GM raises profit outlook, tops estimates, but stock weighed down by $792 million recall charge

It also confirmed the return of the Chevy Bolt and the larger Bolt EUV, which will be built on GM’s newer EV platform. GM in April said it was going to end the Bolt’s production this year.

“Our momentum is broad-based,” GM Chief Executive Mary Barra said on a call with analysts following results. The company has delivered four consecutive quarters of higher retail market share in the U.S. and increased market share in the first half of the year “with strong pricing and incentive discipline,” she said.

“We are focused on strong cost discipline and we are taking additional steps to lower our capital spending,” Barra said.

The Detroit-based car maker had net income of $2.566 billion, or $1.83 a share, for the quarter, up from $1.692 billion, or $1.14 a share, in the year-earlier period.

Adjusted per-share earnings came to $1.91, ahead of the $1.86 FactSet consensus.

Revenue rose to $44.746 billion from $35.759 billion a year ago, also ahead of the $42.133 billion FactSet consensus.

GM met its target to produce 50,000 EVs in North America in the first half of the year, and kept its target to make about 100,000 EVs in the second half “and we’ll grow from there,” Barra said.

See also: EV sales stall as, aside from Tesla and BYD, there’s a ‘step back from euphoria’

Earnings were hit by a $792 million charge for new commercial agreements the company has made with LG Electronics and LG Energy Solution related to the Bolt recall. All Bolts ever made, more than 100,000 vehicles, were in the recall, which was due to potential battery fires and required a battery swap.

“The charge reflects the conscious decision GM made during the Chevrolet Bolt EV and Bolt EUV recall to serve customers in ways that go beyond traditional remedies, and GM is taking new steps that will reduce its costs and improve EV margins over time,” the company said in a statement.

With the charge, however, GM didn’t clear a higher bar from buy-side analysts, Barclays analyst Dan Levy said in a note Tuesday. Relative to that buy-side expectation, “the headline result disappointed,” Levy said.

Another point of concern for investors was the risk of a United Auto Workers strike as soon as mid-September, CFRA analyst Garrett Nelson said.

Contract negotiations started earlier this month and the two sides “appear to remain far apart on key issues such as wages and benefits,” the analyst said.

A 40-day strike in 2019 dinged GM’s earnings that year by $1.89 a share, and GM has “much greater earnings risk” in the event of a strike than either Ford Motor Co.
F,
-2.37%
or Stellantis NV
STLA,
+0.30%,
he said. Ford and Stellantis are also in contract negotiations with the UAW.

GM raised its full-year guidance and now expects net income of $9.3 billion to $10.7 billion, up from prior guidance of $8.4 billion to $9.9 billion. It expects adjusted EPS of $7.15 to $8.15, up from earlier guidance for $6.35 to $7.36.

The company is also planning to cut an additional $1 billion in fixed costs on top of the $2 billion already disclosed and will spend less than expected on capital projects.

GM’s most active bonds, meanwhile, have been showing  better buying in the last 10days on good volume, as the chart from BondCliQ Media Solutions shows.

The 3.10% notes that mature in 2032 are leading the way. Spreads were a few basis points tighter on Tuesday.
 

The stock has gained 12% in the year to date, while the S&P 500
SPX,
+0.55%
has gained 18.6%.

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