By Nick Carey and Paul Lienert
DETROIT (Reuters) - General Motors Co on Thursday reported a better-than-expected quarterly profit despite a drop in production of high-margin pickup trucks, as it gears up for new models that are expected to boost profits later this year.
Like rivals Ford Motor Co and Fiat Chrysler Automobiles NV, GM is banking on highly profitable pickup trucks to boost margins, as U.S. consumers shift away from traditional passenger cars in favor of larger, more comfortable trucks, SUVs and crossovers.
Executives said GM will reduce spending on traditional sedans in North America, while introducing new low-cost passenger cars next year in China and South America.
During the first quarter, the process of retooling assembly plants to make GM's new pickup trucks resulted in a drop in production of 47,000 units. GM Chief Financial Officer Chuck Stevens said the production drop had reduced pre-tax profit by up to $800 million.
Also Read
Earlier this year, GM said its 2018 profits would be flat compared with 2017, but expected its all-new pickup trucks would boost margins later this year and in 2019. On Thursday, GM reiterated its full-year 2018 forecast for adjusted earnings in a range from $6.30 to $6.60 per share.
In late morning trade, GM shares were down 2.2 percent at $37.29.
The automaker said capital expenditures were more than $500 million higher in the quarter because of investments in its new pickup trucks and a family of low-cost compact vehicles under development with Chinese partner SAIC Motor Corp Ltd.
The new GEM (Global Emerging Markets) vehicles, which include sedans and crossovers, will launch in the second half of 2019 in China and South America, with annual production ramping up to 2 million by late 2021, Stevens said.
GM Chief Executive Mary Barra said the automaker has "a strong franchise" in South America, with the new GEM vehicles contributing to the bottom line.
GM CFO Stevens told reporters on Thursday the automaker has "already indicated that we will make significantly lower investments" in sedans in North America.
On a conference call with investors, he said GM executives "look at these car lines on a weekly basis, at how to drive performance (and) cost efficiencies."
On Wednesday, rival Ford said it would stop investing in most traditional passenger sedans in North America.
Stevens said GM expects to spend $1.1 billion this year to continue developing self-driving vehicles, as well as a ride-sharing operation and related future transportation projects. That compares with $700 million in 2017.
GM benefited from a lower effective tax rate in the quarter, but adjusted pre-tax margin fell to 7.2 percent from 9.5 percent a year earlier. Stevens said the company's profit margin should hit 10 percent or higher in the second quarter and for the full year.
GM said raw material costs were $200 million higher in the first quarter and it expects those costs to continue rising. The automaker said it would counter those increases with cost cutting measures.
"It is a more difficult environment than it was three or four months ago," Stevens said when asked about rising commodity prices from potential steel and aluminum tariffs announced by the Trump administration. "But we are confident we can continue to offset that."
The company reported quarterly net income of $1.05 billion or $1.43 per share, a drop of nearly 60 percent from $2.61 billion or $1.75 per share a year earlier. Analysts had on average expected earnings per share of $1.24.
Revenue in the quarter totaled $36.1 billion, down from $37.3 billion in the first quarter of 2017. Analysts had expected revenue of $34.7 billion.
(Reporting by Nick Carey and Paul Lienert; Editing by Nick Zieminski and Phil Berlowitz)
Disclaimer: No Business Standard Journalist was involved in creation of this content
