DETROIT (Reuters) - General Motors Co. said on Thursday that first-quarter profit tumbled 88 percent after a massive recall due to defective ignition switches, but results still topped expectations on strong pricing for its redesigned pickup trucks in North America and improvement overseas.
The company said its core operating outlook remained on target for the year. GM said in January, before the recall became public, it expected a slight uptick in pretax profits this year.
"It should be good enough to ease concerns," Citi analyst Itay Michaeli said. "Expectations were very low. People were just kind of nervous overall about how the quarter would look. The story really here though, in terms of fundamentals, is better performance in the international regions."
The quarter included a previously disclosed charge of $1.3 billion for the recall and Chief Financial Officer Chuck Stevens said it was too early to predict whether there would be more charges. He reaffirmed the $1.1 billion in 2014 restructuring costs GM forecast in January.
Stevens also said the company was still studying its options for the victims of the faulty switches, which have been linked to at least 13 deaths. Safety advocates and some lawmakers have called for GM to establish a victims compensation fund.
"Obviously, the recall campaign charges in the first quarter overshadows the headline results, but if you look underneath that, we had strong performance across the board," Stevens told reporters at the company's Detroit headquarters. GM Chief Executive Officer Mary Barra said that calling the first quarter "challenging" was an understatement.
Some GM ignition switches have made vehicle engines stall while operating, stop airbags from deploying, and power steering and power brakes from operating. The company is under investigation by U.S. safety regulators, Congress and the U.S. Department of Justice over its failure to detect the faultypart for more than a decade.
Barra said the company's internal probe of the recall was on track and she expected recommendations from attorney Kenneth Feinberg, hired by GM to come up with a potential plan to compensate victims of the faulty switch, in the next 45 days.
Net income in the first quarter fell to $108 million, or 6 cents a share, from $873 million, or 58 cents a share, in the year-earlier period. The most recent quarter included recall costs of $1.3 billion, or 48 cents a share.
Excluding a charge mostly for the devaluation of the Venezuelan currency, GM earned 29 cents a share, far better than the 4 cents analysts expected, according to a poll by Thomson Reuters I/B/E/S.
(Graphic on GM earnings: http://link.reuters.com/tan78v)
'BRACED FOR THE WORST'
"Everyone was braced for the worst and it did not happen," said Mirko Mikelic, senior portfolio manager with Clear Arc Capital, which owns GM shares. He was pleased that GM valued profits over chasing market share. The company's global market share slipped to 11.1 percent in the quarter from 11.3 percent in the same period last year, including a decline in North America.
CFO Stevens said the company was still targeting market share growth in North America this year.
Morgan Stanley analyst Adam Jonas said the stronger-than-expected results and positive outlook were "good to interrupt the negative headline streak" from the recall. However, the results beat "a rather low bar."
"We'll find out whether investors want to go along for the ride from here," he added.
Revenue rose 1.4 percent from last year to $37.4 billion, but below the $38.4 billion that analysts expected.
GM raised prices for its vehicles, which boosted operating profits by $1.8 billion. The bulk of the increase was in North America, thanks to higher sales of more lucrative versions of its redesigned Chevrolet Silverado and GMC Sierra full-size pickup trucks.
Stevens said the average transaction price for the trucks rose about $5,000 in the quarter from a year ago, and overall prices were up about $2,000 per vehicle.
CEO Barra said the recall has not meaningfully hurt U.S. sales, and that the company has told dealers they can offer employee pricing to any consumers affected by the recall who may want to buy a new vehicle. GM previously said it would also offer those consumers a $500 cash allowance toward purchasing a new vehicle.
Also, the company still sees U.S. auto industry sales this year in the range of 16 million to 16.5 million vehicles.
The loss in Europe widened to $284 million from $152 million last year, but the quarter included $200 million in restructuring costs already outlined by the company. CFO Stevens said the company was "seeing real progress in Europe." Barra reiterated that GM remained on track to return to break-even financial results in the region by mid-decade.
The loss in South America grew to $156 million from $38 million last year.
Of the $1.3 billion to cover the various recalls in the first quarter, GM said about $700 million was related to the defective ignition switches, including $300 million to cover the cost of courtesy cars for owners who do not want to drive the cars affected by the recall switch.
GM said multiple shifts were working at Delphi Automotive Plc plant in Mexico, where replacement parts for the switch recall are being made. A second line will likely begin production in June, with a third line to begin later in the summer.
GM said it would have enough parts by October to repair most of the affected cars.