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GM lifts 2016 forecast after strong earnings

2016-07-21 18:28

STRONG SALES IN THE US: General Motors reported strong second-quarter earnings as it reaped rewards from booming sales of trucks and SUVs . Image: AP / Darko Vojinovic

New York - General Motors lifted its 2016 profit forecast on Thursday following strong second-quarter earnings as it again reaped rewards from booming sales of trucks and sport utility vehicles in its home market.

The better-than-expected results included the US auto giant's first quarterly operating profit in Europe in five years.

But executives warned that uncertainty created by the British vote to exit the European Union could push the region back into the red in the second half of the year.

Sales increase

Net income for the quarter ending June 30 more than doubled to $2.9-billion from $1.1-billion in the year-ago period. The 2015 results were dented by one-time charges.

Revenues jumped 11% to $42.4-billion, much of that driven by a strong performance in North America due to robust sales of large vehicles and gains from several high-profile launches, such as the Chevrolet Malibu sedan and the Cadillac XT5 SUV.

Vehicle launches typically command higher prices than older models. Those higher prices helped GM notch a North American operating profit 31.2% above a year ago, even though the automaker sold fewer vehicles in the region.

North American sales have been boosted by cheap fuel and easy access to credit, although most analysts expect the pace of growth to moderate in 2016 compared with the last few years.

GM chief financial officer Chuck Stevens said the auto maker's forecast holds that strong US sales will continue in the second half of 2016 and into 2017 due to improving economic conditions.

"North America had a great first half of 2016," he told analysts on a conference call. "We expect North America to have a great second half."

Operating profits in Europe were $137-million, up from a $45-million loss a year ago, keeping pace with the company's pledge for break-even results in the slumping region for the year.

However, GM said the big drop in the British pound and economic uncertainty in that country after the Brexit vote has put strain on Britain's auto industry, potentially leading to a negative hit of $400-million in the second half of the year.

Stevens said there were still a lot of unknowns about Britain and Europe after the Brexit vote, but that British auto sales could fall by five to 10%. GM could respond by reining in costs, or reducing the company's footprint in the region, he said.

Stevens said: "This is another speed bump along the way, but we're just going to have to deal with it." 

GM pointed to strong sales in China, but reported another operating loss in South America. Executives cited Brazil as an especially weak market in the region.

In light of the better-than-expected quarter, GM now expects 2016 earnings of $5.50 to $6.00 a share, up by 25 cents from the previous range. Earnings in 2015 were $5.02 a share.

Shares of GM rose 2.2% in late-morning trade to $32.17.

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