GM Earnings Destroyed Expectations. Its Stock Is Dropping Like a Stone.

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General Motors stock has had a solid year.

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General Motors

stock dropped after the auto maker beat earnings projections but raised its forecasts for profits less than investors hoped.

GM shares (ticker: GM) were down 8.3%, at $53.07, in recent trading.

The company reported an adjusted profit of $1.97 a share on sales of $34.2 billion, topping expectations for $1.82 in per-share earnings from $29.9 billion in sales. Estimates are according to FactSet.

Operating profit came in at $4.1 billion in the second quarter and about $8.5 billion for the first half of the year, better than the $3.4 billion and $7.8 billion Wall Street projected for the second quarter and first half of the year, respectively.

General Motors told investors to expect $8.5 billion to $9.5 billion in the first half of 2021 earnings in mid-June. GM was able to meet its profit guidance, despite relatively high recall costs of $1.3 billion in the second quarter. The Chevy Bolt EV accounted for $800 million of that amount. In recent months, GM has had to recall more than 100,000 Bolts due to the possibility of battery fires.

The company also raised full-year operating-profit guidance from a range with a midpoint of $10.5 billion to a midpoint of $12.5 billion, implying earnings of about $4 billion in the second half of the year. Investors, however, wanted more.

What’s more, Wall Street is already projecting about $14 billion in full-year operating profit. It can be a problem for a stock when the Street gets ahead of the company.

Barclays analyst Brian Johnson called the quarter “mixed” in a Wednesday report reacting to earnings, meaning there were some positives and some negatives to consider. He noted, though, that the revised full-year earnings forecast was lower than Wall Street had expected. He rates GM shares Buy and has a $74 price target for the stock.

The company sounded an upbeat note on the results. “Halfway through 2021, I’m pleased to report we’re accelerating our progress and advancing our vision of a world with zero crashes, zero emissions and zero congestion,” said CEO Mary Barra in her quarterly letter to investors and employees.

The results show progress. In North America, GM sold about 11,300 electric vehicles in the quarter, up from 9,000 in the first quarter of 2021. Operating earnings at GM’s lending unit also expanded, rising to $1.6 billion in the second quarter from $1.2 billion in the first quarter.

Still, operating profit in GM’s North America operations came in at $2.9 billion in the second quarter, down from $3.1 billion in the first quarter. Earnings were hit by the recall as well as the global automotive semiconductor shortage that is constraining auto production everywhere.

On the company’s 10 a.m. Eastern time conference call, management addressed the recall and the shortage. Barra said the company discovered two rare manufacturing defects in battery cells manufactured by its supplier between 2017 and 2019. As for chips, Barra said the situation remained fluid. GM will take some additional plant downtime in the third quarter due to a lack of semiconductors.

The overall weak second-half earnings guidance of about $4 billion was addressed, but specifics were thin. Management is being conservative.

Shares of GM were up 39% year to date through Tuesday’s close, while the

S&P 500

and the

Dow Jones Industrial Average

had risen about 18% and 15%, respectively.

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