General Motors Company’s second quarter 2018 earnings are headlined by $2.4 billion in income on $36.8 billion in revenue.
The results represent a drop of 2.8 percent in profit compared to the same period a year ago, mostly as a result of rising commodity costs, mostly steel and aluminum, as well as foreign currency devaluation in South America. Commodity pricing resulted in the automaker slashing its forecast.
GM’s Q2 2018 financial results consist of:
- EPS-diluted of $1.66 and EPS diluted-adjusted of $1.81
- Profitability in all core operating segments:
- GM North America EBIT-adjusted of $2.7 billion and margin of 9.4 percent
- GM International EBIT-adjusted of $0.1 billion, which includes record equity income in China of $0.6 billion that was partially offset by unfavorable foreign exchange impact in South America
- GM Cruise EBIT-adjusted of $(0.2) billion, on plan and reflecting continued spending on autonomous as the company moves to commercialization
- GM Financial EBT-adjusted of $0.5 billion, setting a new record as earning assets grew 12 percent to $90.4 billion, supporting expected long-term earnings growth
Sales Volume & Market Share
Global deliveries were flat in the second quarter of Q2 2017. Market share in the markets that GM participates declined 40 bps year-over-year, driven by decreased share in GM International markets. This was partially offset by strong truck, SUV and CUV sales in the United States.
Q2 2018 net revenue was $36.8 billion, down $0.2 billion year-over-year. The decrease was due to:
- Pricing and trim mix on current generation full-size pickup truck models, and
- Timing of fleet sales in GMNA, partially offset by continued growth at GM Financial
Second quarter 2018 income from continuing operations was $2.4 billion, down $0.1 billion year-over-year. The decline was primarily driven by pricing and trim mix related to GM’s current-generation full-size pickup truck models and increased commodity costs. It was partially offset by improved performance in GM Financial and in China.
Q2 2018 EBIT-adjusted was $3.2 billion, down $0.5 billion year-over-year. Q2 EBIT-adjusted margin of 8.7% was down 130 bps year-over-year, driven primarily by pricing and trim mix related to the current-generation full-size pickup truck models, and increasing commodity costs. It was partially offset by improved performance in GM Financial and China.
Q2 EPS-diluted was $1.66 per share, up $0.06 year-over-year. EPS-diluted adjusted was $1.81 per share, down $0.08 year-over-year.
Q2 adjusted automotive free cash flow was $2.6 billion, in-line with GM’s expectations, but down $0.2 billion year-over-year, primarily due to lower EBIT-adjusted performance and partially offset by favorable managed working capital.
Return on invested capital-adjusted (ROIC-adjusted) of 24.7 percent was down 570 bps year-over-year, primarily due to lower
earnings but well above the 20 percent ROIC-adjusted target in GM’s capital allocation framework.
GM stated that recent and significant increases in commodity costs, along with unfavorable foreign exchange impact of the Argentine peso and Brazilian real, have negatively affected business expectations.
As a result, the company expects these unfavorable conditions to continue through 2018, causing it to revise its full-year outlook to the following:
- EPS diluted of approximately $5.14
- EPS diluted-adjusted of approximately $6
- Auto Operating Cash Flow to approximately $11.5 billion
- Adjusted Auto Free Cash Flow to approximately $4 billion
“We face significant external challenges, but delivered solid results the quarter,” said Mary Barra, GM chairman and CEO, in a statement. “The fundamentals of our business are strong and we remain focused on our plan — delivering great vehicles, developing technologies to transform personal mobility and creating long-term shareholder value.”
GM sources more than 90 percent of its steel and aluminum from the U.S., but the costs of these materials have risen as the Trump administration has imposed tariffs on foreign steel and aluminum. GM did not expect the prices of these materials to increase as much as they did.
GM North America
Rising commodity costs negatively impacted GM’s bottom line in North America, the automaker’s biggest and most important unit. GM reported it made $2.7 billion on North American business in Q2, down from $3.5 billion a year ago.
Over 758,000 GM vehicles were sold in the U.S. in Q2, a 4.6 percent increase compared to the same period a year ago.
GM made $143 million from international business during Q2 2018. The automaker made a record second-quarter income of $592 million in China, which were offset by unfavorable currency devaluations in South America.
GM’s profits had taken a hit in the first quarter due to planned downtime for pickup production and an aggressive restructuring effort in South Korea.
GM’s autonomous vehicle and mobility division, now referred to as GM Cruise, lost $154 million in the second quarter.
The division had no revenue as GM continues to spend in order to “progress toward the commercialization of an autonomous ride-sharing fleet.”
The General continues to expect to spend approximately $1 billion on GM Cruise for the full 2018.
GM Financial, the automaker’s captive finance arm, made $536 million during the second quarter.
Revenue was $3.5 billion, up $0.5 billion year-over-year. The division set a second quarter EBT-adjusted record from continuing
operations of $0.5 billion, up $0.2 billion. This was primarily due to portfolio growth, stable credit performance and better residual performance.
GM expects GMF to have a weaker second half of 2018 than the first half as a result of residual value pressure from expected seasonally weaker used vehicle values and an increasing supply of off-lease vehicles. However, the automaker also stated that it expects “a meaningful improvement in GM Financial earnings versus the prior year.”
GM Financial’s earning assets grew $9.9 billion to $90.4 billion in Q2 2018, and U.S. retail penetration improved by 280 bps year-over-year to 45 percent, due to further alignment with GM and greater dealer engagement.
GMF states that that key credit metrics remain stable as net charge-offs as a percentage of retail finance receivables was flat year-over-year.
- EPS: Earnings Per Share
- EBIT: Earnings Before Interest and Taxes
- EBT: Earnings Before Taxes