General Motors fourth-quarter operating profit drops
Strong pricing on pickups and SUVs drove results, but soft China sales hurt bottom line
General Motors Co. is counting on U.S. buyers of pickup trucks and SUVs to contribute more to its bottom line.
GM said Wednesday its fourthquarter operating profit slipped 8%, hurt by weaker results in China and foreign-exchange pressures in South America. But higher U.S. prices for pickup trucks helped GM beat Wall Street profit forecasts.
GM said its North American business posted a record fourthquarter operating profit of $3.04 billion despite lower overall U.S. sales and a hit from tariff-related commodity costs. The big reason: Buyers shelled out more for redesigned versions of GM’s big pickup trucks, the Chevrolet Silverado and GMC Sierra, with the average selling price rising to about $44,000 last year.
The fourth-quarter profit in GM’s home market “again shows why it’s about pickup trucks” rather than vehicle sales overall, Itay Michaeli, Citigroup Inc. analyst, wrote in a note Wednesday. He and other analysts have estimated that trucks contribute the bulk of GM’s global operating profit.
Chief Executive Mary Barra has narrowed GM’s focus to the U.S. and China, the world’s largest markets, after leaving Europe and other money-losing regions in recent years. GM forecast a “modest” decline in China income in 2019 amid sluggish sales and pricing pressure industrywide, leaving North America to carry a heavier load.
The largest U.S. auto maker in
terms of sales, GM said excluding one-time factors, overall pretax profit for the fourth quarter fell 8% to $2.83 billion, or $1.43 a share, surpassing the average analysts’ estimate of $1.24 a share.
GM’s International division accounted for the decline. The overseas business swung to a $48 million loss, from an operating profit of $416 million a year earlier. That included a drop in fourth-quarter sales and a $200 million decline in profit for China
to about $300 million. GM also cited a $200 million hit from foreign-exchange headwinds in Argentina and Brazil.
Net income for the quarter totaled $2 billion, compared with a $5.2 billion net loss in the fourth quarter of 2017, which stemmed from a charge related to tax-law changes. The most recent quarter included a $1.33 billion charge related to job cuts under a continuing restructuring in North America, which was partly offset by favorable
effects of foreign tax credits.
Overall, fourth-quarter revenue rose 2% to $38.4 billion, better than the average analysts’ forecast of $36.5 billion.
GM shares rose about 1.5% in midday trading. They had rallied 17% this year through Tuesday, after the auto maker last month gave a bullish outlook for 2019, surprising analysts. Last year, GM shares sank 18%, weighed down by trade uncertainty and concerns about an eventual downturn in U.S. vehicle sales, analysts have said.
GM’s finance chief Dhivya Suryadevara said higher commodity costs in 2018, stemming partly from effects of tariffs on steel and aluminum, hurt the company’s bottom line last year by more than $1 billion. She said GM cut some costs in other areas to mitigate the impact.
“What this speaks to really is the earnings resiliency of the company,” she told reporters at GM headquarters Wednesday.
For the year, GM earned $11.78 billion in operating profit, below the record $12.84 billion it generated in 2017. It earned $6.54 a share in 2018, above the $6.25 forecast among analysts.
GM expects its bottom line to rebound this year, partly because of an expected lift from the overhauled line of trucks. The company could be pressured if U.S. and China vehicle sales this year don’t hold steady as GM has forecast—an outlook that some analysts say is overly optimistic.
GM also expects more than $2 billion in savings from its cuts of as many as 14,000 jobs in North America, moves that have drawn criticism from President Trump. The company confirmed this week that it has begun laying off thousands of salaried workers as part of the restructuring disclosed in November.
GM said Wednesday it will issue profit-sharing checks of up to $10,750 to about 46,500 U.S. factory workers under terms of its contract with the United Auto Workers union. The payouts are based on 2018 operating profit in North America, which slipped 9%, to $10.78 billion.