What Factors Drove General Motors’ 2Q15 Profitability?
What's Next for General Motors after Its 2Q15 Earnings Beat?
General Motors’ 2Q15 profitability
In the previous part, we discussed that General Motors’ (GM) 2Q15 revenues were negatively impacted to the tune of $2.2 billion on the back of a stronger US dollar (UUP). It also lost on some of its market share in the quarter. However, GM’s profitability improved significantly compared to the previous quarter. In this part, we’ll explore what factors drove General Motors’ 2Q15 profitability.
Currently, GM forms 1.76% of the Consumer Discretionary Select Sector SPDR ETF (XLY).
Increase in profits
The above graph shows GM’s 2Q15 financial performance. Its adjusted EBIT (earnings before interest and taxes) almost doubled compared to last year. The adjusted EBIT margin also improved significantly during the quarter.
Strong operating performance in North America helped increase GM’s profits to a record high. The markets were also pleasantly surprised by GM’s performance in China. GM’s China operations posted better-than-expected results in the backdrop of the slowdown in China.
Lower material costs
Raw material costs have declined significantly over the last six months. Lower material costs boosted GM’s 2Q15 profitability. Prices of all raw materials from steel to aluminum have come down. This also benefits other automakers, including Ford (F) and Honda Motor Company (HMC).
GM incurred special items of $1.1 billion in the quarter. It had a negative impact of $604 million resulting from the currency devaluation in Venezuela. Asset impairment charges in Thailand subsidiaries were the second largest contributor to GM’s special items.
GM’s North America operations have continued to perform well. We’ll explore this in detail in the next part of this series.
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