* Second-quarter EPS 90 cents vs Street view 74 cents
* Quarter boosted by deferred spending
* Europe loss smaller than expected
* GM shares down 3 percent
By Ben Klayman and Paul Lienert
DETROIT, Aug 2 General Motors Co posted a
higher-than-expected second-quarter profit as it managed to hold
prices steady in Europe despite the weak economy, and shifted
some costs in North America to the third quarter.
GM said the deferred spending was related to the
reallocation of advertising money around the Olympics,
engineering costs related to the redesigned full-size trucks
being launched next year and additional production downtime.
Analysts said they were impressed that GM was able to
maintain pricing power in Europe in the face of brutal market
conditions and aggressive deals offered by rivals such as
Volkswagen. But they noted that most of the amount
by which the U.S. auto company's earnings exceeded expectations
came from the delayed spending in North America; concerns about
Europe remain a big drag on GM's stock price.
GM shares were down about 3 percent in afternoon trading at
$19.10, far below the $33 at which the stock debuted in the fall
"Is Europe a function of execution or is it the calm before
the storm?" asked Jefferies analyst Peter Nesvold, who has a
"hold" rating on GM shares.
"I feel like Europe will continue to be a black hole until
we're at least able to frame the magnitude of the downturn," he
added. "They showed some nimbleness in this quarter that they
have not shown so far since the new GM went public. People will
remain skeptical, though, before they want to give them any
GM reported a second-quarter loss of $361 million in Europe,
which was less than rival Ford Motor Co's $404 million
loss in the region but much worse than GM's profit a year ago of
$102 million. Analysts polled by StreetAccount had expected a
loss of $426 million for GM Europe in the latest quarter.
GM's net income attributable to common shareholders in the
quarter fell 41 percent to $1.49 billion, or 90 cents a share,
from $2.52 billion, or $1.54 a share, in the year-earlier
quarter. Analysts polled by Thomson Reuters I/B/E/S had expected
74 cents a share. Analysts said North America contributed 14
cents of the 16 cents by which GM profit beat expectations in
the second quarter.
Revenue fell to $37.6 billion from $39.4 billion a year
before as the stronger U.S. dollar hurt results. Analysts had
expected $38.58 billion.
EUROPE REMAINS A CHALLENGE
GM executives acknowledged that Europe -- where the company
sells the Opel and Vauxhall brands -- remained challenging and
they declined to say when GM would return to profitability in
that region, where it has racked up 12 years of losses.
"We clearly have more work to do to offset the headwinds we
face, especially in regions like Europe and South America," GM
Chief Executive Dan Akerson said.
GM has made progress on all the key components of Opel's
restructuring, and management and German labor unions continue
talks on improving productivity and reducing costs and
manufacturing capacity with an agreement expected between the
sides this autumn, he added.
Chief Financial Officer Dan Ammann said the industry overall
will face a challenging European environment in the second half
of the year.
Opel board Chairman Stephen Girsky said GM did not react
quickly enough to the deepening crisis in Europe and was working
hard to cut costs and bureaucracy there.
Ammann, who expects global business trends in the second
half similar to the first half, said GM would address high Opel
vehicle inventories in the third and fourth quarters. Morgan
Stanley analyst Adam Jonas said Europe is likely to lose
materially more money in the second half of the year compared
with the first six months.
Part of GM's cost-cutting strategy in Europe included
forming an alliance with and taking a small stake in PSA Peugeot
Citroen. However, executives said GM will not inject
additional capital into the struggling French automaker, which
is cutting more than 10,000 domestic jobs.
"We have no intention of putting more money into PSA,"
Opel has been a drag on GM's results, leading the automaker
to push for changes at the money-losing European unit, including
ousting the CEO last month. Ammann declined to say when a
permanent replacement would be named.
Ammann said GM in Europe has begun reducing the number of
temporary and contract employees, and is working with the union
"on more flexibility in cost management and productivity
Opel's supervisory board had previously approved a mid-term
business plan, which runs through 2016. But real savings in a
restructuring will not come until GM negotiates a deal with
labor unions to close the Bochum, Germany, plant after 2016.
CHINA EARNINGS SLIP, FUTURE LOOKS BRIGHT
Meanwhile, GM's international business unit, which includes
the crucial Chinese market, saw earnings slip 2.8 percent to
$557 million in the second quarter. GM said it increased market
share in China in the first half to 14.5 percent from 14 percent
for all of last year.
Akerson emphasized that he expects annual Chinese auto
industry sales to hit 30 million vehicles by the end of the
decade. The company has said it expects total industry sales in
China this year to reach 19.5 million to 20 million, an increase
from about 18.5 million in 2011.
GM officials also said they are one year into a two-year
transition to the redesigned Chevrolet Silverado and GMC Sierra.
GM said its outlook for the second and third quarter profits
would still average the same combined as it previously forecast,
suggesting analysts may need to cut their estimates for the
GM had previously said its second- and third-quarter
operating profit in North America would be similar to the $1.7
billion it reported in the first quarter. It earned $1.97
billion in the second quarter, implying it would earn about $1.4
billion in the third quarter, analysts said.