By Gautham Nagesh
General Motors Co. kept on trucking in the second quarter
despite slower growth in China, as the popularity of its pickups
and SUVs led the company to solidly beat analyst expectations and
forecast a healthy second-half performance.
The No. 1 U.S. auto maker in terms of sales reported $1.1
billion in net income attributable to common stockholders, a sharp
increase from $200 million over the same three-month period a year
ago. Revenue fell $1.4 billion during the period to $38.2 billion
as foreign-currency exchange continued to be a headwind. Even so,
operating margins in both China and the U.S. exceeded 10%.
GM's results contrast those reported by one of its biggest
rivals Thursday. Hyundai Motor Co., the world's fifth-biggest auto
maker by sales when combined with affiliate Kia Motors Corp.,
posted a net profit drop of nearly a quarter and signaled that it
may miss its full-year sales target as its China and U.S. volumes
fell.
Detroit auto makers, like Germany's luxury car makers, are
benefiting from two factors that fatten the bottom line: Sales of
trucks and SUVs are sizzling in the U.S. amid cheap gasoline, and
Chinese buyers still have an appetite for higher-priced luxury cars
and light trucks even as market growth clears.
Daimler AG on Thursday posted a sizable revenue increase in the
second quarter and an 8% increase in net profit.
GM said it expects second-half operating income to exceed the $5
billion reported in the first half. Strong profits and efficiency
improvements helped GM achieve a return on invested capital in
excess of 23%, outstripping Chief Executive Mary Barra's goal of
20%.
Momentum comes as GM starts labor negotiations with the United
Auto Workers on a new four-year contract. After about a decade of
contract talks taking place against the backdrop of restructuring
and recovery, the financial strength of domestic auto makers could
embolden UAW leaders to push for wage growth and deeper U.S.
investment.
Shares climbed 7.5% in premarket trading Thursday to $32.60,
contrasting a recent decline in the stock price that was driven
primarily by China concerns. Still, GM's market value is behind
many of its larger rivals, including Ford Motor Co.
RBC auto analyst Joseph Spak said GM showed "solid signs" in
North America and Europe, but there is still reason to "have some
caution in China and South America." He said "expectations were
very low and stock has been a poor performer of late" so results
are "likely to provide some relief."
Ford reports earnings next week. Analysts are monitoring the
Dearborn, Mich., auto maker's progress with a slow-going F-150
product changeover.
GM reported second-quarter adjusted earnings per share of $1.29,
solidly beating analysts' forecast of $1.08.
Chief Financial Officer Chuck Stevens told reporters that China
is "very challenging" given the moderation in growth, but GM took
actions related to managing material costs and product launches.
China is the largest auto market in the world, and Mr. Stevens said
GM will mostly stick to its plan to invest $14 billion into a
market he expects to reach 35 million annual car sales in the next
10 to 15 years.
Mr. Stevens said GM will continue expanding its Cadillac and SUV
lineups in China as the market matures, a move that could help
offset the pressure on pricing at the lower end of the market. Mr.
Stevens said SUV sales in China were up more than 80% compared with
last year.
The company reported a $2.8 billion operating profit in North
America. Spread across 965,000 vehicle sales in North America, the
company made $2,901 per car sold in the region last quarter.
Still, GM has to spend money to make money. The auto maker
disclosed its average incentive in the quarter in the U.S. was
$3,852 per car sold. Even with relatively high incentive spending,
North American operating margin for the quarter hit 10.5% in the
quarter--higher than the company's 2016 goal of 10% for the
region.
GM said it recorded 10.2% equity net income margin in China. The
auto maker slimmed down its losses in Europe, where it has been
mired in red ink for several years. It aims to turn a profit there
next year.
Global deliveries in the second quarter were down 2.7% and
consolidate wholesales decreased by 38,000 units, which GM
attributed to volatility in Brazil and Russia, as well as the exit
of its Chevy brand from Europe. Mr. Stevens said the South American
market should improve in the second half of the year, but
reiterated that North America and China underpin its optimistic
forecast.
The second-quarter net income included $1.1 billion in special
charges related to the devaluation of Venezuelan currency and
impairment charges related to reconfiguring the business in
Thailand.
GM has also updated its best estimate for the size of the
victim's compensation fund related to its recall of faulty ignition
switches last year. Mr. Stevens said the latest estimate of $625
million is "very robust" and close to the final figure, up from the
previous estimates of $400 million to $600 million.
Write to Gautham Nagesh at gautham.nagesh@wsj.com
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