Automaker General Motors Co. (GM, Financial) reported its second-quarter results on July 26. The company posted strong earnings during the period, supported by great performance in North America and China. The company’s EPS for the quarter stood at $1.89, which was 20 cents above the estimates. Consolidated adjusted EBIT totaled $3.7 billion with an adjusted EBIT margin of 10%.
GM’s financial health
General Motors’ revenue dropped 1.1% to $36.98 million from $37.38 billion reported in second-quarter 2016. The company registered net income of $2.4 billion, or $1.60 a share, down from $2.8 billion, or $1.74 per share, in the same period last year.
GM’s total wholesale unit sales for the quarter declined to 121 million vehicles from 131 million units sold last year. International retail unit sales fell to 2.34 million from 2.39 million last year. The Detroit-based automaker’s market share on a global basis stood at 10.2% for the second quarter, compared with 10.3% a year ago.
At the end of the quarter, the company had cash and equivalents of $16.6 billion, of which the operating cash flow was $5.1 billion, an meager 0.3% increase from the same period last year.
North America and China show strength
General Motors’ quarter was supported by strong performance in North America as the region reported $3.5 billion in operating profits, marked by a 12.2% margin. However, the region’s revenue stood at $28.4 billion, a decline from $30.2 billion reported a year earlier. Car sales in the U.S. declined 18%, but truck sales are up 6% year to date.
GM South America also showed some signs of growth as net sales and revenues for the quarter were $2.3 billion, up from $1.6 billion in the year-ago quarter. The company dispatched 160,000 vehicles, up 18% from last year comparable period.
In addition, the company saw continued strength in China. The carmaker’s China deliveries reached 852,000 units, up 1.6% from last year’s second quarter. The company generated $3.2 billion in revenues from its international operations, a tiny decline from $3.3 billion last year.
Product portfolio decisions
CEO Mary Barra has set a clear objective of not having any unprofitable products in the company's portfolio.
"Disciplined and relentless focus on improving our business performance led to a strong quarter and very solid first half of the year," Barra said. "We will continue transforming GM to capitalize on growth opportunities and deliver even more value for our shareholders."
General Motors was able to trim costs as a result of discontinuing production of unprofitable models. Moreover, the company has shifted its focus toward large and more profitable SUVs, crossovers and trucks by moving capital investments away from small cars and sedans. A combination of these efforts helped the company to restructure and simplify its operations, thereby producing free cash flow despite the slowing auto market.
Full-year outlook
General Motors’ Chief Financial Officer Chuck Stevens believes the company had a strong first half of the year and will accomplish its objectives. EPS for the year is estimated to range between $6 and $6.50. The adjusted EBIT margin is projected to remain at a similar level or improve while revenue is expected to increase from last year. General Motors also expects to make around $7 billion in adjusted automotive cash flow. Time will tell whether or not the estimates meet the results.
Disclosure: I do not hold any positions in the stock mentioned in this article.
