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Jul 25, 2018

GM cuts profit forecast as surging metals prices boost costs

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General Motors Co. cut its forecast for profit this year as surging prices for steel and aluminum combine with swings in South American currencies to burden the largest U.S. automaker.

Adjusted earnings will drop to about US$6 a share, down from a previous projection for as much as US$6.50 a share, the Detroit-based company said Wednesday. Raw material costs probably will be a US$1 billion headwind to GM’s profit this year -- roughly double its previous expectation -- while the Argentine peso and Brazilian real are likely to drag on results through the remainder of 2018.

GM had been on pace to flirt with record profits until the effects of President Donald Trump’s steel and aluminum tariffs undercut performance. Record earnings in China, market share gains at home and rising profit at its lending arm are all being undermined by steel and aluminum getting pricier after the U.S. slapped tariffs on the metals in June.

The automaker’s shares fell 3.7 per cent to US$38 as of 7:10 a.m. in New York, before the start of regular trading. The stock was down 3.7 per cent for the year the year through Tuesday’s close.

Second-quarter earnings dropped to $1.81 a share, beating analysts’ average estimate for $1.77 a share. Equity income from GM’s China business climbed to US$592 million and pretax profit from GM Financial was US$536 million, both of which were records.

GM said the introduction of its all-important Chevrolet Silverado and GMC Sierra pickups are still on track, with initial deliveries of the redesigned full-size trucks starting early next month.

--With assistance from David Westin