* CFO says outlook for rest of year will have to be cut
* GM sees strong pricing in N America for pickup trucks
* Recall overshadows stronger-than-expected earnings
* GM shares down 1.3 percent
(Adds CFO and analyst comments, updates stock price)
By Ben Klayman and Bernie Woodall
DETROIT, April 24 General Motors Co's
first-quarter profit tumbled 88 percent on Thursday due to the
massive recall for defective ignition switches, and shares fell
1.3 percent after the company said expectations for the rest of
the year must be trimmed.
While the company's results topped expectations on strong
pricing for its redesigned pickup trucks in North America, it
did not raise its full-year outlook by a corresponding amount.
GM said in January its 2014 earnings would finish slightly
higher. While leaving the outlook for the full year unchanged on
Thursday, Chief Financial Officer Chuck Stevens said the
stronger first quarter means the outlook for the rest of the
year will have to come down.
"We've changed the shape of the curve," he told analysts on
a conference call. "We performed better than we expected in the
first quarter, so we'll have to trim some of the expectations Q2
Citi analyst Itay Michaeli said he was not concerned about
the outlook for the remainder of the year. "We did not view this
as a negative, but rather a typical comment from a company
refraining from raising an outlook this early in the year."
The quarter included a previously disclosed charge of $1.3
billion for the recall and Stevens said it was too early to
predict whether there would be more charges. He reaffirmed the
$1.1 billion in 2014 restructuring costs GM forecast in January.
Stevens also said the company was still studying its options
for the victims of the faulty switches, which have been linked
to at least 13 deaths. Safety advocates and some
lawmakers have called for GM to establish a victims'
"Obviously, the recall campaign charges in the first quarter
overshadows the headline results, but if you look underneath
that, we had strong performance across the board," Stevens told
reporters at the company's Detroit headquarters. GM Chief
Executive Officer Mary Barra said that calling the first quarter
"challenging" was an understatement.
Some GM ignition switches have made vehicle engines stall
while operating, stop air bags from deploying, and power
steering and power brakes from operating. The company is under
investigation by U.S. safety regulators, Congress and the U.S.
Department of Justice over its failure to detect the faulty part
for more than a decade.
Barra said the company's internal probe of the recall was on
track and she expected recommendations from attorney Kenneth
Feinberg, hired by GM to come up with a potential plan to
compensate victims of the faulty switch, in the next 45 days.
Net income in the first quarter fell to $108 million, or 6
cents a share, from $873 million, or 58 cents a share, in the
year-earlier period. The most recent quarter included recall
costs of $1.3 billion, or 48 cents a share.
Excluding a charge mostly for the devaluation of the
Venezuelan currency, GM earned 29 cents a share, far better than
the 4 cents analysts expected, according to a poll by Thomson
'BRACED FOR THE WORST'
"Everyone was braced for the worst and it did not happen,"
said Mirko Mikelic, senior portfolio manager with Clear Arc
Capital, which owns GM shares. He was pleased that GM valued
profit over chasing market share. The company's global market
share slipped to 11.1 percent in the quarter from 11.3 percent
in the same period last year, including a decline in North
CFO Stevens said the company was still targeting market
share growth in North America this year.
Morgan Stanley analyst Adam Jonas said the
stronger-than-expected results and positive outlook were "good
to interrupt the negative headline streak" from the recall.
However, the results beat "a rather low bar."
"We'll find out whether investors want to go along for the
ride from here," he added.
Revenue in the first quarter rose 1.4 percent from last year
to $37.4 billion, but below the $38.4 billion analysts expected.
GM raised prices for its vehicles, which boosted operating
profit by $1.8 billion. The bulk of the increase was in North
America, thanks to higher sales of more lucrative versions of
its redesigned Chevrolet Silverado and GMC Sierra full-size
Stevens said the average transaction price for the trucks
rose about $5,000 in the quarter from a year ago, and overall
prices were up about $2,000 per vehicle.
Citi's Michaeli said North American results were solid,
profit margins in China rebounded from the fourth quarter and
the performance in Europe improved.
GM's operating profit in North America fell 61 percent to
$557 million due to the costs associated with the defective
switches and other recalls.
SEES PROGRESS IN EUROPE
CEO Barra said the recall has not meaningfully hurt U.S.
sales, and that the company has told dealers they can offer
employee pricing to any consumers affected by the recall who may
want to buy a new vehicle. GM previously said it would also
offer those consumers a $500 cash allowance toward purchasing a
Also, the company still sees total U.S. auto industry sales
this year in the range of 16 million to 16.5 million vehicles.
Profit at its international operations, including China,
fell 47 percent in the quarter to $252 million. GM said it
gained market share in China.
The loss in Europe widened to $284 million from $152 million
last year, but the quarter included $200 million in
restructuring costs already outlined by the company. Stevens
said the company was "seeing real progress in Europe." Barra
reiterated that GM remained on track to return to break-even
financial results in the region by mid-decade.
The loss in South America grew to $156 million from $38
million last year.
Of the $1.3 billion to cover the various recalls in the
first quarter, GM said about $700 million was related to the
defective ignition switches, including $300 million to cover the
cost of courtesy cars for owners who do not want to drive the
cars affected by the recall switch.
GM said multiple shifts were working at a Delphi Automotive
Plc plant in Mexico, where replacement parts for the
switch recall are being made. A second line will likely begin
production in June, with a third line to begin later in the
GM said it would have enough parts by October to repair most
of the affected cars.
Shares of GM rose as high as $35.70 before reversing on
Thursday. The stock was off 1.3 percent at $33.97 on the New
York Stock Exchange on Thursday afternoon.
(Editing by Jeffrey Benkoe and Matthew Lewis)