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GM's revved up profits leave analysts in dust Automaker's revved up profits leave the experts in the dust


General Motors Corp. surprised analysts yesterday by reporting better-than-expected third-quarter earnings, based on improved performance of its big North American automobile operations, a favorable tax break and the improved profitability of its cars and trucks.

The nation's largest automaker posted a profit of $642 million, or 42 cents a share. This represented a gain of 16.4 percent over the third quarter of 1994, when net income totaled $552 million, or 40 cents a share. Sales totaled $37.5 billion, up from $34.5 billion.

It was GM's best third quarter since 1988, a period that dealers call the "good old days" because industry sales of 15.7 million vehicles were the third best on record.

GM had been expected to earn 31 cents a share, based on the estimates of 11 analysts surveyed by Zacks Investment Research. Those estimates ranged from a low of 15 cents, and even the most optimistic analyst felt that GM would earn only 40 cents.

"The battleship is turning," said Phil Gott, who heads the automotive consulting business of DRI/McGraw-Hill in Lexington, Mass.

"It certainly was a good quarter," said Smith Barney analyst David Garrity. "I think everybody was pleasantly surprised by what they did" in North America.

GM's North American operations (NAO), which traditionally account for about 60 percent of the company's earnings, reported a net loss of $93 million.

While that is not normally grounds to celebrate, GM's president and chief executive, John F. Smith Jr., said the company was "especially pleased."

The NAO finished the comparable part of 1994 $363 million in the red.

Mr. Smith noted that improvement of NAO "more than accounted for our overall year-over-year increase."

Last year's third quarter was particularly hectic for GM, as a strike at the company's Inland Fisher Guide parts plant in Anderson, Ind., slowed production at assembly plants around the nation and came within hours of forcing a shutdown of GM's Chevrolet Astro and GMC Safari van factory here.

That strike, along with one at the Buick City complex in Flint, Mich., reduced the company's 1994 third-quarter profits by $150 million.

During the third quarter this year, GM benefited from an unusually low income tax rate of 1.2 percent as the company incurred losses in European countries with high tax rates and posted profits at other international operations, which had generally lower tax rates.

Overall, the tax situation added $110 million, or 15 cents a share, to GM's earnings.

"We can quibble about tax benefits but the fact remains GM came out with better-than-expected results," said Mr. Garrity, the Smith Barney analyst.

In presenting the third-quarter results, J. Michael Losh, GM's chief financial officer, noted that the company has made an average pretax profit of $629 on each vehicle it sold in North America this year.

That compares with an average profit of $200 per vehicle during the first nine months of 1994.

Some troubling numbers had to do with the company's supply of vehicles in stock. At the end of the quarter, GM had a 79-day supply of cars in its inventory, up from 56 during the strike-plagued part of last year.

There was a 97-day supply of trucks on hand, up from 81. The company likes to keep a 60-day inventory.

Numbers related to fleet sales were more favorable. They showed that GM is reducing the number of its less-profitable sales to rental companies.

Fleet sales accounted for 22.6 percent of car deliveries during the first nine months of the year, down from 24.3 percent last year. Truck sales to fleets fell slightly, to 18.9 percent from 20 percent a year ago.

For the first nine months of the year, GM posted consolidated net income of $5.06 billion, or $5.32 a share.

This was up from a profit of $3.2 billion, or $3.41 a share, in the comparable period a year ago. Sales totaled $124.9 billion, up from $112.4 billion.

Wall Street took the news in stride. GM shares closed unchanged yesterday at $46.50.

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