DETROIT General Motors Co (GM.N) on Wednesday posted a better-than-expected third-quarter profit as the U.S. automaker's new lineup of pickup trucks and other revamped models boosted North American results.
While GM's China operations remained stable, profit margins in the core North American market hit a two-year high on the strength of vehicles like the Chevrolet Silverado pickup and Impala sedan which allowed GM to boost pricing by $400 million.
Like its smaller U.S. rival, Ford Motor Co (F.N), GM also offered a more optimistic picture of Europe, where the company's revenue rose for the first time in two years.
GM's shares rose as much as 4.1 percent, the largest one-day percentage gain in nearly two months. They were still up 3.4 percent at $37.27 late on Wednesday afternoon on the New York Stock Exchange.
Europe has been a focus for investors since GM went public in November 2010 following its bankruptcy reorganization and a $49.5 billion government bailout in 2009.
GM Chief Financial Officer Dan Ammann said the No. 1 U.S. automaker's European unit remains on track to achieve its target of breaking even in the next year or so. GM has lost money in Europe for 13 straight years.
"The story in Europe overall is really consistent with the plan we laid out," he told reporters. "Our overall objective of getting to break-even by mid-decade, clearly we're well on track toward that."
Excluding one-time items, GM earned 96 cents a share, 2 cents more than analysts polled by Thomson Reuters I/B/E/S had expected. The quarter included charges related to the repurchase of preferred stock and an impairment of goodwill in the company's South Korean operations.
GM has set a goal of hitting 10 percent profit margins in North America by mid-decade. In the third quarter, GM's margin in the region jumped to 9.3 percent, which Citi analyst Itay Michaeli said "adds credibility" to GM's margin target.
GM's U.S. finance chief, Chuck Stephens, said the fourth-quarter margin would be lower than in the third quarter, but still higher than a year ago.
Ford's North American profit margin in the third quarter was 10.6 percent.
Also on Wednesday, Japanese automaker Honda Motor Co (7267.T) and Chrysler Group both reported strong U.S. sales in the quarter.
GM's third-quarter net income attributable to common shareholders fell to $757 million, or 45 cents a share, compared with $1.48 billion, or 89 cents a share, in the year-ago quarter. But operating earnings rose almost 15 percent to $2.64 billion.
Revenue rose 3.7 percent from last year to $38.98 billion, but that was short of the $39.49 billion analysts had expected.
"So much for the profits warning that was worrying the market," Morgan Stanley analyst Adam Jonas said in a research note, adding the results may cause Wall Street to raise 2014 profit estimates slightly. "(Third-quarter) results for GM were more treat than trick."
GM's operating earnings in North America jumped 27 percent to a better-than-expected $2.19 billion. Analysts polled had expected $2.13 billion.
Stephens acknowledged production of the new full-size pickup trucks suffered slightly in October due to a shortage of axles from supplier American Axle (AXL.N), but the automaker expects to make up that lost output in the current quarter. He also said the issues would have no impact on next year's launch of related large SUVs.
'AHEAD OF PLAN'
The loss in Europe fell by more than half to $214 million from a loss of $487 million last year as GM squeezed out $400 million in costs and boosted revenue year over year for the first time since the third quarter of 2011. Analysts had expected a loss of $267.7 million.
"We believe management is ahead of plan to be break-even in Europe by mid-decade," Buckingham Research analyst Joseph Amaturo said of GM in a research note.
GM's comments echoed those by Ford, which last week forecast turning a profit in Europe by 2015.
CFO Ammann said GM will incur "significant" restructuring costs for closing its assembly plant in Bochum, Germany, by the end of 2014 and some of the charges may affect financial results as early as the fourth quarter of this year. He did not outline the expected savings from the move.
GM said in a U.S. regulatory filing on Wednesday that it was in talks with Bochum labor officials to finalize severance terms for the plant's hourly workers.
So far this year, GM's restructuring in Germany has cost $64 million and eliminated 250 jobs, according to the filing. The company said it expected to complete restructuring programs in Europe in the fourth quarter that would cost another $100 million and cut an additional 390 jobs.
Ammann also reaffirmed that GM's break-even target does not include any material impact from savings generated by the company's alliance with French automaker Peugeot SA (PEUP.PA).
GM recently said it would shift the financial reporting of its profitable Russian market to the European unit from the international operations, but Ammann said that does not change the break-even timetable.
China's earnings slightly improved and GM's China partner, SAIC Motor Corp (600104.SS), on Wednesday posted a stronger-than-expected profit. However, markets outside China, including India and Southeast Asia, were a hindrance due to more competitive pricing by competitors, Ammann said.
Analysts said Japanese automakers were taking advantage of the weaker yen to offer deals.
(Editing by Maureen Bavdek and Matthew Lewis)