GM Beats Expectations on Back of Robust U.S. Retail Sales

Revenue rose 10.3% Y-o-Y to a record $42.8 billion, sold 2.4 million more vehicles worldwide

g1General Motors Company (NYSE: GM), one of the automobile majors making up the “Detroit 3”, announced its Q3 FY16 financial results on October 25th, 2016.

The Detroit, Michigan-based company designs, builds and sells cars, trucks, crossovers and automobile parts. The Company provides automotive financing services through General Motors Financial Company Inc. (GM Financial). The Company’s segments include GM North America (GMNA), GM Europe (GME), GM International Operations (GMIO), GM South America (GMSA) and GM Financial. The Company offers vehicles developed, manufactured and/or marketed under the Buick, Cadillac, Chevrolet, GMC, Holden, Opel, and Vauxhall brands outside North America.

General Motors has equity ownership stakes in entities through various regional subsidiaries, primarily in Asia. These companies design, manufacture and market vehicles under the Baojun, Buick, Cadillac, Chevrolet, Jiefang and Wuling brands. GM Financial provides retail lending, both loan and lease, across the credit spectrum. Read more about General Motors’ financial results below.

Q3 FY16 financial highlights

During Q3 FY16, General Motors announced record earnings and revenue driven by robust retail sales in the U.S., strong performance in China, growth in wholesale volume and effective cost performance, but partially offset by foreign exchange headwinds. Revenue rose 10.3% Y-o-Y to a record $42.8 billion, as the automaker sold 3.8% more, or 2.4 million vehicles worldwide. The average price of vehicles GM sold in the U.S. jumped to $35,700, or about 16% higher than the comparable price in the year-ago period.

Unlike its rival Ford Motor Company (NYSE: F), GM’s revenue was mainly driven by favorable volume growth of $2.2 billion due to increased wholesales in North America (92,000 units), partially offset by decreased wholesales in International Operations. North American wholesales were driven by strong retail demand for full-size trucks and new launch products such as the Chevrolet Malibu and Cruze. Revenue also benefitted by favorable pricing primarily in North America, due to strong launch products including the Chevrolet Camaro, Malibu, and Cruze and Cadillac XT5 and strong demand for full-size trucks.

Source: GM
Source: GM

During the reporting quarter, GM’s global deliveries were up 0.1 million units Y-o-Y, a 4% increase, owing to volume gains in China, but offset by reductions in other International Operations. GM’s market share during Q3 FY16 was down 40 bps Y-o-Y, due to its strategy to reduce daily rental volumes in the U.S., with market growth outpacing strong sales in China.

Source: GM
Source: GM

GM’s net income more than doubled by $1.4 billion Y-o-Y to a record $2.8 billion during the reporting quarter. Diluted EPS jumped to a record $1.76 with adjusted diluted EPS of $1.72, translating into Y-o-Y increases of $0.92 and $0.22, respectively. Adjusted EBIT soared to a record $3.5 billion, up 14%, while adjusted EBIT margins jumped 8.3%, up 30 bps Y-o-Y. Adjusted automotive free cash flow soared $2.7 billion Y-o-Y to $3.5 billion in Q3 FY16. Return on invested capital-adjusted was up 460 bps Y-o-Y to a record 30.6%.

Source: GM
Source: GM

Yet again, North America accounted for the majority of GM’s global profit as it earned $3.5 billion before taxes in the U.S., Canada, and Mexico, or a profit margin of 11.2%, slightly lower than its 11.8% margin in the year-earlier quarter. Consolidated wholesales for Q3 FY16 increased 78,000 units, primarily driven by strong demand in North America, partially offset by International Operations. However, through the first nine months of 2016, GM’s share in the U.S. market dropped to 16.6% from 17.2% in the year-ago period.

The automaker lost about $142 million before taxes in Europe and $121 million in South America. For its international operations, which includes Asia, Africa, and the Middle East, GM’s pre-tax profit was $271 million, roughly flat from the year-ago period, bolstered by equity income of about $500 million from GM’s joint ventures in China. Despite concerns that the Chinese economy was slowing, GM and its joint ventures there have seen sales continue to grow, earning an operating profit margin of 9.3% through the first nine months of 2016.

GM suffered a $100-million negative impact from the U.K.’s vote to leave the European Union during Q3 FY16, and expects another $300-million hit to European earnings in Q4 FY16. The company’s held $21.5 billion of cash and salable securities as of September 30th, 2016.

Segmental highlights

GM North America (GMNA): During Q3 FY16, U.S. market share was 17%, essentially flat, while retail market share increased 40 bps due to the launches of the Chevrolet Malibu and Cruze. Incentive spending as a percentage of ATP is expected to moderate in Q4 FY16, relative to Q3 FY16. Average transaction prices across all models and brands are up nearly $1,500 per unit Y-o-Y, including the impact of increased incentive spending. North America Q3 FY16 record EBIT-adjusted grew to $3.5 billion, up $0.2 billion Y-o-Y, and EBIT-adjusted margins remained strong at 11.2%, well positioned to meet GM’s full-year 2016 target of 10%+ margins.

