GM Q1 operating profit drops 27% on lower pickup output; net falls 59%
DETROIT -- General Motors’ net income and operating profit significantly fell in the first quarter because of planned downtime of full-size pickup production, a restructuring in Korea and other costs.
The automaker on Thursday said earnings before interest and taxes declined 27 percent to $2.6 billion compared with a year earlier. Net income for the first three months dropped 59 percent to $1.1 billion, from $2.6 billion. Revenue for the first quarter was $36.1 billion, down 3.1 percent.
GM’s wholesale volume -- sales invoiced and shipped to dealers -- in North America declined 47,000 in the first quarter, including 31,000 fewer full-size pickups. Because of the planned downtime, the automaker had said the first quarter and fourth quarter (for heavy-duty pickups) would mark its weakest results for the year.
GM CFO Chuck Stevens said the pickup downtime cost the company in the range of $700 million-$800 million in the first quarter. For the year, GM expects to lose volume of about 60,000-70,000 full-size and heavy-duty pickups.
The restructuring of its Korean operations, including the closure of its Gunsan plant to reduce capacity by 25 percent, cost the company $900 million, including $500 million in noncash asset impairments and $400 million in termination benefits. GM expects to incur another $100 million in separation charges in the second quarter.
Stevens said GM expects Korean operations to be profitable in 2019. The restructuring is expected to result in $400 million-$500 million in annual cost savings. Korean workers, Stevens said, ratified a labor agreement overnight, and the company has a preliminary agreement with the Korean Development Bank to provide $750 million for future investments. It also reduced worker head count by 4,000 people to 13,000.
“All of these will support a viable, sustainable business in Korea, and again, this has never been done before,” Stevens said. “We’re very, very pleased with the work we were able to do with all the stakeholders.”
Stevens, a day after Ford Motor Co. announced plans to slash its sedan lineup, declined to comment on reports of GM ending production of the Chevrolet Sonic subcompact and Chevrolet Impala large sedan.
“We’ve already signaled that there’s going to be significantly lower investment in passenger cars on a go-forward basis,” he said, citing cuts to several international operations and not making incremental investments in some platforms. “So, we’ve been taking very, very specific action relative to passenger cars for the last number of years.”
GM, Stevens said, is “getting ready” to launch its Global Emerging Markets, or GEM, product program, which will profitably replace legacy passenger car platforms around the world.
The GEM platform was among the additional costs that contributed to GM’s $3.5 billion decline in adjusted automotive free cash flow for the first quarter.
Overall, Stevens said the first quarter was “very solid” and “very much on-plan” with its guidance. GM reconfirmed its financial results in 2018 to be in line with earnings in 2017.
Regions: North American earnings declined $1.2 billion to $2.2 billion in the first quarter. Earnings for the company's international operations grew to $189 million from $178 million a year earlier.
Finance: GM Financial reported earnings of $443 million, up from $228 million a year earlier. Forty-one percent of GM’s U.S. sales in the quarter were financed through GM Financial.
Operating profit margin: The North American margin for the year was 8 percent; GM said it remains on track to sustain a 10 percent margin for the fourth consecutive year.
Expectations: Despite the setbacks, GM beat Wall Street’s expectations for a 12th consecutive quarter. The company reported an earnings per share of $1.43, beating analysts' expectations of $1.24 earnings per share -- a key metric for how Wall Street judges the company.
GM shares rose 0.4 percent to close at $38.25 in New York.
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