DETROIT -- General Motors reported its first quarterly profit in Europe in five years on Thursday, but the automaker warned that currency and market disruptions caused by the UK's decision to quit the European Union could slash millions from its second-half results in the region.
European operations swung to a profit in the quarter of $137 million, compared with a loss of $45 million a year earlier, marking two quarters in a row of break-even or better results.
GM said its improved position in Europe resulted from a recovering industry, cost optimization and several successful vehicle launches. Prior to the UK’s vote to exit the EU, it was on track to achieve break-even for the year, GM said.
But the vote “has adversely impacted the British Pound and the uncertainty has put strain on the UK automotive industry,” GM said in a statement. “If current post-referendum market conditions are sustained throughout the remainder of 2016, we believe it could have an impact” of up to $400 million on the second half.
Chuck Stevens, GM’s chief financial officer, said on Thursday that "everything is on the table" regarding where the company may cut costs in Europe to offset this extra expense.
Meanwhile, GM’s strategy of focusing on retail sales in North America paid off in the second quarter, with net income more than doubling from the year-earlier quarter. GM reported overall net income of $2.87 billion in the second quarter, up from $1.12 billion in the second quarter of 2015.
“This was an outstanding quarter for GM,” CEO Mary Barra said in a statement. “We’ll continue to focus on driving profitable growth and leveraging our technical expertise to lead in the future of personal mobility.”
The automaker raised its earnings guidance for 2016, saying it expects to make between $5.50 and $6 a share for the year, up from its previous projection of $5.25 to $5.75 a share.
Revenue rose 11 percent to $42.37 billion, a record for any quarter since GM’s emergence from bankruptcy in July 2009.
The results handily beat Wall Street expectations. Analysts had predicted the automaker would post earnings of $1.52 per share. Actual earnings came in at $1.86 cents per share.
In North America, GM’s earnings before interest and taxes jumped 31 percent to $3.65 billion, despite a drop of 5.7 percent in overall North American unit sales during the period. The automaker has been focusing on selling fewer cars into the fleet market, which is less profitable than retail. That strategy boosted its profit margins in the quarter to 12.1 percent from 10.5 percent a year ago.
Fleet sales for the first half of 2016 are down less than 1 percent, but GM’s retail sales for the first half of 2016 are up 1.3 percent.
Also, the automaker has been selling a higher mix of SUVs and pickups and has seen high demand for cars such as the Chevy Malibu, Cruze and Cadillac XTS, adding to the improved profit margins. On the other hand, it said earnings were trimmed by lower prices at auction of GM-owned cars coming out of rental fleets.
GM also gave details of its purchase of Silicon Valley autonomous driving startup Cruise, which it purchased in May. The startup cost $581 million in cash and stock, almost half of the $1 billion purchase price that was reported at the time of the acquisition.
The automaker booked a $300 million charge for Cruise during the second quarter.
Automotive News and Reuters contributed to this report