Strong Second Quarter Profit Pushes GM to Raise Full Year Forecast

As General Motors continued to capitalize on strong sales of pickup trucks and sport utility vehicles in the United States and after reporting a record second-quarter profit, the forecast for its full-year profits was raised by the company in a statement on Thursday.

Sending the company shares up as much as 4.4 percent, the earnings handily beat Wall Street expectations.

Up from a previous expectation of $5.25 to $5.75 per share, it expects adjusted earnings before interest and taxes of $5.50 to $6.00 per share for 2016,, the world’s third-largest automaker said.

From $1.1 billion, or 67 cents a share, a year ago, the automaker’s sSecond-quarter net income rose to $2.87 billion, or $1.81 a share. Places well ahead of the $1.52 consensus forecast among analysts, GM earned $1.86 a share in the latest quarter after factoring out a $100 million charge for legal costs.

Driven by demand for pickup trucks and large sport utility vehicles, pretax profits came from North America, where profit margins rose to 12.1 percent from 10.5 percent a year before which accounted for more than 90 percent of the company’s pretax profits.

While issuing a warning that the automaker could be forced to slash up to $400 million in costs from second-half results in Europe due to currency and market disruptions caused by Britain’s decision to quit the European Union, GM also reported its first quarterly profit in Europe for the first time in five years.

As the company looks for ways to offset Brexit-related costs, “everything is on the table”, said GM Chief Financial Officer Chuck Stevens. While describing Brexit as “a speed bump along the way”,  the US automaker has not given up on its goal of breaking even in Europe for the year, he also said.

A spokesman for the company said that producing at more than 100 percent of planned capacity, four pickup truck and one large-SUV plant in North America are all running around the clock, GM said. Compared to some of the company’s sedan plants, some of which have been down to prepare for new products, thuis rate of production is much higher.

Earlier this year, GM had acquire Cruise Automation, the self-driving car startup and it had cost the company $580 million in cash and stock, GM disclosed for the first time. Based on the performance of the operation and payments to employees, the ultimate cost of the deal could rise, Stevens said.

$3.2 billion in free cash flow for the second quarter was helped to be raised by GM’s strong performance in North America. GM expects $6 billion in free cash flow for the year, Stevens said.

Through 2017, up to $9 billion in shares would be bought back by GM, the automaker has said. If cash flow exceeds expectations, the company could review the plan, Stevens said.

A drag on results for GM was the company’s operations in the Middle East and Asia outside of China. Wider than the year-ago $100 million loss, a $300 million loss in its consolidated international operations was reported by the company. Including its planned investments in India, GM is reviewing its investment plans for the region, Stevens said.

In Thursday morning trading, GM stock rose as high as $32.87 before easing to $32.60, up $1.11.

(Adapted from Reuters)

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