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Serious Half of GM profits wiped out down into Longkang, desperately selling Europe in panic

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http://www.freep.com/story/money/ca...25/general-motors-quarter-earnings/506866001/


GM profit falls 42% to $1.7 billion in 2nd quarter after selling European operations
Brent Snavely, Detroit Free Press Published 7:37 a.m. ET July 25, 2017 | Updated 9:51 a.m. ET July 25, 2017



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(Photo: Kimberly P. Mitchell, Detroit Free Press)
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General Motors said on Tuesday it earned a profit of $1.7 billion during the second quarter, a 42% decline compared with the same period a year ago that was mostly caused by the decision to sell its European operations and exit other global markets.

Last year, the automaker's profit earned a profit of $2.9 billion, a record, as U.S. industry sales hit their peak.

A large part of GM's profit decline during the second quarter was due to a $770 million loss from the sale of the company's European division and $600 in special charges tied to the decision to stop selling vehicles in India and to sell its operations in South Africa.

Still, the automaker outperformed Wall Street expectations. With its European operations excluded, GM earned a profit of $2.4 billion, or 11% less than it earned for the same quarter a year ago.

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That result worked out to $1.89 per share, easily beating the $1.70 per share that was the average earnings estimate of analysts polled by Bloomberg.

Those results are based on the company deciding to record its European division as a discontinued operation. GM reached an agreement in March to sell Opel to Vauxhall operations to PSA Groupe for $2.2 billion. That transaction will be completed later this year.

"Disciplined and relentless focus on improving our business performance led to a strong quarter and very solid first half of the year," GM CEO Mary Barra said in a statement. "We will continue transforming GM to capitalize on growth opportunities and deliver even more value for shareholders."

The automaker's pre-tax profits totaled $3.7 billion during the second quarter, down from $3.8 billion for the same period a year ago. That slight decline, according to GM CFO Chuck Stevens, was caused by declining industry sales in the U.S. and higher production costs.

"As expected, it was another strong quarter," Stevens said. "The performance was really lead by North America."

In North America, GM reported a pre-tax profit of $3.5 billion, down from $3.7 billion for the same period last year.

Stevens also said GM continues to expect to earn between $6.00 and $6.50 per share this year.

Related:

GM notches victory with 91% of shares cast against Greenlight's Einhorn

Despite the automaker's ability to beat Wall Street's expectations Brian Johnson, an analyst with Barclays, doesn't expect the company's stock price to increase much above its closing price of $35.82 on Monday. Indeed, GM's stock rose just 5 cents per share in early morning trading to $35.92.

Johnson said investors are fixated on U.S. industry sales, which are falling slightly this year after seven years of consecutive gains.

"We believe GM is doing a fine job demonstrating it is at the forefront of the disruptive technology changes in the automotive industry – beyond what investors appreciate," Johnson said in a report on Monday. "Unfortunately, at the moment, cycle is the primary focus at GM."
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GM Chairwoman and CEO Mary Barra talks with workers and members of the media at the Orion Assembly Plant in Orion Township on June 13, 2017 about the autonomous Chevrolet Bolt. (Photo: Eric Seals, Detroit Free Press)

Some investors are also concerned about GM's inventory levels, which have increases in the U.S. as sales have declined.

GM's U.S. dealer inventory has increased by 273,000 units from the prior year. But GM says it has intentionally built up its inventory over the first half of the year so that it has enough vehicles on hand as it launches an all-new Chevrolet Silverado pickup along with a new Chevrolet Equinoix.

"We would expect to bring inventory down by the end of the year to be consistent with 2016 results of roughly a 70 day supply," Stevens said. "I would expect second half production verses the first half to be down in the zip code of 150,000 units."

GM has impressed some analysts with its aggressive investments into self-driving car technology, its willingness to sell its money-losing European division and the development of the Chevrolet Bolt, an electric car that can go238 mileson a single charge. GM CEO Mary Barra also is fresh off of a victory over billionaire investor David Einhorn who tried to convince shareholders to split the company's stock into two classes.

Jeff Windau, an analyst at Edward Jones, said GM's stock is fairly valued at its current price given the challenges the company will face over the next year or two.

"We feel North American auto demand will moderate, which is expected to result in slower GM sales," Windau said in a July 14 report. "Also, we believe that GM's expenses will increase due to the investments in new vehicle technologies."

The company also must deal with inventory that is at its highest level in 10 years and a trend towards rapidly falling cars sales that are forcing all automakers to shift production away from cars and towards SUVs.

Last week, Reuters reported that GM is thinking about eliminating up to six of its cars and replacing some of those models with SUVs or crossovers.

Contact Brent Snavely: 313-222-6512 or [email protected]. Follow him on Twitter @BrentSnavely.
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