GM Affirms 2022 Profit Outlook, but Shares Drop as Net Income Sinks 40 Percent

DETROIT–General Motors Co. on Tuesday reaffirmed its full-year profit outlook on an expected surge in demand and said it was curbing spending and hiring ahead of a potential economic slowdown, but a 40 percent drop in its quarterly net income disappointed, sending shares lower in premarket trading.

The Detroit automaker’s net income fell 40 percent in the second quarter from a year earlier due to supply-chain snarls, including a global semiconductor chip shortage, sending its shares down 2.2 percent in premarket trading.

Chief Executive Mary Barra stated that the company is “already taking proactive measures to manage costs, cash flows”, in anticipation of an economic slowdown.

“She also stated that we had modeled several downturn scenarios and were ready to take further deliberate action if needed.” She said on a conference phone call with analysts.

The company is a beacon for U.S. production and global automaking and has made steps to counter inflation, Paul Jacobson, chief financial officer, said.

” We have slowed down hiring and put off certain costs and expenses that we were going to make heading into this year in order to attempt to offset that with the pressures we’ve experienced from inflation as well some other supply-chain challenges,” Jacobson said to reporters during a conference phone call. He also stated that GM did not plan to layoff employees.

However, Jacobson stated that GM has a lot more demand than it anticipates. This contrasts with U.S. retailer Walmart Inc.’s Monday warning that customers were cutting back on discretionary spending as it slashes its profit forecast.

The automaker reaffirmed its forecast of full-year net income of $9.6 billion to $11.2 billion, and adjusted earnings before interest and taxes (EBIT) of $13 billion to $15 billion, while expecting global deliveries to be up sharply in the second half of the year.

Second-quarter net income was $1.7B, or $1. 14 a share, down 40 percent from $2.8 billion, or $1. 90 a share, a year earlier. Analysts expected $1. 20 a share, according to Refinitiv data. Revenue rose nearly 5 percent to $35.8 billion.

GM reported that net operating cash for the quarter fell to $3.1 Billion from $7.2 Billion a year ago, and net income margin dropped to 4.7 percent from 8.3 Percent in the previous quarter.

GM said average transaction prices jumped $6,600 per vehicle in the quarter, and noted that U.S. dealer inventories remain historically low, at 10 to 15 days’ supply.

But the company also said it had more than 90,000 unfinished vehicles, mostly high-margin trucks and SUVs, waiting for chips and other parts. Morgan Stanley analyst Adam Jonas put their value at $4.5 Billion in revenue and $1.5 Billion in EBIT.

CFO Jacobson stated that GM plans to deliver all of those cars by the end of this year.

” “It’s time to do the right thing and walk the walk for GM. As patience is wearing thin at the Street around its name,” Wedbush Securities analyst Daniel Ives stated in a research paper.

GM’s China operations lost $100 million in the quarter due to COVID-19 restrictions there.

GM saw its quarterly revenue drop to $6.1 Billion in China. This is a significant market and down from $9B in the three-months prior, and $9B in the previous year. Deliveries to dealers fell to 473,000, from 602,000 in the first quarter and 620,000 a year ago.

By Ben Klayman & Paul Lienert