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GM's 2Q earnings set record, outlook raised
General Motors Co. on Thursday said it made a record $2.87 billion in the second quarter, more than doubling its profit from the same three months a year ago, as the automaker raised its earnings per share expectations for the full year.
The automaker said earnings per share were $1.81, higher than analysts’ expectations for $1.52 a share, and up significantly from the 67 cents a share earned in the period a year ago. The company said strength in North America and China and profitability in Europe for the first time since the second quarter of 2011 led to the record results. GM stock was up 4 percent in pre-trading Thursday on the news.
“This was an outstanding quarter for GM,” Chairman and CEO Mary Barra said in a statement. “Our results were generated by strong retail sales in the U.S., record sales in China and a continued emphasis on improving the performance of our operations worldwide.”
The carmaker said it now expects its full-year earnings per share to fall between $5.50 and $6 a share, up from $5.25 to $5.75 a share guidance given at the beginning of 2016.
But GM noted that the impact from the United Kingdom’s vote to leave the European Union could cost the company $400 million in the second half of 2016, leaving its goal for breaking even in Europe this year in doubt, Chief Financial Officer Chuck Stevens said.
“We were on the path to our break even commitment,” he told reporters in Detroit. “Clearly the Brexit vote has created a potentially significant headwind. (It’s) early days, you know a lot of uncertainty, but if the current economic conditions prevail, primarily the weakness of the pound sterling, it could be up to a $400 million headwind vs. the first half.”
The company for the first quarter in five years posted a profit in Europe, where it made $137 million pre-tax. For the first half of the year, GM said it has made $131 million pre-tax in the region where it hopes to break even this year for the first time in more than 15 years.
Stevens said GM will continue to look for ways to mitigate any impact from the Brexit. He said “everything’s on the table,” which could include re-evaluating manufacturing locations in Europe.
“The key message is nobody has given up on our objective to drive this business where it needs to go,” he said. “This is a speed bump along the way that we’ll have to deal with.”
The Brexit vote sent auto stocks down sharply in the immediate days following the vote but stocks have recovered.
Revenue in the quarter was $42.4 billion, up 11 percent from the $38.2 billion earned a year ago. The company’s adjusted earnings for the quarter totaled $3.9 billion, with a 9.3 percent adjusted profit margin. GM has goals to hit adjusted margins of 9 percent to 10 percent by early next decade.
Sales in the U.S. market through the first half of the year fell 4.4 percent as GM has cut sales to rental companies and is focusing on sales to consumers. Those sales increased more than 1 percent for the first six months of the year. Sales in GM’s largest market, China, are up 5.3 percent through June this year to a record 1.81 million vehicles and sales in GM Europe are up 4.7 percent.
South America sales are down 19.1 percent through the first half of 2016, while sales in GM’s International Operations division also are down 17.6 percent. The company’s total sales through the first six months of the year totaled 4.76 million, down 1.2 percent.
GM said its earnings before interest and taxes was a record $3.65 billion in North America, where it had a record adjusted profit margin of 12.1 percent — higher than its goal of 10 percent margins in the region.
The company for the first quarter in five years posted a profit in Europe, where it made $137 million pre-tax. For the first half of the year, GM said it has made $131 million pre-tax in the region where it hopes to break even this year for the first time in more than 15 years.
GM said that could be in doubt, however, following the United Kingdom’s surprise vote in June to leave the European Union. The news sent auto stocks down sharply in the immediate days following the vote but stocks have recovered.
The company said that Brexit has “adversely impacted the British pound and uncertainty has put strain on the U.K. automotive industry.” It forecasts a potential negative impact of up to $400 million for the second half of 2016 in Europe, if the current market conditions continue through the end of the year.
GM was profitable in all of its regions except for South America, where it lost $121 million pre-tax in the quarter. The company saw strong results in China, where it made $500 million and had a 9.5 percent adjusted profit margin.
The automaker also noted it spent $581 million including $300 million cash on its purchase of Cruise Automation, the San Francisco-based autonomous software company that GM said in March it would acquire to quicken its pace in developing self-driving cars. Some reports indicated that GM spent about $1 billion on the company then with about 40 employees.
Stevens said the half cash, half stock deal’s actual cost could rise because of ongoing compensation.
“There’ll be additional cost associated with retention of key employees and also critical performance milestones related to the technology and commercial performance,” he said, adding that won’t be disclosed.
So far this year, GM has been focusing on building up its future mobility offerings and self-driving car development. It has invested $500 million or a 9 percent stake into ride-hailing company Lyft Inc. It purchased the assets of another ride-sharing company, Sidecar Technologies Inc. And it rolled out Maven, its personal-mobility brand that includes car-sharing programs in Ann Arbor, Chicago, Boston and Washington, D.C. – and Maven+, a residential car-sharing service in New York City, Chicago, Washington, D.C., and coming this summer in Boston.
GM and Lyft are working together to develop a fleet of self-driving Bolt EVs that could be used for ride-hailing services.
GM’s stock closed at $31.49 Wednesday, up 24 cents. But the stock continues to trade below its initial public offering price of $33 a share in November 2010, frustrating some investors.
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