But the inventory problem isn't going away

By Fortune Editors and Reuters
July 25, 2017

General Motors Co gm defied the increasingly gloomy mood around the U.S. auto sector Tuesday reporting a better-than-expected quarterly net profit and refusing to cut its earnings outlook for the full year, despite a drop in sales.

The news, which comes at a time when Wall Street is concerned that the U.S. auto industry is entering a downturn, sent GM’s shares up more than 2 percent in pre-market trading.

Automakers have reported declining sales for the past four months in a row, and analysts are particularly concerned over GM’s inventory of unsold vehicles, which it has built up ahead of downtime while it prepares to launch new vehicles.

That problem appeared to get even worse in the last quarter: as of the end of June, GM had 105 days’ supply of cars, above the 90-day supply it told investors to expect back in April. The company said Tuesday that dealer inventories in the second quarter were up 273,000 versus the same period in 2016.

Read: How GM Paid PSA to Take Opel Off Its Hands

Second-quarter net income fell to $2.4 billion or $1.60 per share, from $2.8 billion or $1.74 per share a year earlier. The results for the quarter excluded the company’s European operations, which are being sold to Frances PSA Group. Excluding one-time charges, the company reported earnings per share of $1.89, well ahead of the $1.69 analysts had expected.

GM said it still expected to earn between $6 and $6.50 per share in 2017.

Revenue for the quarter fell to $37 billion, from $37.4 billion a year earlier and below the $40.1 billion expected by analysts.

GM’s CEO Mary Barra has indicated that she will abandon the high-volume, low-margin model that has been the company’s mainstay for most of recent history, in order to concentrate investment resources on faster-growing areas such as autonomous and electric vehicles. In addition to selling the Opel and Vauxhall brands to PSA, she has also pulled the company out of India and South Africa.

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