Wed. Aug 10th, 2022

DETROIT – General Motors Co on Tuesday reaffirmed its full-year profit outlook on an expected increase in demand and said it was holding back spending and hiring ahead of a potential economic slowdown, but a 40% drop in the its quarterly net profit disappointed, driving the shares down in pre-market trading.

The Detroit automaker’s net profit fell 40% in the second quarter from a year earlier due to supply chain hiccups, including a global shortage of semiconductor chips, which sent its shares down by 2. 2% in pre-market trading.

Chief Executive Mary Barra said the company “is already taking proactive steps to manage costs and cash flows” in anticipation of a possible economic slowdown.

“In addition, we have modeled different recession scenarios and are ready to take more deliberate action when and if necessary,” he added in a conference call with analysts.

The company, a benchmark for U.S. manufacturing and global auto manufacturing, has taken steps to offset a surge in inflation and other challenges, CFO Paul Jacobson said.

“We’ve slowed down some hiring (and) put off some of the costs and expenses we would have faced this year to try and balance that with the pressure we’ve seen from both inflation and some of the other supply chain challenges,” he said. Jacobson to reporters on a conference call, adding that GM was not contemplating layoffs.

However, Jacobson said GM sees a lot of pent-up demand for its vehicles, in stark contrast to the warning from US retail giant Walmart Inc. on Monday that consumers were cutting back on discretionary purchases as it slashed its profit forecasts. .

The automaker reiterated its forecast of full-year net profit of between $ 9.6 billion and $ 11.2 billion and adjusted earnings before interest and taxes (EBIT) of $ 13 billion to $ 15 billion. , expecting a strong increase in global deliveries in the second half of the year.

Net income for the second quarter was $ 1.7 billion, or $ 1.14 per share, down 40% from $ 2.8 billion, or $ 1.90 per share, the year before. Analysts had expected $ 1.20 per share, according to Refinitiv data. Revenue increased nearly 5% to $ 35.8 billion.

GM said net operating cash for the quarter fell to $ 3.1 billion, from $ 7.2 billion a year earlier, while net profit margin fell to 4.7%, from $ 8, 3% in the quarter of last year.

GM said average transaction prices increased by $ 6,600 per vehicle in the quarter and noted that U.S. dealers’ inventories remain historically low, with a 10 to 15 day supply.

But the company also said it has more than 90,000 unfinished vehicles, mostly high-margin trucks and SUVs, awaiting chips and other parts. Morgan Stanley analyst Adam Jonas estimated their value at $ 4.5 billion in revenue and $ 1.5 billion in EBIT.

CFO Jacobson said GM plans to finish and deliver all of those vehicles by the end of the year.

While the automaker is spending more to increase its electric vehicle and battery operations, GM’s projected EV volume over the next two years is less than Ford Motor Co, which plans to build 600,000 electric vehicles in 2023. GM said it plans to build 400,000 electric vehicles in North America “over the course of 2022 and 2023”.

“It’s time to walk and not just talk for GM, as patience is running out on the road around the name,” Wedbush Securities analyst Daniel Ives said in a research note.

GM’s operations in China lost $ 100 million in the quarter due to COVID-19 restrictions there.

GM’s quarterly revenue in China, a key market, fell to $ 6.1 billion, from $ 9 billion in the first three months and $ 9 billion in the prior-year period. Dealership deliveries dropped to 473,000, from 602,000 in the first quarter and 620,000 a year ago.

(Reporting by Ben Klayman and Paul Lienert in Detroit, Editing by Louise Heavens, Bernadette Baum and Jonathan Oatis)

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