GM Profits Beat Estimates as Favorable Signs Appear
General Motors (GM) on Wednesday reported a third-quarter profit that exceeded analyst expectations by a wide margin.
GM's profit of $1.5 billion, or $0.89 a share, was less than the $1.7 billion it earned in the third quarter of last year. But it was well ahead of estimates by Wall Street analysts, who predicted that GM would earn about $0.60 a share for the quarter, according to a Bloomberg survey.
GM's earnings were hurt by ongoing losses in Europe. But elsewhere, its business is showing good signs.
Signs of Improvement for GM in the U.S.
GM's pre-tax earnings in its North American region, which includes the U.S., were $1.8 billion. That's down from last year's $2.2 billion, but despite the drop, it actually represents some improvements in GM's operations.
Ironically, GM's profits in the U.S. suffered a bit because of the popularity of some of its new models. The Chevrolet Sonic and Buick Verano have both been strong sellers for GM. But because they're both small cars, they're less profitable for the company than its big pickup trucks.
GM's Trucks are Getting Stale
GM's trucks haven't been selling badly. But they're near the end of their life cycles, with all-new models due next spring. That means GM has been losing some sales to Ford (F) and Chrysler, both of which have more up-to-date products. That's just the way the cyclical car business works.
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But there are good signs for GM, too. Sales are up (which helped profits) and better pricing -- the ability to sell its cars and trucks with fewer discounts -- contributed about $300 million to GM's bottom line, CFO Dan Ammann told reporters on Wednesday.
GM has a bunch of new products due to come to U.S. dealers over the next couple of years. The fact that pricing is already improving is a good sign for future success in the company's most important market.
Bumpy Roads Overseas
Meanwhile, GM's overseas results were mixed. While profits were up in Asia and South America, thanks to new products and improvements to operations, GM's troubled European branch posted a $478 million loss.
GM's German subsidiary, Opel, has lost more than $15 billion since 1999. Like most European automakers, it has deep problems similar to the ones that drove GM into bankruptcy: too many factories, too much bureaucracy, and too-expensive contracts with powerful labor unions.
Ford recently announced a grand plan to fix its European operation, and analysts have pressured GM to take a similar step. But GM said on Wednesday that the changes it has already made are starting to bear fruit, and predicted that it, like Ford, would begin to break even in Europe in a couple of years.
For GM's long-suffering shareholders, that would be a welcome change.
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At the time of publication, Motley Fool contributor John Rosevear (@jrosevear) owned shares of Ford and General Motors. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of General Motors and Ford.
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