Customer Logins
Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Customer LoginsGM reports USD3.9-bil. EBIT, USD42.3-bil. revenue in Q2; global market share slips to 10.4%
General Motors (GM) has reported EBIT of USD3.9 billion and revenue of USD42.3 billion in the second quarter, with the results carrying on the strengths in the first quarter, including an increase in global wholesale deliveries and a net income jump of 156%.
IHS Automotive Perspective
- Significance: General Motors' (GM) adjusted earnings before interest and taxation (EBIT) increased 37.5% year on year (y/y) in the second quarter of 2016, while net income grew 156%. Worldwide wholesale deliveries were up 9.4% and revenue jumped 10.7%. Return on invested capital (ROIC) in the four quarters ending 30 June reached 30.5%.
- Implications: GM continues to show growth in key financial metrics, with another record quarter. The adjusted EBIT margin reached 9.3%, compared with 7.5% the year before, improving ROIC and increasing earnings per share to USD1.86 for the quarter and USD3.12 for the first half. GM attributes the improved earnings to improvements in all regions, with profitability in Europe and reduced losses in the difficult South American market.
- Outlook: GM is healthy in North America, demonstrating continued strength at its Chinese joint ventures, showing a profit this quarter in Europe, and showing reduced losses in the difficult South American market. GM's results show continued profitability and improving margins in most regions, though market share has slipped. With the bulk of the ignition-switch recall issues behind GM and improving profitability, the automaker is focused on the future of mobility.
General Motors' (GM) improving global earnings and record-setting in quarterly results continued in the second quarter of 2016, the fourth consecutive record quarter, despite the impact of mix and currency issues on revenue and adjusted earnings before interest and taxation (EBIT). GM's global revenue increased by USD4.2 billion in the second quarter, compared with the second quarter of 2015, with a USD1.0-billion unfavourable currency exchange impact and a USD600-million impact from poor mix. GM made gains in volume (adding USD3.7 billion) and pricing (adding USD1.3 billion), which contributed to the stronger revenue in the second quarter. Earnings per share increased to USD1.82 in the second quarter, compared with USD1.29 in second quarter 2015.
GM has followed great first-quarter results with a stronger second quarter. In particular, in second quarter, the adjusted EBIT margin improved to 9.3% from 7.5% in second-quarter 2015 and 7.1% in first-quarter 2016. In the first quarter of 2015, GM began reporting return on invested capital (ROIC), a rolling figure covering the latest four quarters. In the second quarter that figure jumped by 7.1 percentage points to 30.5%. Wholesale deliveries increased by 9.4%, with increases in North America and Europe offset by declines in South America and GM International Operations (GMIO). Free cash flow was relatively flat year on year (y/y) at USD3.2 billion.
GM's adjusted EBIT delivered a second-quarter record of USD3.9 billion. Volume was positively impacted by increases in GM North America (GMNA) and GM Europe (GME), while favourable pricing impacts came from GMNA, GME, and GM South America (GMSA). Costs declined somewhat, with favourable carry-over material costs offset by increased material cost and costs related to new product launches. These were offset by the USD300-million impact of currency fluctuations. EBIT contributions came from GMNA, GME, GMIO, and GM Financial, while GMSA made a loss (slightly below the loss in the second quarter of 2015, despite a more difficult environment). As noted above, second-quarter adjusted EBIT was 9.3% of revenue.
Global wholesale deliveries increased to 1.6 million units in the second quarter, a gain of 9.4% y/y. Global market share declined to 10.4%, compared with 11.1% in the second quarter of 2015 and 10.6% in the first quarter of 2016. The decrease in share is a primarily the result of a strategic reduction of the daily rental fleet in North America, according to GM.
In a company statement, CEO Mary Barra said, "This was an outstanding quarter for GM. Our results were generated by strong retail sales in the US, record sales in China and a continued emphasis on improving the performance of our operations worldwide. We'll continue to focus on driving profitable growth and leveraging our technical expertise to lead in the future of personal mobility."
