After profit beat, GM looks to trucks, SUVs to rev up margins

By Nick Carey and Paul Lienert

DETROIT (Reuters) - General Motors Co said on Tuesday a richer mix of full-size pickups and mid-size SUVs in North America should help it offset higher commodity costs in 2018 and maintain pretax margins above 10 percent.

The automaker posted better-than-expected quarterly results as cost cutting and higher vehicle prices offset a double-digit decline in U.S. sales volume, and it predicted 2018 would be a strong year globally and in North America. GM shares rose 3.8 percent to $41.03 in late morning trade.

Chief Executive Mary Barra told analysts that GM expects its financial performance to "accelerate further in 2019," when the company launches redesigned heavy-duty pickups and full-size SUVs in North America, as well as a new family of low-priced compacts in emerging markets.

Chief Financial Officer Chuck Stevens said GM's capital spending will remain at about $8.5 billion through 2019, then should start to ease. He said GM expects to generate free cash flow of $5 billion in 2018, with as much as $2.8 billion available for additional share repurchases.

Stevens said despite recent stock market volatility over concerns the U.S. economy may be overheating, the No. 1 U.S. automaker is "not overly concerned about inflation."

"Our forecast is premised on continued growth in the U.S. economy," Stevens said. He said GM expects the Federal Reserve to raise interest rates by 75 basis points in 2018.

Detroit-based GM's global pre-tax margin rose to 8.2 percent in the quarter versus 6.5 percent in the same quarter in 2016. Its North American pre-tax margin was 10.7 percent.

GM said results improved across all segments and its South American business had returned to profitability in the second half of 2017.

The solid performance from GM underscores the current struggles of cross-town rival Ford Motor Co to boost its own profitability. Ford's fourth-quarter automotive operating margin fell to 3.7 percent, from 5.7 percent a year earlier.

Another GM rival, Toyota Motor Corp, Japan's biggest automaker, said on Tuesday it expects a weaker yen to lift net profit to a record high this year, offsetting sluggishness in the United States where it has grappled with lower sales and steeper discounting.

GM's results came despite an 11 percent decline in wholesale vehicle sales in North America in 2017. The automaker cut its inventory of unsold vehicles during 2017 with production halts, addressing a concern for the industry.

Edward Jones analyst Jeff Windau said "GM has done a very nice job," but added he will be watching "to make sure they keep their vehicle mix and maintain pricing."

Another thing to keep an eye on with GM is its plans to roll out electric vehicles and self-driving cars, "which will require quite a bit of investment," Windau said.

EXIT FROM SOME MARKETS

GM also exited some markets in 2017, pulling out of India and parts of Africa, and selling its Opel/Vauxhall unit in Europe to France's PSA Group.

In a call with analysts, Stevens said GM's struggling operations in Korea may require "additional restructuring."

The automaker's results come as overall U.S. auto industry new vehicle sales are in decline. Sales fell around 2 percent in 2017 after hitting an all-time record in 2016. Sales are expected to fall around another 2 percent in 2018.

GM reported a fourth-quarter loss of $4.9 billion or $3.46 per share, compared with a profit of $2.1 billion or $1.36 per share a year earlier. Excluding one-time items, GM posted earnings per share of $1.65. On that basis analysts had expected earnings per share of $1.38.

The No. 1 U.S. automaker said it will record a $7.3 billion non-cash charge for its fourth-quarter 2017 earnings related to deferred tax assets that will lose their value because of the lower U.S. corporate tax rate.

GM said last month it expects 2018 earnings will be largely flat compared with 2017 and forecast higher profits in 2019. For the full-year 2017, GM reported earnings per share of $6.62, above its forecasted range of $6 to $6.50.

GM said as part of its profit-sharing agreement with the United Auto Workers union, its roughly 50,000 hourly workers would receive up to $11,750 for 2017, a bonus that will be paid out on Feb. 23.

(Reporting By Nick Carey and Paul Lienert in Detroit; Editing by Nick Zieminski and Frances Kerry)