GM Bucks China Troubles, Rides Trucks to Big 2Q


General Motors (NYSE:GM) bucked an economic slowdown in China and rode strong truck demand on its way to a sharp jump in second-quarter earnings.

The automaker easily beat Wall Street estimates on Thursday, reporting adjusted per-share earnings of $1.29. Analysts were looking for $1.08 a share. Adjusted results excluded $1.1 billion in charges tied to asset write-downs in Venezuela and costs from GM’s ignition-switch recalls.

Net income surged to $1.1 billion, or 67 cents a share, versus $200 million, or 11 cents a share, in the same quarter last year.

GM shares rallied 4.7% to $31.72 in midday trading. Before Thursday, the stock was down 13% since the start of 2015.

Revenue during the period fell 3.5% to $38.2 billion, but an increase in North American sales of pickup trucks, a highly profitable segment, helped GM overcome the decline. In recent months, GM trucks have outpaced sales of Ford Motor Co.’s (NYSE:F) F-Series.

Before taxes, GM earned $2.8 billion in North America, a new second-quarter record for the company. North American margins rose to 10.5%. According to reports, GM Chief Financial Officer Chuck Stevens told members of the media in Detroit that sales of sport-utility vehicles are up 80% across GM’s entire business.

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GM has also reduced costs in China, the world’s largest automotive market, to boost profits there amid a period of weaker demand. Second-quarter sales in China dropped about 1%.

“Record margins in North America and strong margins in China produced a second quarter that demonstrates the earnings power of this company. We expect continued strong performance in these key markets,” Stevens said in a statement.

During a conference call with analysts, CEO Mary Barra said GM has not changed its long-term view on China. However, GM lowered its outlook for China industry growth in 2015 to the low-single digits, compared to prior guidance for 6% to 8% growth.

“Bottom-line is we expect GM results to continue to be driven by [North America] near-term but still have some caution on China and [South America],” analysts at RBC Capital Markets wrote in a note to clients.

In Europe, GM’s operating losses narrowed to $45 million from $305 million.

Stevens said GM continues to project year-over-year gains in overall profits and margins in 2015.

GM came under criticism last year over defective ignition switches that first came to the attention of engineers around a decade earlier. Recalls were announced early in 2014, while a compensation fund for victims continues to evaluate claims. On Thursday, GM raised its estimate for the total amount it will pay by $25 million to $625 million.