General Motors posts $1.7B profit after ditching European operations
General Motors earned a profit of $1.66 billion during the second quarter despite declining U.S. industry sales and rising vehicle discounts.
The automaker's profit was 42.1% lower than the $2.87 billion profit it earned for the same period last year. A large part of that decline was due to a $770 million loss from the sale of the company's European division and $600 million in special charges tied to the decision to stop selling vehicles in India and to sell its operations in South Africa.
The automaker outperformed Wall Street expectations on profit. With its European operations excluded, GM earned a profit of $2.4 billion, or 11.3% less than it earned for the same quarter a year ago. That result worked out to $1.89 per share, beating the $1.75 projected by S&P Global Market Intelligence analysts.
GM said its global revenue was $37 billion, a 1.1% decline compared with the same period a year ago. Those results are based on recording its European division as a discontinued operation. GM reached an agreement in March to sell its Opel and Vauxhall operations to French automaker PSA Groupe for $2.2 billion.
"Disciplined and relentless focus on improving our business performance led to a strong quarter and very solid first half of the year," GM CEO Mary Barra said in a statement. "We will continue transforming GM to capitalize on growth opportunities and deliver even more value for shareholders."
Despite the automaker's ability to beat Wall Street's expectations, Brian Johnson, an analyst with Barclays, doesn't expect the company's stock price to increase much above Monday's closing price of $35.82. That's because after seven years of consecutive sales gains, U.S. auto industry sales are falling.
"We believe GM is doing a fine job demonstrating it is at the forefront of the disruptive technology changes in the automotive industry — beyond what investors appreciate," Johnson said in a report Monday. "Unfortunately, at the moment, cycle is the primary focus at GM."
The automaker's pre-tax profits totaled $3.7 billion during the second quarter, down from $3.8 billion for the same period a year ago. That slight decline, GM Chief Financial Officer Chuck Stevens said, was caused by declining industry sales in the U.S. and higher production costs.
"As expected, it was another strong quarter," Stevens said. "The performance was really lead by North America."
GM has impressed some analysts with its aggressive investments into self-driving car technology, its willingness to sell its money-losing European division and the development of the Chevrolet Bolt, an electric car that can go 238 miles on a single charge. Barra also is fresh off of a victory over billionaire investor David Einhorn who tried to convince shareholders to split the company's stock into two classes.
Jeff Windau, an analyst at Edward Jones, said GM's stock is fairly valued at its current price given the challenges the company will face over the next year or two.
"We feel North American auto demand will moderate, which is expected to result in slower GM sales," Windau said in a July 14 report. "Also, we believe that GM's expenses will increase due to the investments in new vehicle technologies."
The company also must deal with inventory that is at its highest level in 10 years and a trend towards rapidly falling cars sales that are forcing all automakers to shift production away from cars and towards SUVs.
Last week, Reuters reported that GM is thinking about eliminating up to six of its cars and replacing some of those models with SUVs or crossovers.
Follow Detroit Free Press reporter Brent Snavely on Twitter @BrentSnavely.