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GM Beats Q2 Forecast with Nearly $1.2 Bil Net Income

EBIT-adjusted earnings are best for any quarter since 2009 bankruptcy.

by on Jul.23, 2015

General Motors CEO Mary Barra remains upbeat about the coming months despite problems in China.

Despite being hit with a $1.1 billion special charge, General Motors managed to deliver a second-quarter profit of nearly $1.2 billion, or $0.67 a share – its biggest three-month profit since emerging from bankruptcy in July 2009 – with strong demand for its North American trucks helping fuel the strong performance.

Factoring in one-time charges equal to $0.62 a share, GM handily outperformed the Wall Street consensus forecast of $1.08 per share. And the second-quarter numbers compared with the modest $190 million, or $0.11, GM reported for the April-June 2014 numbers.

We Earn Your Trust!

“The first two quarters of the year were strong as we fully capitalized on a robust North American industry and maintained our strength in China, despite the challenging conditions in that market,” GM CEO Mary Barra said in a statement. “We said our goal was to improve our earnings and margins this year, and we are on plan.

Industry analysts caution that China is a big uncertainty in the months ahead. GM posted records sales in the world’s largest car market for the first half of this year, but saw demand dip during the second quarter. It also has been forced to cut prices in a bid to shore up sales.

Despite that, Barra said she remains optimistic. “Consistent with that, we believe our results in the second half of the year will be even better than the first half, and we’re confident we will meet our 2016 targets,” she said in a statement accompanying the earnings report.

A Chevy Cruze in China.

Earnings a year ago were hit by initial costs related to GM’s big ignition switch recall. The latest quarter also saw a $75 million charge for that ongoing problem.  Where GM originally expected to spend between $400 million and $600 million on its victims’ compensation fund, the maker now puts the final figure in the $625 million range.

Kenneth Feinberg, the administrator of the fund, earlier this month announced it was finishing up the final claims and had acknowledged at least 124 deaths were caused by the safety defect GM ignored for more than a decade. Before setting up the victims’ fund, the company had said it knew of just 13 deaths.

(GM fund issues final death toll in ignition switch debacle. Click Here for the latest.)

The latest special charge is unlikely to mark the end of the matter. The U.S. Justice Department is continuing to investigate GM’s handling of the defect and is widely expected to levy hefty fines. It may also bring criminal charges. And GM is still facing a variety of lawsuits linked to the issue.

Meanwhile, the second quarter was impacted by a write-down of operations in financially shaky Venezuela, a move that cost GM $702 million. It also wrote down assets in Thailand, at a cost of $75 million.

If GM fell short of expectations during the latest quarter it was on the revenue side, where it generated $38.2 billion compared to the $39.6 billion it took in a year earlier. Industry analysts had forecast the number would exceed $40 billion. But the maker blamed foreign currency shifts for falling short. The Euro, for one thing, has been on a sharp slide in recent months due to the ongoing Greek crisis.

(European car sales deliver some pleasant surprises in June. Click Here for more.)

On the positive side, GM continued to narrow its losses in Europe, giving a glimmer of hope it may finally be turning things around after operating in the red there since before the beginning of the new millennium. Overall, European car sales exceeded forecasts significantly last month. GM nonetheless lost $45 million there during the second quarter, down from a $305 million deficit between April and June of 2014.

June, however, saw GM sales slide 3% in China, a setback after growing 4.4% for the first half, to a record 1.72 million vehicles. The maker had been anticipating growth there of 6% to 8% for all of 2015, but industry observers have been scaling back their forecasts. Still, despite price-cutting, margins in China grew 0.2 points, to 10.2% for the latest quarter.

(China car market hits the brakes. Click Herefor the full story.)

GM’s International Operations did slightly better than a year ago, with EBIT-adjusted, or Earnings Before Interest and Taxes, numbers of $349 million. But the $144 million loss in South America was nearly double the year-ago, $81 million deficit.

Demand for the Chevy Silverado has been strong despite the launch of an all new Ford F-150.

Where GM hit a high note was the home North American market, demand getting a strong boost from the maker’s SUVs, crossovers and pickup truck models. Those vehicles also delivered the maker some of its highest profit margins, boosting GM’s overall margins to record levels.

GM North America delivered an adjusted net income of $2.8 billion for the second quarter, up year-over-year from $1.39 billion.

The maker’s strong performance played well with investors, shares surging by as much as 6% in pre-market trading. That’s good news for Barra and a management team that has been under fierce pressure from Wall Street to drive up a stock that has fallen 14% this year, closing Wednesday at just $30.30 a share, down from the $33 IPO price set in November 2010.

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