- Record North American income fueled by trucks, higher prices
- European unit returns to profit, even as Brexit costs loom
General Motors Co. raised its 2016 guidance and posted record second-quarter earnings of $2.9 billion, beating analysts’ estimates by a wide margin as truck sales increased in North America and its European business managed a small profit.
The stock climbed as adjusted earnings jumped to $1.86 a share from $1.29 a year earlier, exceeding the estimate of $1.52. Sales also shattered expectations and the automaker now predicts it will make as much as $6 a share for the year, 25 cents higher than the top of its previous range.
The stronger profit -- net income more than doubled from a year earlier -- underscores GM’s earnings power even with global deliveries flat at 2.4 million vehicles in the second quarter. The question now is whether investors will finally reward Detroit-based GM for growing profit even as global sales growth slows.
“They have been putting up great numbers but the market hasn’t rewarded them. That’s different today," said David Whiston, an analyst at Morningstar. “We’ll have to see if investors will reward GM in a sustained way.”
GM shares rose 3.2 percent to $32.48 at 10:02 a.m. in New York after the report, which was the fifth straight quarter the automaker beat earnings estimates by at least 15 percent. The full-year profit estimate is now for a range of $5.50 to $6 a share, GM said in its statement Thursday.
While global vehicle sales have been static, GM’s posted $42.4 billion in revenue, an increase of 11 percent and well above the projected $39 billion.
In North America, second-quarter adjusted earnings before interest and taxes were $3.6 billion, compared with $2.8 billion a year ago. Better pricing on new models in the U.S. helped lift profit, Chief Financial Officer Chuck Stevens said in a roundtable with reporters.
The company also posted record profit of $266 million from its growing GM Financial lending unit, Stevens said. That’s up from $225 million a year ago.
“This was an outstanding quarter for GM,” Chief Executive Officer Mary Barra said in the statement.
Income from the company’s China operations was steady at about $500 million, thanks to growing sales of expensive vehicles like the Buick Envision sport utility vehicle in that market.
GM said its South American operations lost $121 million, compared with a $144 million loss a year earlier. In Europe, where GM has struggled to make a profit, the company posted earnings of $137 million, its first black ink in the market since 2011 after losing $45 million in the region a year ago.
While Europe is looking strong, GM said that the U.K.’s plan to exit the European Union could cost the company $400 million in the second half of the year, as an expected drop in demand hits its British Vauxhall brand. With Brexit already causing problems for GM, the automaker will evaluate everything over the long term, including the location of production of parts and vehicles in the market, Stevens said.
“It’s early days,” Stevens said. “Everything is on the table as this plays out.”
For its acquisition of autonomous-driving technology company Cruise Automation, GM said it paid $581 million at closing, including about $300 million in cash in the second quarter. The total cost of the deal will be more over time.
Even with better results, GM isn’t currently planning to increase its dividend or the scope of an ongoing $9 billion share buyback program, Stevens said, adding that the repurchase was “underpinned by our expectations for 2016 and 2017, which we’re delivering. Right now, we’re not changing our view on returning capital.”