UPDATE 2-GM profit beats Street on aggressive cost-cutting in Europe
DETROIT, July 25 (Reuters) - General Motors Co posted a higher-than-expected quarterly profit on Thursday as the U.S. automaker narrowed its losses in Europe on aggressive cost-cutting and raised prices in North America.
Europe, where industry sales hit a 20-year low in the first half, remains "very challenging," GM Chief Financial Officer Dan Ammann said. He added it was too soon to call any sort of improvement there.
"The biggest news in the quarter is just Europe is not as bad," said Guggenheim Securities analyst Matthew Stover, who has a "neutral" rating on GM's stock.
Net income in the second quarter fell to $1.2 billion from $1.5 billion a year earlier, hurt by higher costs related to the rollout of its redesigned full-size pickup trucks and losses in Asia outside of China.
Excluding one-time items, mostly related to the acquisition of preferred shares in GM Korea, the automaker earned 84 cents a share, 9 cents above the average forecast of analysts polled by Thomson Reuters I/B/E/S. GM shares rose 1.5 percent to $37.70 in early trading, their highest intraday price in two and a half years. Later they fell back to $37.28, up 14 cents.
Second-quarter revenue rose 4 percent to $39.1 billion, topping the $38.37 billion analysts had expected.
In May, GM reported a stronger-than-expected first-quarter profit as it kept a tight grip on costs in its North American and European businesses. That grip was still in place in the second quarter in Europe, where the company cut costs by $400 million compared with a year earlier. Ammann said GM continues to be aggressive in those efforts.
GM's North American business had operating earnings of almost $2 billion in the latest quarter, easily beating the $1.75 billion that nine analysts polled by Reuters had expected. Ammann said the U.S. market remains robust, but GM declined to raise its full-year forecast for industry-wide U.S. sales.
GM was able to raise prices in North America, accounting for an earnings gain of $300 million, but that was offset by a $400 million increase in costs related mostly to the introduction in June of the 2014-model Chevrolet Silverado and GMC Sierra trucks, key profit generators for the company.
Profit margin slipped to 8.4 percent in the second quarter from 8.8 percent a year earlier, due largely to the launch costs for the new trucks. Ammann said GM will benefit in the second half from increased sales of the trucks and other high-margin products such as the Cadillac CTS sedan and the Chevrolet Corvette Stingray.
"You don't have really high expectations for North America because you're in transition mode with the (new trucks)," Guggenheim's Stover said. "It's sort of like holding your best player back."
GM Europe had an operating loss of $110 million in the second quarter, almost one-third smaller than Wall Street had expected. The company's sales and market share in Europe fell in the quarter, however.
The Detroit automaker has said it is targeting a return to break-even results in Europe by the middle of the decade.
"Obviously, what we don't control is the European macro-environment that remains very challenging, but we're making good progress despite that," Ammann told reporters at the company's headquarters in downtown Detroit.
Smaller U.S. rival Ford Motor Co on Wednesday also posted a stronger-than-expected second-quarter profit, helped by smaller-than-anticipated losses in Europe.
Ammann said GM remains focused on executing plans previously outlined in its alliance with PSA Peugeot Citroen but has no plans to put more money into the French automaker.
GM's international operations, which include China, reported a disappointing second-quarter profit of $228 million, down 64 percent from a year earlier. Ammann cited pricing pressure in Australia and Southeast Asia, as well as cost headwinds in India, but said operating earnings in China increased.