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GM earnings double on US truck demand

2015-07-24 09:46

LUCK WITH TRUCKS: General Motors has hugely exceeded income and profit forecasts - and soaring truck sales are the cause. Image: General Motors

DETROIT, Michigan - July 23 - General Motors Co shares surged in pre-market trading on Thursday (July 23 2015) after the automaker reported adjusted net income that more than doubled in the second quarter.

The surge was driven by the automaker's North American truck sales and continued strength in China.

Chief financial officer Chuck Stevens re-affirmed the company's forecast that operating profit for the full year would improve from last year's $9.3-billion and the automaker still expected to maintain strong profitability in China despite slower-than-expected vehicle sales and intensifying price competition in the world's largest vehicle market.


GM shares were up more than six percent in morning trading before the opening of the New York Stock Exchange.

The recent sharp slowdown in China's vehicle sales prompted some analysts to forecast that GM would have to back away from its forecast of holding profit margins in China at as much as 10% of sales. GM said profit margins in China improved to 10.2% from 10% a year earlier.

Stevens said during a briefing with reporters "there are lots of levers we can pull" to cut costs and maintain profit margins in China,

GM has committed to spending $14-billion on new vehicles and facilities in China over the next several years. Spending on new models would not slow, Stevens said, but the automaker "will monitor and time and continue to evaluate" when to add capacity in the Chinese market.

"Our long term view on China hasn't changed," Stevens said. Within the next 10 to 15 years China's auto market will grow to 35-million vehicles a year. Automakers expect to sell about 20-million vehicles in China through 2015.


Stripping out one-time charges, GM earned $1.29 a share in the latest quarter, up from $0.58. The latest results were well ahead of the $1.08 a share forecast of analysts. Profits rose despite declining global vehicle deliveries and a 3.5% decline in global revenue.

Net income rose to $1.1-billion, or $0.67 a share, from $200-million, or $0.11 a share, a year earlier when it was hurt by a big charge relating to recall costs.

GM exceeded one of the key financial targets it agreed to in March 2015 as part of an agreement with a shareholder group that had challenged the company for hoarding cash.

Stevens said that in the past 12 months GM's return on investment capital was 23.4%, well ahead of the 20% goal agreed with the investor group. Addressing another aspect of that agreement, GM said it has re-purchased $2.1-billion of its shares for the year through July 21.


GM's North American operations were the main engine of growth for the company, as profits in the region doubled to $2.8-billion and profit margins of 10.5%, nearly doubled year-earlier levels.

GM's North American results were hit by a $75-million charge for a compensation fund for victims in its recall of millions of vehicles with a defective ignition switch. That brought the cost of the compensation fund to $625-million, a figure that, Stevens said, would not significantly rise.

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