GM General Motors Company

By Gautham Nagesh 

General Motors Co. earnings more than doubled last quarter on strong U.S. truck and sport-utility vehicle demand, leading the nation's largest auto maker to lift it full-year profit outlook despite concerns about financial impact of the U.K.'s decision to exit the European Union.

Results benefited from a continuing shift in the U.S. to higher-margin trucks and SUVs from passenger cars, steady sales increases in China and improved conditions in Western Europe that led to its first operating profit in the region in five years.

The Detroit auto maker under Chief Executive Mary Barra has spent much of 2016 retooling for the future, spending more than $1 billion to invest in ride-sharing firm Lyft Inc. and to purchase autonomous-vehicle developer Cruise Automation Inc. Ms. Barra, who spent her initial months at the auto maker mired in a vehicle-safety crisis, has been working to convince Wall Street that GM can thrive in a cyclical car industry that analysts believe has peaked after years of growth.

But the company's financial results show no signs of slowing, notching more than a dozen postbankruptcy records in the second quarter. The auto maker filed for bankruptcy protection in 2009, and since then has focused on growing operating margins and return on invested capital to rival the industry's top performers.

On Thursday, GM said second-quarter net income attributable to common shareholders jumped to $2.9 billion, up from $1.1 billion in the same period a year ago. Operating profit was $1.86 a share, soundly beating Wall Street expectations for $1.49 a share.

Revenue rose 11% to $42.4 billion versus $38.2 billion in the same period a year ago. GM shares were up 2.7% to $32.35 in recent trading, below its $33 initial public offering price in 2010.

Its operating margin, or profit after wages and cost of production, was 9.3% globally and 12.1% in North America, both records, the company said, and come despite relatively flat sales and a decline in market share in the U.S.

GM posted a $137 million profit in European operations, its first quarterly profit in the region since 2011. Its 9.5% operating margin in China was slightly lower than the same period in 2015, but the company's performance in the world's largest market is stable. GM's volumes in China, which it shares with joint venture partners, are significantly larger than its U.S. sales, but GM North America's $3.6 billion operating profit dwarfs the $500 million in equity income the company earned in China during the second quarter. It posted an operating loss of $121 million in South America.

The results lend credibility to Ms. Barra's strategy of slimming down the company to focus on profitability over market share. In the U.S., the company has been backing away from lower-margin sales to rental-car companies and has resisted adding production capacity to conserve costs. It is gradually building its brand presence in China by adding Cadillac luxury cars and more SUVs.

Chief Financial Officer Chuck Stevens said GM expects its U.S. market share to improve in the second half of the year as it finishes its pullback on daily rental car sales, and new models like the Chevrolet Cruze and Malibu sedans hit the market in force. Cadillac also is launching new products in the U.S., and GMC will be selling a redesigned family SUV.

Mr. Stevens, however, said uncertainty created by the U.K.'s referendum to exit from the EU has negatively impacted the British pound and that could hurt production and sales activities there.

Mr. Stevens said it was too early to determine exactly what the impact of Brexit would be, but said if the pound stays weak it could cost GM up to $400 million in the second half and jeopardize the company's goal of turning profitable in Europe for the year. Its European unit's quarterly profit was the first since 2011.

"Clearly the Brexit vote has created a potentially significant headwind, " Mr. Stevens said.

GM raised its full-year outlook for per-share earnings by 25 cents to a range of between $5.50 and $6.00.

Mr. Stevens also revealed that GM's acquisition of the self-driving car startup Cruise Automation, which closed in May, cost the auto maker $581 million at closing, half in cash and half in stock.

That figure doesn't include money that could be spent on retaining employees and for bonuses if key performance goals are achieved. Mr. Stevens said such payouts would be treated as ongoing compensation. People familiar with the terms of the deal have said the total payout could exceed $1 billion.

Write to Gautham Nagesh at gautham.nagesh@wsj.com

(END) Dow Jones Newswires

July 21, 2016 12:08 ET (16:08 GMT)

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