of a GM pickup truck -- its biggest
profit generator -- edged up nearly $700, to $42,650, a spokesman
said.
GM's North American operating profit rose 49% to $3.4 billion,
also a record for the quarter. The company's operating profit
margin in the region rose to 11.7%, from 8.7% a year earlier,
partly from cost reductions.
GM benefitted from production increases in North America to
build stocks head of planned factory down time later this year
related to the launch of some redesigned models. Inventory on
dealer lots swelled to a 98-day supply at the end of March, versus
71 days a year earlier.
Finance chief Chuck Stevens acknowledged that the build-ahead
helped GM's bottom line during the quarter but said inventory will
return to normal levels in the second half of the year. He also
downplayed rising incentives by GM and other auto makers, saying
the prices customers are paying haven't eroded.
"Clearly it's a more competitive market," Mr. Stevens told
reporters at GM's headquarters Friday. "Transaction prices continue
to remain strong."
GM said sales slipped in China during the quarter, but the
company was able to offset the volume drop by selling a richer mix
of SUVs and more Cadillac and Buick models, which carry
higher-than-average prices. Equity income from its Chinese joint
ventures totaled $504 million, versus $518 million a year
earlier.
GM shares rose nearly 2% in premarket trading Friday.
The U.S. auto industry -- long a cyclical business -- has been
riding an unprecedented seven-year run of rising sales since the
end of the financial downturn, driven by tame gas prices, wage
growth and pent-up demand from buyers who put off vehicle purchases
amid economic uncertainty.
Still, GM shares have been stuck in neutral for much of that
run. Despite two straight years of record profits, reinstating a
common-stock dividend and billions in stock buybacks, the stock has
struggled to stay above the $33 IPO price from 2010.
The lethargic stock price has drawn interest from activist
shareholders including Greenlight Capital's David Einhorn, who has
nominated a slate of three directors and is pushing a plan to
divide GM's shares into two classes, separating its dividend from
its operations. GM is urging shareholders to vote down the proposal
at the annual meeting, likely in June, claiming it would harm the
company's investment-grade credit rating.
Analysts typically point to concerns about a sales peak and
whether GM can sustain strong profitability if U.S. auto sales turn
sharply lower. Industry sales are slipping -- they're projected to
decline for the fourth straight month in April -- though few
analysts expect a steep decline in coming years.
Write to Mike Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
April 28, 2017 08:43 ET (12:43 GMT)
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