GM Q2 net income more than doubles to $2.87 billion
DETROIT -- General Motors’ strategy of focusing on retail sales in North America paid off in the second quarter, with net income more than doubling from the year-earlier quarter.
GM reported overall net income of $2.87 billion in the second quarter, up from $1.12 billion in the second quarter of 2015.
“This was an outstanding quarter for GM,” CEO Mary Barra said in a statement. “We’ll continue to focus on driving profitable growth and leveraging our technical expertise to lead in the future of personal mobility.”
The automaker raised its earnings guidance for 2016, saying it expects to make between $5.50 and $6 a share for the year, up from its previous projection of $5.25 to $5.75 a share.
Revenue rose 11 percent to $42.37 billion, a record for any quarter since GM’s emergence from bankruptcy in July 2009.
The results handily beat Wall Street expectations. Analysts had predicted the automaker would post earnings of $1.52 per share. Actual earnings came in at $1.86 cents per share.
GM shares rose 1.7 percent to close Thursday at $32.03.
North America profits
In North America, GM’s earnings before interest and taxes jumped 31 percent to $3.65 billion, despite a drop of 5.7 percent in overall North American unit sales during the period. The automaker has been focusing on selling fewer cars into the fleet market, which is less profitable than retail. That strategy boosted its profit margins in the quarter to 12.1 percent from 10.5 percent a year ago.
Fleet sales for the first half of 2016 are down less than 1 percent, but GM’s retail sales for the first half of 2016 are up 1.3 percent.
GM CFO Chuck Stevens said the company is sticking to a “very disciplined” retail pricing strategy. He defended the automaker’s decision to more than double incentives on pickups at the start of July as simply a way to sell off 2016 model year vehicles, and not a sign that GM is going back to the days of heavy discounting.
“This was a tactic to kick off the model year ’16 selldown,” he told reporters. “That’s it, and that’s all.”
Bloomberg reported that J.D. Power data shows GM’s July incentives on the Chevy Silverado were up 76 percent in July. And incentives on the GMC Sierra were up 146 percent.
The automaker has been selling a higher mix of SUVs and pickups and has seen high demand for cars such as the Chevy Malibu, Cruze and Cadillac XTS, adding to the improved profit margins. On the other hand, it said earnings were trimmed by lower prices at auction of GM-owned cars coming out of rental fleets.
European operations swung to a profit in the quarter of $137 million, vs. a loss of $45 million a year earlier, marking two quarters in a row of break-even or better results.
GM said its improved position in Europe resulted from a recovering industry, cost optimization and several successful vehicle launches. Prior to the U.K.’s vote to exit the European Union, it was on track to achieve break-even for the year, GM said.
But the vote “has adversely impacted the British Pound and the uncertainty has put strain on the U.K. automotive industry,” GM said in a statement. “If current post-referendum market conditions are sustained throughout the remainder of 2016, we believe it could have an impact” of up to $400 million on the second half.
Stevens said GM is watching Brexit’s impact on European operations very closely to see how the situation plays out. “We will pursue all opportunities to mitigate any headwinds” that come from the Brexit vote, he said.
Income from GM’s joint ventures in China was flat vs. year ago, at $500 million. Its profit margin fell to 9.5 percent from 10.2 percent a year ago.
Strong sales of the Baojun, Buick and Cadillac brands were offset by weakness in demand for small cars and mini-commercial vehicles. GM said it expects continued pricing pressure this year, offset by strong launches of redesigned vehicles such as the Buick LaCrosse.
Earnings at GM's international operations, which include China, fell 52 percent to $169 million. GM blamed difficulties in its Middle East operations in the wake of low global oil prices, plus significant currency pressures, particularly the Egyptian pound and Australian dollar.
GM said it expects economic conditions in its consolidated international operations to "remain difficult," with the second half to be similar to the first. For the first half, international operations' earnings fell 24 percent to $548 million.
GM Financial posted second-quarter net revenue of $2.29 billion, up 51 percent, and pretax income of $266 million, up 18 percent. Both were records for the unit since GM acquired AmeriCredit in 2010 and began transforming the company into a captive lender. It was the second-biggest contributor to GM's bottom line, following North America.
GM Financial's net income rose 1.6 percent to $189 million. The slower rise in net came as the company's income-tax provision nearly doubled to $77 million from $39 million a year earlier.
The company said charge-offs remain stable in both its North American and international portfolios.
GM also gave details of its purchase of Silicon Valley autonomous driving startup Cruise, which it purchased in May. The startup cost $581 million in cash and stock, almost half of the $1 billion purchase price that was reported at the time of the acquisition.
The automaker booked a $300 million charge for Cruise during the second quarter.
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