GM results dented by pickup truck changeover

By Nick Carey and Paul Lienert

DETROIT (Reuters) - General Motors Co on Thursday reported better-than-expected first-quarter earnings despite a drop in production of high-margin pickup trucks as it gears up for new models, but investors disappointed by the automaker's lower pre-tax profit sent its shares down more than 2 percent.

Like rivals Ford Motor Co and Fiat Chrysler Automobiles NV, GM is banking on highly profitable pickup trucks to boost margins, as U.S. consumers abandon traditional passenger cars in favor of larger, more comfortable trucks, SUVs and crossovers.

"We believe the stock will be under pressure today given," GM's lower pre-tax profit and a "significant cash burn" during the first quarter," Buckingham Research Group analyst Joseph Amaturo wrote in a client note.

Executives said GM will reduce spending on traditional sedans in North America, while introducing new low-cost passenger cars next year in China and South America.

During the first quarter, the process of retooling assembly plants to make GM's new pickup trucks resulted in a drop in production of 47,000 units. GM Chief Financial Officer Chuck Stevens said the production drop had reduced pre-tax profit by up to $800 million.

Earlier this year, GM said 2018 profits would be flat versus 2017, but its all-new pickup trucks would boost margins later this year and in 2019. On Thursday, GM reiterated its full-year 2018 forecast for adjusted earnings in a range from $6.30 to $6.60 per share.

The automaker said first-quarter capital expenditures were more than $500 million higher because of investments in the pickup trucks and a family of low-cost compact vehicles under development with Chinese partner SAIC Motor Corp Ltd.

The new GEM (Global Emerging Markets) vehicles, which include sedans and crossovers, will launch in 2019 in China and South America, with annual production ramping up to 2 million by late 2021, Stevens said.

Chief Executive Mary Barra said GM has "a strong franchise" in South America where the new GEM vehicles will be contributing to profits.

Stevens said the automaker has "already indicated that we will make significantly lower investments" in sedans in North America.

On a conference call with investors, he said GM executives "look at these car lines on a weekly basis, at how to drive performance (and) cost efficiencies."

On Wednesday, rival Ford said it would stop investing in most traditional passenger sedans in North America.

GM benefited from a lower effective tax rate in the quarter, but its adjusted pre-tax margin fell to 7.2 percent from 9.5 percent a year earlier. Stevens said GM's profit margin should hit 10 percent or higher in the second quarter and for the full year.

GM said raw material costs were $200 million higher and it expects those costs to continue rising, which it will offset with cost cutting measures.

"It is a more difficult environment than it was three or four months ago," Stevens said of potential steel and aluminum tariffs announced by the Trump administration. "But we are confident we can continue to offset that."

GM reported net income of $1.05 billion or $1.43 per share, a drop of nearly 60 percent from $2.61 billion or $1.75 per share a year earlier. Analysts had on average expected earnings per share of $1.24.

Revenue totaled $36.1 billion, down from $37.3 billion in the first quarter of 2017. Analysts expected revenue of $34.7 billion.

"The year-over-year profit decline was expected due to various factors, but now we expect year-over-EPS improvement in the remaining quarters of 2018," CFRA Research analyst Efraim Levy wrote in a client note.

In afternoon trade, GM shares were down 78 cents or more than 2 percent at $37.33.

(Reporting by Nick Carey and Paul Lienert; Editing by Nick Zieminski, Phil Berlowitz and Tom Brown)