GMNA saw net revenue increase to USD30.2 billion in the second quarter, from USD26.5 billion in the second quarter of 2015, on an increase in wholesale deliveries to 1,004,000 units, up from 878,000 units. Market share slipped from 17.1% to 15.9%, as the company is reducing fleet sales in the United States. The adjusted EBIT margin jumped notably from 10.5% in the first quarter of 2015 to 12.1% in the second quarter of 2016; the metric reached 8.7% in the first quarter of 2016. The second quarter of 2016 was impacted by increased launch expenses for new products and unfavourable mix, though volume and price showed healthy gains.
GMIO accounted for USD2.8 billion in revenue in the second quarter on nearly flat deliveries, and USD169 million of the company's adjusted EBIT. GMIO's volume, price, and cost were flat, while mix had a negative impact on results. GMSA saw EBIT improve in the second quarter compared with the second quarter of 2015, though it still saw a loss of USD121 million, as the Brazilian market continued to struggle. Price improved despite inflationary and foreign exchange pressures, while mix had a negative impact and volume fell. GM says cost containment efforts continue to have a favourable impact on the region's 2016 performance.
GME saw improved results and reported profitability in the second quarter, despite the unfavourable impact of a weaker British pound. Relative to the Brexit situation, GM said, "If the current post-referendum market conditions are sustained throughout the remainder of 2016, we believe it could have an impact of USD0.4 billion to the second half of 2016." Therefore, Brexit is putting at risk the company's effort towards achieving breakeven or profitability for GME in 2016. GME revenues ticked up to USD5.4billion on increased wholesale deliveries; mix was down, though price and cost improved. Market share contracted from 6.3% in second quarter of 2015 to 6.0% the same period in 2016, reflecting that the impact of the exit from the Russian market is offsetting the gains at Opel, particularly with the Astra.
GM's Chinese market performance showed local joint-venture (JV) wholesale deliveries increasing, on the strength of the Baojun, Buick, and Cadillac brands. GM's Chinese JV quarterly wholesale deliveries increased to 861,000 units in the second quarter. Additionally, the company reported a 9.5% margin for the JVs. GM's revenues and wholesale deliveries of the JVs were not reflected in the company's consolidated results. GM continues to offset slowing demand for smaller vehicles and pricing pressure in China with a greater mix of more-profitable vehicles. In the second quarter, GM said it expects significant pricing pressure, around 5% for the year, partly offset by launches of more-profitable Cadillac CT6, Malibu XL, and Buick LaCrosse models.
Outlook and implications
GM is healthy in North America, demonstrating continued strength from its Chinese joint ventures, showing a profit in Europe, and showing some reduced losses in the difficult South American market. GM's results show continued profitability and improving margins in most regions, though market share has slipped. With the bulk of the ignition-switch recall issues behind GM and improving profitability, the company is focused on the future of mobility.
GM expects that it is on the path to another record-setting year, and has revised upwards its guidance for full-year earnings per share to be between USD5.50 and USD6.00 for the full year, up from previous guidance of USD5.25−5.75.
Strong sales of trucks and sport utility vehicles (SUVs) in North America and China helped offset the impact of declining deliveries in other markets − despite a drop in retail US sales on a strategic pullback in US fleet sales. North America continues to be GM's most significant market, delivering 71% of net revenue in the second quarter. With a healthy North American region, the company is better positioned to withstand difficulties in other markets.
Since late 2015, GM has been able to focus on continuing to strengthen the company for the future, including the investment into mobility business streams, with the impact of the ignition switch recall largely absorbed. GM's fundamentals remain sound and the group is profitable. GM's cash position is favourable, with USD34.1 billion in liquidity at the end of the second quarter, and its debt is manageable. GM returned USD3.5 billion to shareholders through share buybacks and USD2.2 billion in dividends in 2015, and repurchased USD300 million in shares and paid USD1.2 billion in dividends in the second quarter of 2016.
GM said its expectations for 2016 were the first quarter would be seasonally weaker, the second and third quarters would be stronger, and the fourth quarter would be about average. Now, with the latest results, the second quarter has followed that guidance. GM's financial targets for 2016 are largely unchanged and include improved total company adjusted EBIT, adjusted EBIT margin, and free cash flow, as well as sustained strong margins in China − though the target of profitability in Europe in 2016 may be hampered by uncertainty following Brexit.
About this article
The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.