General Motors reported a sharp drop in quarterly profit on Wednesday but its share rose 3% amid optimism over its ability to weather the coronavirus crisis.
The pandemic cost the largest U.S. automaker $1.4 billion before taxes during the first quarter, with net profit sliding 86.7% to $294 million from $2.2 billion a year ago as the company shut down its factories.
But GM’s results were better than those of rivals Ford and Fiat Chrysler, which both reported first-quarter losses. Pretax earnings of 62 cents per share beat Wall Street projections of 30 cents per share.
“We believe that we’re positioned well to manage through this because we’ve taken swift actions to preserve liquidity,” GM CFO Dhivya Suryadevara told reporters.
The company ended the quarter with $33.4 billion in automotive liquidity. Among other things, it has saved $2 billion by suspending stock buybacks and quarterly dividends.
“Liquidity is the name of the game for not only the markets, but also auto companies, such as GM, during this shutdown,” David Kudla, chief investment strategist for Mainstay Capital Management, told the Detroit Free Press.
GM’s shares gained 3% in trading Wednesday to close at $21.89 as it also reported that North America profit rose to $2.2 billion from $1.9 billion due to strong truck and SUV sales and restructuring actions. The earnings were offset partially by lower volume from suspending production.
Total revenue slipped 6.2% to $32.7 billion while U.S. sales dropped 8% year over year to 611,422 vehicles, the lowest first-quarter volume level in at least the past five years.
“The industry volumes were significantly off in March and April from the pre-crisis level and as such you can expect that the second quarter will be the hardest hit,” Suryadevara said. “But it’s worthy of noting even in April we did see resilience in truck deliveries.”
GM is planning a phased restart of North American production beginning May 18 but the Detroit News said second-quarter sales “likely will take a hit because many dealerships across the U.S. remained closed for the entire month of April.”
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