GM Drops as Prolonged Pickup Rollout and China Woes Erode Profit

(Bloomberg) -- General Motors Co. shares slumped the most in over a month as earnings fell on the prolonged introduction of new pickups and a slowdown in China's auto market.

Net revenue fell to $34.9 billion in the first quarter and was more than a half-billion below what analysts were projecting. Adjusted earnings of $1.41 a share topped estimates entirely because of the higher valuation of stakes in Lyft Inc., which listed its stock in March, and French carmaker Peugeot SA, which has revived GM's German castoff brand, Opel.

GM has been losing market share in North America as it's killed off slower-selling sedans, including the Chevrolet Cruze, and taken months to roll out redesigned trucks. While higher-margin crew cab pickups are performing well as they trickle into showrooms, Fiat Chrysler Automobiles NV's Ram has pulled ahead on the sales charts. In China, a broader industry slump forced the automaker to slash production.

“There is yet more work to do beyond what we did” in China during the first quarter, Dhivya Suryadevara, GM's chief financial officer, told analysts on a conference call. She added that the company is “still in the early innings” with its launch of the revamped Chevrolet Silverado and GMC Sierra trucks.

GM shares tumbled as much as 3.6 percent, the biggest intraday drop since March 20, and were down 2.5 percent to $39.01 as of 12:30 p.m. Tuesday in New York. The stock is up about 17 percent this year.

What Bloomberg Intelligence Says

“New pickup launches in 2H will keep GM competitive and hold light trucks at more than 80% of its North America vehicle mix in 2019, eventually aiding margins as volume falls.”
-- Kevin Tynan, senior automotive analyst
Click here to read the research

While investors saw warning signs in the numbers, GM executives said they're still on pace to hit their forecast for as much as $7 a share in adjusted profit this year and vowed improvement in the second half of 2019. The automaker will have a greater selection of redesigned pickups on the market in the U.S., plus 20 new models hitting showrooms in China, where industry sales are slumping for the first time in a generation.

GM's China profit tumbled by more than a third to $376 million in the quarter. Suryadevara said the company will cut production further in the second quarter to address bloated inventories.

“There's been a lot of volatility” in China's car market, Suryadevara told Bloomberg Television. While GM is “seeing some green shoots in the overall economy,” she said, “what we've yet to see is have that translate into auto demand.”

There's been talk of China's government introducing stimulus to prop up demand, but a lack of specificity up to this point, Suryadevara said.

‘Far From Over'

Even if investors believe GM's case for a strong second half, they may still sell shares now and wait for signs of a rebound, said David Whiston, an analyst with Morningstar Inc. in Chicago.

“People have gotten used to GM beating estimates by a lot,” Whiston said in a phone interview. “It could be a third-quarter story, but no one likes to wait.”

Another factor GM points to in promising performance will improve is its cost-cutting plan. The carmaker expects to slash as much as $2.5 billion in expenses this year, and only realized $400 million in savings during the first quarter, Suryadevara said.

“While we've done much of the foundational work to right-size the business,” Chief Executive Officer Mary Barra said on the earnings call, “we know this transformation is far from over.”

--With assistance from Chester Dawson and Keith Naughton.

To contact the reporter on this story: David Welch in Southfield at dwelch12@bloomberg.net

To contact the editor responsible for this story: Craig Trudell at ctrudell1@bloomberg.net

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