GM shares hit record high after $2.5B pretax profit

Shares of General Motors hit a record high Tuesday as investors focused on a US$2.5 billion third-quarter pretax profit and ignored a big accounting loss.

The Detroit automaker’s US$3 billion net loss came from a US$5.4 billion charge for selling Opel and Vauxhall to France’s PSA Group, which closed in August. But with that backed out and before taxes, the company made US$1.32 per share, trouncing Wall Street estimates. Analysts polled by FactSet expected US$1.11 per share.

Much of the accounting charge came from previous losses that GM can’t use to offset future tax obligations. Revenue without Europe fell 14 per cent to US$33.6 billion, but that also beat expectations of US$32.2 billion.

After hitting the record early, GM shares pulled back slightly to close at US$46.48, a three-per-cent gain.

GM says its strong pretax performance came despite a 26-percent output cut in North America during the quarter to close out the 2017 model year and adjust to slowing demand, mainly for passenger cars. It made just over US$2 billion pretax in North America, as well as just under US$500 million from its joint venture in China.

Chief financial officer Chuck Stevens said the company sold more high-profit trucks and SUVs and fewer lower-margin sedans, but it also cut costs at an annual running rate of US$5 billion since 2014. The company also has cut low-profit sales to rental car companies. Stevens attributed the performance to “overall resilience of a better business model that we built in North America.”

Investors overlooked the loss because GM has worked hard to shed unprofitable businesses and make its operations more efficient, said Jeff Windau, an industry analyst with Edward Jones.

The company also was helped by strong SUV demand in North America, where it makes the bulk of its profits, Windau said.

Still, Edward Jones rates GM a “hold” rather than buy or sell. Windau says he’s concerned about spending on electric and autonomous vehicles with demand yet to be seen. GM also faces intense competition in China and the potential for rising material costs.