GM beats second-quarter estimates, shares gain

General Motors Corp. said it swung to a quarterly profit that trounced Wall Street estimates as it benefited from cost-cutting and growing sales overseas, sending its shares higher.

GM posted a second-quarter profit of $891 million against a massive $3.4 billion loss a year ago, bolstered by gains in Europe, Latin America and Asia, sales of higher-margin vehicles and a one-time, tax-related gain.

The automaker also sharply narrowed its losses in its troubled home market, but vowed to keep the pressure on costs, the overriding issue in a crucial round of ongoing labour talks with its major union.

Despite signs of recovery for the No. 1 US automaker, analysts said GM would face a tough second half as stiff competition and a weak US housing market raise the stakes for automakers to roll out new sales incentives.

Shares of GM were up one per cent at $32.91 in afternoon trade on the New York Stock Exchange, off early gains that sent the shares up as much as six per cent.

Excluding some one-time items such as charges related to the bankruptcy of parts supplier and former subsidiary Delphi Corp., GM said it had earned $2.48 per share.

Those adjusted earnings included 19 cents per share in earnings from subsidiary Allison Transmission, which GM is spinning off in a deal expected to close this quarter. The headline figure also included a $401-million gain as GM reversed previously booked tax liabilities.

But even stripping out those items, analysts said GM beat both the average Wall Street forecast of $1.08 per share and the most bullish forecast at $1.64 per share, as tracked by Reuters Estimates.

"While never an easy release to navigate, it appears to be a clean beat," Bear Stearns analyst Peter Nesvold said.

Lehman Brothers analyst Brian Johnson attributed GM's stronger-than-expected showing to a better performance at GMAC - its former finance arm in which it retains a 49-per cent stake - and strong earnings in markets outside North America.

Overall revenue from auto operations rose to $45.9 billion, up nearly 2.5 per cent from $44.8 billion a year earlier.

GM, which had lost more than $12 billion in the past two years, is in the middle of a sweeping restructuring that includes slashing more than 34,000 jobs and closing 12 plants in North America.

For the second quarter, GM's North American net loss narrowed sharply to $39 million from $3.95 billion a year earlier when it took charges for its attrition plan.

Chief Financial Officer Fritz Henderson said GM needed to keep up the pressure on cost-cutting, including taking steps to reduce its $4.8 billion annual health care bill.

All three Detroit automakers - GM, Ford Motor and DaimlerChrysler AG's DCXGn.DE soon-to-be private Chrysler Group - have begun talks with the United Auto Workers union to replace a contract that expires September 14.

The companies are seeking major concessions, particularly in health care, to bring their factory labour costs in line with Japanese rivals led by Toyota Motor Corp.

JP Morgan analyst Himanshu Patel reiterated his "overweight" rating on GM, citing "potential for sizable labour concessions, particularly a Goodyear-style healthcare deal."