General Motors took Wall Street by surprise on Thursday, blasting through the consensus Q2 earnings forecast with second-quarter net income of $2.41 billion, or $1.66 a share, while earnings adjusted to exclude one-time items came to $1.64 a share.
That was a modest gain over year-ago when GM reports earnings of $2.39 billion, or $1.66 a share. But the consensus forecast for the latest quarter, according to Zacks Investment Research called for a 21% decline in earnings, to $1.43 a share. Analysts had also been expecting to see revenue slip 3%, to $35.57 billion, but it actually came in at $36.1 billion.
“Our results demonstrate the earnings power of our full-size truck franchise, with more upside to come,” said GM CEO Mary Barra, in a statement announcing the earnings. “We will continue operating our business with discipline, and the vision needed to deliver a stronger future for our employees, customers and shareholders.”
Though the results were announced ahead of the opening bell on Wall Street, the news sent GM shares surging in pre-market trading. After being relatively dormant for a number of year, GM stock is up 21% since January 1 and has gained 7% over the past 12 months.
Not all the news was good during the April-June quarter. The automaker faced a particularly tough struggle in its largest market, China – which is also the world’s biggest automotive market. But sales there have slowed sharply this year, marking the most dramatic decline since the Chinese auto industry burst into life around the beginning of the new millennium. Complicating matters, new government mandates put an emphasis on electrified vehicles, an area where GM currently lacks significant product.
All told, Chinese sales were down 12% for the quarter, while income dropped 60.3%, to $235 million, compared to the same quarter in 2018 when the figure was a record $592 million.
GM more than made up for that at home, North American income climbing 13%, to $3.02 billion, from last year’s $2.7 billion. The automaker saw its SUVs gain ground during the recently completed quarter, with sales of crossover models, such as the Chevrolet Equinox, setting a collective record for the period. However, the automaker’s overall sales were off 1.5% for the April-June period, in line with the decline in the U.S. market. Utility vehicles, in general, helped drive the average transaction price for GM vehicles in the market to $40,569, well above the industry average, and a year-over-year gain of 2.2 percent.
There were some setbacks, though. While Chevrolet and GMC saw strong demand for some of their full-size pickup models, that took heavy incentives to keep customers buying. And Chevy, normally the number two player in the segment with its Silverado line, saw its pickup end the quarter falling behind Fiat Chrysler’s Ram truck.
Though GM still maintains a small presence in Europe with select models, such as the Chevrolet Corvette, the automaker’s bottom line no longer reflects the challenges it long faced with the struggling Opel subsidiary, that German-based unit now a part of France’s PSA Group. The automaker has also sold or closed operations in a number of other markets, including Russia, India and South Africa. What remains of GM International delivered a loss of $48 million for the second quarter, compared with a $143 million profit a year ago.
Separately, GM’s autonomous vehicle subsidiary, GM Cruise, went even deeper into the red, a loss of $279 million nearly doubling the deficit of $154 million from a year earlier.
On the positive side, GM benefited from the Trump Administration’s partial rollback of tariffs on foreign-made steel and aluminum, though it was hurt by escalating trade tensions with China and other countries.
Domestic arch-rival Ford Motor Co. fell short of earnings estimates when it announced results for Q2 last week. Fiat Chrysler, which announced its own numbers on Wednesday, had a much stronger quarter and offered an upbeat outlook for the full year, largely based on its Jeep and Ram brands.
All three of the domestic manufacturers have been shifting away from passenger car production to focus on the SUVs and pickups that currently dominate the home market. In the process, GM is dropping an array of sedans and coupes, such as the Chevrolet Cruze, while also closing three North American assembly plants and two parts factories. The old transmission plant in Warren, Michigan targeted by the automaker will end operations this week.
GM shares continued to gain ground during Monday morning trading, but not everyone was so bullish. “We reiterate our Sell with the shares trading at the upper end of their 52-week range, seeing growing competitive pressures in North America and ongoing weakness in International results due to China-related headwinds,” said Garrett Nelson, in an advisory to investors.