U.S. stocks rose Thursday as investors cheered stronger-than-expected corporate earnings from social media giant Facebook Inc. (NASDAQ:FB).
The Dow Jones Industrial Average rose 5.97 points or 0.03 percent, to 17,092.60. The S&P 500 edged up 2.32 points or 0.12 percent, to 1,989.33. The Nasdaq Composite gained 2.29 points or 0.05 percent, to 4,475.98.
GM's Earnings Take a Hit on Recall Costs
General Motors Co. (NYSE:GM) reported fiscal 2014 second-quarter earnings of 11 cents a share on revenue of $39.65 billion, compared with a profit of 75 cents a share on revenue of $39.08 billion a year-ago.
Shares of General Motors fell more than 3 percent after the company reported an 80 percent drop in second-quarter profit due to recalls. The company said it also expects to spend $400 million to compensate those killed or injured by defective ignition switches.
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Wall Street had expected GM to report quarterly earnings of 59 cents on revenue of $40.59 billion, according to analysts polled by Reuters.
Net income fell to $190 million in the quarter from $1.2 billion a year earlier. The company earned 58 cents a share for the period, excluding items.
"Our underlying business performance in the first half of the year was strong as we grew our revenue on improved pricing and solid new vehicle launches," Mary Barra, General Motors chief executive officer, said in the company’s second-quarter earnings statement. "We remain focused on keeping our customers at the center of all we do, and executing our plan to operate profitably in every region of the world."
GM’s earnings were significantly down from the $1.2 billion in recall-related charges. Earnings before interest and tax was $1.4 billion and included the impact of recall-related costs and $0.2 billion in restructuring costs. Compared to the second quarter of 2013, the company recorded EBIT (earnings before interest and tax) of $2.3 billion, which included a charge of $0.2 billion for recalls and $0.1 billion in restructuring costs.
“With successful new vehicle launches, we continue to generate strong results in the U.S. and China and remain on track to be profitable in Europe by mid-decade,” Chuck Stevens, General Motors executive vice president and chief financial officer, said in the earnings statement. “We are confident we are currently on or ahead of plan to deliver the results we promised earlier this year, excluding the effects of recalls.”
GM said its North America segment reported adjusted earnings of $1.4 billion, which included the impact of $1.0 billion in recall-related costs in the quarter. This compared with adjusted earnings of $2.0 billion in the second-quarter of 2013, which included the impact of $0.1 billion in recall-related costs in the quarter.
The automaker’s Europe segment issued an adjusted earnings loss of $0.3 billion, including $0.2 billion for restructuring costs, compared with a loss of $0.1 billion of adjusted earnings in the same period a year earlier.
“With successful new vehicle launches, we continue to generate strong results in the U.S. and China and remain on track to be profitable in Europe by mid-decade,” Stevens said.
The company’s South America segment reported an adjusted earnings loss of $0.1 billion from $0.1 billion a year-ago.
Meanwhile, GM announced six safety recalls on Wednesday covering 717,949 recent model vehicles in the U.S.
“These recalls signify how we’ve enhanced our approach to safety,” Jeff Boyer, vice president of Global Vehicle Safety at General Motors, said in a press release issued Wednesday. “We are bringing greater rigor and discipline to our analysis and decision making. If we identify an issue -- large or small -- that might affect the safety of our customers, we will act decisively.”
Going forward, the company expects recall expense to normalize to a slightly higher rate than it experienced prior to this year. GM said it is taking a $900 billion non-cash pre-tax special charge in the second quarter for the estimated “costs of future possible recalls for up to the next 10 years on 30 million GM vehicles on the road today.”
Shares of General Motors Co. fell 3.50 percent to $36.10 on Thursday in afternoon trading.
Ford Shares Rise on Automaker’s Record Performance in North America
Also on Thursday, Ford Motor Co. (NYSE:F) reported fiscal 2014 second-quarter earnings of 32 cents per share on revenue of $37.4 billion, compared to a profit of 30 cents per share on revenue of $37.9 billion a year ago. Meanwhile, the automaker earned a profit of 40 cents per share, excluding items.
Wall Street had expected Ford to report earnings per share of 36 cents on revenue of $36.16 billion, according to analysts polled by Reuters.
Net income rose to $1.3 billion from $1.23 billion a year earlier. Ford issued a second-quarter pre-tax profit of $2.6 billion, an increase of $44 million compared with a year-ago.
“Our One Ford plan continues to deliver, enabling us to reach our 20th consecutive quarter of profitability,” Mark Fields, president and chief executive officer, said in the company’s second-quarter earnings statement. “Moving forward, our commitment is to build on this success by accelerating our pace of progress, while delivering product excellence and driving innovation in all areas of our business.”
North America achieved “record quarterly performance” for pre-tax profit and Asia Pacific reached a second-quarter record. The company said its European segment earned its first quarterly profit since the market decline three years earlier.
Profit in North America was driven by "industry sales and a strong product lineup." The segment reported a “record” pre-tax profit of $2.4 billion in the second-quarter, an increase of $119 million from last year.
The company said it achieved higher market share in its Asia Pacific region, driven by record share in China. The Asia Pacific segment reported a second-quarter pre-tax profit of $159 million, an improvement of $29 million compared with a year earlier, and a second-quarter record. For the full year, Ford continues to expect its Asia Pacific region will earn a higher pre-tax profit than a year-ago.
GM’s South America sector reported a pre-tax loss of $295 million in the quarter, a $446 million decline from the prior year. For the full year, Ford now expects its South America segment to incur a larger loss than it previously guided.
Europe reported a quarterly pre-tax profit of $14 million, which was a $320 million improvement from a year earlier. Ford’s full-year guidance for Europe remains unchanged, with the region expected to improve pre-tax results compared with 2013.
“Our second quarter results demonstrate the underlying strength of our business,” Bob Shanks, executive vice president and chief financial officer, said in the earnings statement. “We are delivering strong results in a year of aggressive global product launches and difficult external conditions in many parts of the world -- a tribute to the power of our One Ford plan and the Ford team around the world.”
Ford affirms its 2014 pre-tax profit guidance of $7 billion to $8 billion.
Thursday, shares of Ford Motor Co. rose 0.39 percent to $17.85 in afternoon trading.
Notable companies reporting quarterly earnings after the closing bell on Thursday include Amazon.com Inc. (NASDAQ:AMZN), Starbucks Corporation (NASDAQ:SBUX), Pandora Media Inc. (NYSE:P) and Visa Inc. (NYSE:V).