General Motors (GM -2.63%) said that its second-quarter net income fell 42% to $1.66 billion, mostly due to the pending sale and restructuring of its operations in Europe.

On a continuing-operations basis (excluding Europe, in other words), GM earned $2.4 billion, down 11% from a year ago, on revenue of $37 billion. On that basis and excluding one-time items, GM earned $1.89 per share, beating the consensus $1.69 Wall Street estimate as reported by Thomson Reuters

A red 2018 Chevrolet Equinox SUV, in a parking lot with mountains in the background.

GM is in the process of rolling out the all-new Chevrolet Equinox around the world. Early demand has been strong. Image source: General Motors.

GM earnings: The raw numbers

Except as noted, all figures below are on a continuing-operations basis, excluding results from its European unit. (Year-ago figures have been adjusted to exclude results for Europe as well.) 

GM reiterated that it expects the sale of its European operation to French automaker Peugeot SA (PUGOY) to close before the end of 2017. 

Metric Q2 2017 Q2 2016 Change
Revenue $37.0 billion $37.4 billion (1.1)%
EBIT-adjusted $3.7 billion $3.9 billion  (4.3)%
EBIT-adjusted margin 10% 10.3%  (0.3) ppts. 
Special items $(654 million) $(115 million) $539 million increase
Net income from continuing operations $2.4 billion $2.7 billion  (11.3)%
Adjusted automotive free cash flow $2.6 billion  $3.3 billion  (21)% 
Earnings per diluted share, adjusted $1.89 $1.79  5.6% 
Net income (including Europe) $1.66 billion $2.87 billion  (42.2)% 

Data source: General Motors. EBIT is earnings before interest and taxes. "Adjusted" is GM's term for non-GAAP figures that exclude the effects of one-time items. Ppts = percentage points.

GM's quarter: The nutshell summary

Overall, GM delivered another strong quarter that showed its commitment to pricing discipline and focus on generating the best possible returns on its capital. GM is in the process of rolling out several all-new crossover SUV models; early demand has been strong, helping to drive improvements in product mix in China and support a strong profit margin in North America. 

Results in GM's two most important markets, North America and China, were both down from the second quarter of 2016, on slowing U.S. sales and continued pricing pressure in lower-cost market segments in China. But: GM posted good margins in both regions and an increase in overall sales in China, despite the pressures. 

On the other hand, GM's loss in South America narrowed to near-breakeven on a good sales gain driven by demand for new Chevrolet products. 

How GM's business units fared

Here are the highlights from each of GM's regional business units and its financing arm, compared with results from the second quarter of 2016. All results are shown as GM reports them, on an "EBIT-adjusted" basis. ("EBIT-adjusted" is essentially operating income minus one-time items.)

  • GM earned $3.48 billion in North America, down from $3.75 billion a year ago. Revenue declined 5.9% to $28.4 billion. Wholesale volumes fell 11% to about 894,000 on weaker sales of Chevrolet sedan models (the Cruze and Malibu) and a planned decline in sales to rental-car fleets. Its EBIT-adjusted margin of 12.2% was down from 12.4% a year ago, but still very strong. 
  • GM's International Operations unit includes its vast operations in China, as well as other operations in Asia, Africa, and the Middle East. Including $509 million in equity income from GM's joint ventures in China, the unit earned $340 million in the second quarter, up from $190 million a year ago. Wholesales (excluding China) fell 11% to about 155,000 units, largely on weaker sales in the Middle East related to the low price of oil. 
  • As noted above, GM earned $509 million in equity income from its joint ventures in China, up from $471 million a year ago. Wholesales in China rose 3% to about 887,000 as strong sales of Cadillacs and SUVs were partially offset by weaker sales of small passenger and commercial vehicles. GM's margin in China was 8.3%, down from 9.5% a year ago, as aggressive competition from domestic Chinese automakers continued to pressure pricing at the lower end of the market. 
  • GM South America lost $23 million in the second quarter, versus a $118 million loss a year ago, on revenue of $2.3 billion. Wholesales rose 23% to about 164,000 vehicles, and GM's market share rose 70 basis points to 15.9%. GM attributed the gain to strong results for new Chevrolet-brand vehicles. 
  • GM Financial, the company's in-house financing arm, earned $357 million in the second quarter, up from $214 million a year ago. Revenue rose 43% to $3 billion. GM is continuing to build out this operation globally, focusing on higher-quality loans. Chargeoffs fell to 1.7% in the quarter from 2.2% a year ago. 
A 2018 Baojun 510 SUV in orange, on a country road.

Very strong demand for the all-new Baojun 510, an affordable small SUV, helped GM to sales and profit gains in China. Image source: General Motors.

Special items, debt, and GM's cash reserve

As noted above, GM had three one-time items in the second quarter totaling $654 million in charges. None were surprises:

  • A charge of $460 million for restructuring in its International Operations unit, including the effects of reducing GM's presence in India and South Africa.
  • An $80 million charge for the shutdown of its Venezuelan operation.
  • $114 million in charges related to litigation around GM's 2014 ignition-switch recalls. 

At the end of the second quarter, GM had $20.5 billion in cash and another 14.1 billion in available credit lines for "total liquidity" of $34.6 billion available to its automotive business. 

GM's long-term debt stood at $10.6 billion as of June 30, unchanged from the end of 2016.

Looking ahead: GM maintained its full-year guidance

GM reiterated its previous guidance for 2017. On a continuing-operations basis (again, excluding the European operations it is selling to Peugeot), it still expects:

  • Revenue to be greater than or equal to the $149.2 billion it earned in 2016.
  • EBIT-adjusted to be greater than or equal to the $12.8 billion it earned in 2016.
  • EBIT-adjusted margin to be better than or equal to 2016's 8.6%.
  • Adjusted earnings per diluted share to fall between $6.00 and $6.50, versus $6.12 in 2016.
  • About $6 billion in cash flow from the consolidated company, versus $6.9 billion in 2016.