Source: GM
Source: GM

GM Europe (GME): GME EBIT-adjusted improved $0.1 billion Y-o-Y, improving results to breakeven YTD; however revenue fell Y-o-Y primarily due to the impacts of Brexit. Wholesale volume and market share were approximately flat on a Y-o-Y basis, including the impact of GM’s exit from the Russian market. GM Europe have made substantial progress towards its plan to break-even by taking advantage of a recovering industry, cost optimization and the benefits of its Astra and Corsa launches, resulting in breakeven EBIT-adjusted YTD.

Source: GM
Source: GM

GM International Operations (GMIO): This segment’s EBIT-adjusted remained flat during the reporting quarter. In China, retail sales soared by 134,000 units due to the strength of the Baojun, Buick and Cadillac brands. SUVs and luxury vehicles continue to be strong, offset by weakness in demand for small passenger and mini-commercial vehicles. GM expects significant carryover pricing pressure of approximately 5% for 2016, partially offset by improved mix due to the launch of the Cadillac CT6 and XT5 and Baojun 560 as well as the continued success of the Buick Envision. These pricing pressures will continue to put pressure on margins going forward.

Source: GM
Source: GM

Consolidated international operations results were flat Y-o-Y; macro-economic difficulties in GM’s Middle East Operations continue as a result of low global oil prices, while wholesales volumes were flat Y-o-Y during the reporting quarter.

GM South America (GMSA): This segment remains challenged from macro-economic and political headwinds. During the reporting quarter, GM’s EBIT-adjusted improved $0.1 billion due to improved pricing and continued focus on cost. Wholesales were flat Y-o-Y; however, there was growth in the major markets of Brazil and Argentina. Chevrolet was the market leader in Brazil for the 12th consecutive month, the first time in Chevrolet’s history this has been accomplished. Market share remains strong at 15.9% due to the strength of the Chevrolet brand in South America. This segment witnessed a 180 bps gain over Q3 2015 and is primarily due to growing share by 350 bps in Brazil.

Source: GM
Source: GM

GM Financial: GM Financial, which provides loans for customers and financing for dealers, earned $229 million before taxes, slightly less than the $231 million it earned in the third quarter of 2015. Revenue grew to a record $2.5 billion as it continues to execute on its full captive strategy. EBT-adjusted was relatively flat, while credit losses and retail delinquencies remain stable in both the North American and International portfolios.

Source: GM
Source: GM

Other highlights

Share buyback: GM completed its initial $5 billion common share buyback program one quarter ahead of schedule, and expects to start another $4 billion share buyback program in Q4 FY16. In Q3 FY16, GM returned $1.8 billion to shareholders ($0.6 billion in dividends and $1.2 billion of share repurchases). YTD shareholder returns stood at $3.3 billion ($1.8 billion of dividends and $1.5 billion of share repurchases).

Vehicle sales: In Q3 FY16, GM sold 2.4 million vehicles globally, up 3.8% compared to Q3 FY15. On an YTD basis, GM sold 7.2 million vehicles globally, up 0.4%. On an YTD basis through September 30th, 2016, GM sold 2.2 million vehicles in the U.S. and increased retail share by 0.5 points, more than any full-line OEM. In China, deliveries increased 9% to a record 2.7 million vehicles. In Europe, Opel/Vauxhall posted a 5.1% sales growth.

Partnership with Uber: On November 1st, 2016, General Motors announced a partnership with Uber Technologies Inc. to help drivers get access to vehicles. The automaker’s Maven car-sharing service will let Uber drivers lease cars from GM’s fleet in San Francisco. GM’s Maven unit will test the program with Uber in San Francisco for 90 days, after which GM is interested in expanding the business with Uber.

GM, which introduced Maven in early 2016, already has an existing partnership with Lyft Inc., Uber’s rival, to provide short-term rentals to those who pick up passengers through the app. GM will continue renting cars to Lyft drivers in San Francisco and a half-dozen other cities, while also working together on experiments with self-driving cars. GM has invested $500 million in Lyft in January 2016.

Chevrolet Bolt EV: GM announced the pricing for the Chevrolet Bolt EV of $37,495 (under $30,000 for customers who receive tax credits) on industry’s first all-electric 238 mile-per full charge vehicle.

Expansion of Maven services: Maven City, Maven Residential, and Express Drive services are now available in 10 U.S. markets and have helped customers travel nearly 15 million miles.

Green initiatives: GM announced that by 2050, it would generate or source its electricity with 100% renewables like solar, wind and land fill gas.

Outlook for full year FY16

Based on its anticipated strong business results for H2 FY16, GM expects full-year earnings per diluted adjusted share at the high-end of its previously stated range of $5.50 to $6.00.

Stock Performance

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General Motors’ stock finished the day at $31.45, falling 0.10%, at the close on Wednesday, November 2nd, 2016, having vacillated between an intraday high of $31.72 and a low of $31.31 during the session. The stock’s trading volume was at 11,742,715 for the day. The Company’s market cap was at $49.15 billion as of Wednesday’s close.

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