GM Earnings Beat Expectations. Why Its Stock Is Dropping.

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General Motors

stock dropped after the auto maker beat earnings projections but raised earnings guidance less than investors hoped. The quarter won’t be enough to get the stock going.

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.

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 (ticker: GM) guided for $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 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.

Shares were down about 3.6% in premarket trading.

The company sounds pleased with results though. “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.

And 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 of the year. Earnings were hit by the recall as well as the global automotive semiconductor shortage that is constraining auto production everywhere.

GM management hosts a conference call at 10 a.m. eastern time to discuss results. Earnings guidance, the chip shortage, and recall costs will be big topics of discussion.

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

S&P 500

and the

Dow Jones Industrial Average

have risen about 18% and 15%, respectively.

Write to allen.root@dowjones.com