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GM 2Q profit in high gear
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July 20, 1999: 1:33 p.m. ET
Carmaker springs back from '98 strike to top estimates; economy fuels sales
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NEW YORK (CNNfn) - General Motors Corp. reported Tuesday that second-quarter earnings sprang back from last year's strike-deflated levels, beating the Wall Street forecast by 10 cents a share as the world's largest automaker tapped a hearty U.S. economy.
GM earned $1.7 billion, or $2.66 per diluted share. That's up from $306 million, or 40 cents, in the same quarter last year, when the company weathered a strike that reduced its profit by $1.2 billion.
Analysts polled by First Call Corp., an earnings tracking firm, expected GM to earn $2.56 per share.
Revenue rose 21 percent to a record $45.1 billion.
GM, like many top automakers, is having a banner year due to a powerhouse U.S. economy that's flooring the gas pedal when it comes to sales.
"The North American market is red hot and brutally competitive," said Richard Wagoner Jr., president and chief operating officer in a statement.
Analysts said last year's strike in North America may also have helped on a comparative basis.
"The North American operations are the driver of the results. Business is great this year, and the mix is very rich -- they're selling lots of trucks," said John Casesa, a Merrill Lynch analyst, who has a rating of "outperform" on the stock. "The other thing was the strike last year -- it's an easy comparison."
Added Nicholas Lobaccaro, an analyst with Lehman Brothers who also has an "outperform" on GM stock: "If anything, the strike is helping because they had to rebuild dealer inventory."
The boom in domestic sales came against a backdrop of retrenchment. The company said it reduced costs by $1.8 billion in the quarter, in line with its targets.
"The results show that our focus on cost reduction and success in the marketplace lead to continued strong financial results," Wagoner said.
With the U.S. economy hitting on all cylinders, and GM and other car makers hitting peak performance at home, the stakes are higher for their international operations, analysts said.
GM said economic distresses in Latin America curtailed growth there, while Asia is showing signs of rebound, except for Japan. GM said it began to grab back market share in Europe, where Casesa said the automaker "took its eye off the ball" in prior years.
The tough competitive climate is likely to lead to further price cuts by Detroit, analysts said.
During a conference call Tuesday, company officials said GM will speed up a planned stock buyback after repurchasing 7.5 million shares worth $520 million in the second quarter.
In the first six months of this year, GM earned $3.5 billion, or $5.44 per diluted share, up from $1.6 billion, or $2.37 per share, in the first half of 1998.
GM (GM) shares fell 5/8 to 68-5/16 in Tuesday afternoon trading.
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General Motors
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