NEW YORK (CNN/Money) - General Motors Corp. posted a sharp drop in second-quarter earnings Thursday, but it still easily drove past the most optimistic Wall Street expectations for the period and said it expects to beat third-quarter forecasts as well.

The world's No. 1 automaker earned net income of $901 million, or $1.58 a share, in the quarter, down from $1.4 billion, or $2.53 a share, earned excluding special items a year earlier. Analysts surveyed by earnings tracker First Call had a consensus forecast of $1.19 a share in the quarter, and a range of estimates from $1.10 to $1.25 a share

The company said it expects third-quarter earnings to exceed First Call's forecast of 50 cents a share, excluding results from satellite communications provider Hughes Electronics, or 45 cents a share including Hughes. First Call's EPS forecast for the third quarter including Hughes is 46 cents. The company earned $1.20 a share, including a loss from Hughes, in the year-ago period.

It also said that it is more optimistic about full-year results and that it could earn from $4.50 to $5.00 a share for the year, excluding Hughes, which it is in the process of selling. First Call's forecast is for $4.50 on that basis, or $4.36 a share including the loss from Hughes.

Chief Financial Officer John Devine said that sales so far in July suggest that industry sales could improve this month compared to June results, and that he hoped that costly incentives used to attract buyers would at least slow their rate of increase. He also believes that an improving economy will help results.

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"Nobody is talking about scaling back on incentives. We're talking about moderating the increase," he said.

The company saw most of the earnings come from General Motors Acceptance Corp., its finance unit where profits more than doubled to a record $834 million from $431 million a year earlier. Its auto finance operations showed solid gains - net income rose to $396 million from $347 million. But it was a big jump in earnings from its mortgage lending -- $415 million compared with $58 million a year ago -- that was key to improved results.

"We expect some slowdown in the mortgage business as the refinance boom fades," Devine said. "We don't expect it to disappear. We're on track to exceed $2 billion in net income (at GMAC) in 2003." The unit earned $1.5 billion in the first half the year.

Its core automotive operations saw earnings plunge to $140 million from $1.1 billion a year earlier. But that still is a much better performance than near breakeven results in automotive operations at its next-largest competitor, Ford Motor Co., which reported better-than-expected results Wednesday but unlike GM warned about missing future forecasts.

GM's North American automotive operations earned $83 million, down from $1.3 billion a year earlier. The company said a 12 percent cut in production, pricing pressure and increased pension expense were responsible for the sharp drop in its home region. Revenue from North American auto sales fell $2 billion compared with a year earlier, as the company sold 124,000 fewer vehicles in the region.

The North American auto profits actually trailed the $163 million GM made in the Asia-Pacific region, up from a $39 million it made there a year earlier. European operations continued to lose money but trimmed the loss to $3 million from $170 million a year earlier. Only its Latin America/Africa/Middle East region saw worse results, as the losses rose to $103 million from $73 million a year earlier.

The company believes it can have profitable operations in its automotive unit in the third quarter, which is typically the most difficult quarter for profits in that segment. "We know it's tough, but we think that's an achievable target that we're all focused on," Devine said.

Questions from analysts during a conference call suggested doubts by several analysts that profit could be achieved, though.

Overall companywide revenue, including Hughes, was basically flat at $48.3 billion. While overseas sales did better than the North American decline in sales, the total number of vehicles sold worldwide fell to 2.1 million from 2.2 million a year earlier.

Shares of GM (GM: down $0.05 to $35.87, Research, Estimates), a component of the Dow Jones industrial average, were little changed in Thursday morning trading following the pre-market report.