General Motors results beat targets, forecast raised, shares jump

General Motors on Tuesday posted quarterly results that topped Wall Street targets and the automaker raised its annual forecast, citing stable pricing and demand for gasoline-engine vehicles, and its shares rose 4.4 per cent.

Michigan-based GM boosted its adjusted pre-tax profit projection for the year to $12.5 billion to $14.5 billion, from its previous range of $12 billion to $14 billion.

“Our consumer has been remarkably resilient in this period of higher interest rates,” GM Chief Financial Officer Paul Jacobson said.

He said demand held up well in the first quarter and pricing was stable in April, but GM still plans for pricing to decline 2 per cent to 2-1/2 per cent for the rest of the year.

Despite struggles in China and with EVs, stronger-than-expected vehicle pricing with gasoline-powered trucks pleased investors.

"There ... is the reality that the pricing is staying stronger for longer than anybody anticipated," said Tim Piechowski, portfolio manager at ACR Alpine Capital Research in St. Louis, which owns GM shares.

"The engine of the company is truck and SUV at this point," he added. "They're just generating substantial profit and free cash flow that will continue to fund the initiatives in EV. Full steam ahead."

Some analysts were more cautious.

GM could lose additional market share in the near and intermediate term due to its lack of hybrid gasoline-electric vehicles and cash flow will be hampered by heavy planned spending on electric vehicles, CFRA Research analyst Garrett Nelson said in a research note.

The automaker reported that net income in the first quarter rose 24.4 per  cent over the year-ago period to $3 billion, on a 7.6 per cent rise in revenue to $43 billion.

Adjusted earnings per share of $2.62 beat the average Wall Street target of $2.15, according to LSEG data. Revenue topped the Wall Street target of $41.9 billion in the March quarter.

While the company started 2024 strong, CEO Mary Barra still has two large challenges ahead: turning around GM's shrinking sales in China and salvaging Cruise, its robotaxi unit.

Cruise halted operations late last year after one of its self-driving cars dragged a woman down a San Francisco street. Company officials shared earlier this year that GM would cut spending on this unit by $1 billion. The robotaxi business lost $2.7 billion last year, not including $500 million in restructuring costs incurred in the fourth quarter as the unit cut staff. GM spent $400 million on Cruise in the first quarter, and expects full-year expenses to hit about $1.7 billion.

Barra said the business is making progress, citing the return of its vehicles to roads in Phoenix, Arizona, earlier this month, with human drivers and no passengers. She told analysts on a conference call that GM is exploring funding operations for Cruise, including taking outside investment.

GM subsequently said in a quarterly regulatory filing that it expects Cruise will "require" additional funding this year to support continued technology development.

GM's business in China – previously the automaker’s largest market – has also been faltering. Chinese automakers and Tesla (TSLA.O), opens new tab have gobbled up market share in the region, aided by deep price cuts and refreshed technology offerings.

GM lost $106 million in China in the quarter, which CFO Jacobson told reporters was less than his team expected, as it worked through inventory.

Jacobson said the company expects a profit in China for the second quarter and the year. Asked if GM would close or sell its business there, Barra said GM was committed long term to the world's largest auto market.

"There's a place for GM to play and grow share," she said of China.

The carmaker and its crosstown rival Ford Motor are counting on profit from gas-engine trucks to ease investors' concerns as they continue to funnel cash into costly EV development. GM said it gained more than 3 points of market share in full-size pickup trucks in the quarter from rivals, which include Ford and Stellantis.

GM has not broken out financial results for its EV business, but Jacobson stuck to previous forecasts for turning a profit. He still expects so-called variable profit, which excludes fixed costs, to be positive by the second half of 2024.

"We also continue to see sequential and year-over-year improvements in profitability as we benefit from scale, material cost and mix improvements," Barra said.

The company's joint venture with LG Energy Solution, called Ultium Cells, is ramping up production of battery cells at plants in Ohio and Tennessee, Barra said. Questions have increased about battery-powered vehicle demand. This month, EV leader Tesla laid off more than 10 per cent of its global staff and slashed prices across several markets.

Tesla will release quarterly earnings on Tuesday and is expected to post its first revenue drop and lowest gross margin in nearly four years, according to LSEG data.

Last year, GM outlined a $10 billion stock buyback on the heels of reaching a costly new labor agreement with the United Auto Workers union. GM completed the first tranche in the first quarter, and is on track to reduce its outstanding share count to under one billion, Barra said.

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