GM Delivers Record Revenues on Higher North America Volumes

GM sold a record 10 million vehicles around the world, up 1.2% from 2015

General Motors Company (NYSE: GM), one of the automobile majors making up the “Detroit 3”, announced its Q4 FY16 and FY16 financial results on February 07th, 2017.

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.

Q4 FY16 financial highlights

During Q4 FY16, General Motors reported a 10.8% growth in net revenue to a record $43.9 billion, driven primarily by increased volumes in North America as well as growth at GM Financial, unlike its rival Ford Motor Company (NYSE: F), whose revenue fell by $1.6 billion to $38.7 billion due to accounting changes and a $200 million hit for exiting from the small-car factory in San Luis Potosi, Mexico.

During the reporting quarter, GM’s operating income was at $1.5 billion, while automotive operating cash flow grew $2.1 billion to $4.3 billion. Global deliveries rose 0.1 million units to 2.8 million, a 3.3% increase, mainly due to volume gains primarily in North America and China, offset by reductions in International Operations (excluding China). Adjusted automotive free cash flow was $1.7 billion, an increase $2.0 billion Y-o-Y, driven primarily by favorable rental car activity and sales incentive timing.

GM’s market share increased 10 bps Y-o-Y to 11.5%, driven primarily by an increase in North America. In all, Q4 FY16 net income plunged $4.4 billion Y-o-Y, or 70.7%, to $1.8 billion, driven by tax adjustments in Q4 2015 related to valuation allowance releases of $3.8 billion primarily related to Europe. As a result, diluted EPS fell to $1.19 in Q4 FY16 from $3.92 in the year-ago same period. GM’s EBIT-adjusted of $2.4 billion was down $0.4 billion and Q4 FY16 EBIT-adjusted margin of 5.4% was down 150 bps, due to unfavorable mix, cost, and foreign currency.

FY16 financial highlights

During FY16, General Motors reported a 9.2% growth in net revenue to a record $166.4 billion, driven primarily by increased volumes in North America as well as growth at GM Financial. During the reporting quarter, GM’s operating income was at $9.5 billion, while automotive operating cash flow grew $4.3 billion to $14.3 billion. Global deliveries rose 0.1 million units to 10 million, mainly due to volume gains primarily in North America and China, offset by reductions in International Operations (excluding China). Adjusted automotive free cash flow was $6.9 billion, an increase $4.7 billion Y-o-Y, driven by favorable rental car activity and sales incentive timing. GM’s market share fell 30 bps to 10.8% primarily due to the strategy to reduce daily rental volumes in the US and overall market growth outpacing strong sales momentum in China.

In all, net income fell 2.7% to $9.4 billion, or $6 per diluted share, in FY16. Full-year adjusted EBIT rose 15.9% Y-o-Y, setting a new record. Adjusted EBIT margin increased 0.4% to 7.5%, while diluted earnings rose 1.5% to $6. Adjusted earnings surged 21.9% to $6.12.

General Motors recorded strong gains in midsize pickups, small crossovers and large SUVs as Chevrolet led the way as the fastest growing US brand with a 0.5% gain in retail market share in the country. The automaker sold 3.04 million vehicles in the US and enjoyed a 7.1% gain in deliveries in China, reaching a new record of 3.87 million.

Segmental highlights

GM North America (GMNA): During Q4 FY16, North America EBIT-adjusted fell to $2.6 billion, down $0.2 billion Y-o-Y. EBIT-adjusted margins decreased to 8.4% in Q4 2016. On the brighter side, GM reported record GMNA EBIT-adjusted of $12.0 billion for FY16 and delivered an EBIT-adjusted margin of 10.1% and achieved its target of over 10%.

US dealer inventory increased 214,000 units, improving the availability of recently launched products and preparing for CUV launches. Wholesales increased 137,000 units, primarily due to recently launched passenger cars. During FY16, US retail deliveries increased 1.8% and fleet deliveries decreased 12.1%. In Q4 2016, US retail deliveries rose 4.4% Y-o-Y. Total market share for North America increased 110 bps to 18.0% in Q4 FY16. For the full year FY16, US retail share increased 50 bps, demonstrating GM’s focus on the more profitable retail channel.

GM Europe (GME): During Q4 FY16, GME EBIT-adjusted improved $0.1 billion despite the impacts of Brexit. Revenue was down primarily due to the foreign currency impacts of Brexit, while wholesale volume and market share were approximately flat on a Y-o-Y basis.

GM Europe has made substantial progress towards its plan to break even by taking advantage of a recovering industry, cost optimization and the benefits of the Astra launch resulting in Y-o-Y improvement in results. Despite the improvements, GME experienced through most of 2016 we were unable to overcome the impacts of Brexit, resulting in a $0.3 billion unfavorable impact due primarily to adverse movement in the British Pound against the US Dollar.

GM anticipates the impacts of Brexit to continue through 2017. The company also anticipates headwinds associated with industry pricing pressures and increased costs associated with depreciation, amortization, marketing and costs associated with new product launches. GM recently launched Astra and Mokka X along with the 2017 launches of the Insignia, Ampera E, and two new crossovers that would increase competitiveness in this growing market.

GM International Operations (GMIO): GMIO EBIT-adjusted was $0.3 billion, a decrease of $0.1 billion Y-o-Y. China equity income was relatively flat at $0.5 billion; however, retail sales were up 33,000 units due to a strong market and 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 2017, partially offset by improved mix due to full-year benefit of 2016 launches of the Cadillac CT6 and XT5 and Baojun 560 as well as 2017 launches in key CUV and Luxury segments.

Consolidated international operations results were flat as macroeconomic difficulties in GM’s Middle East Operations continued as a result of low global oil prices. Wholesales volumes were down slightly Y-o-Y. Economic conditions in GM’s Consolidated International Operations are expected to remain difficult in FY17.

GM South America (GMSA): This segment remains challenged from macro-economic and political headwinds. GMSA’s Q4 FY16 EBIT-adjusted decreased $0.1 billion due primarily to the impact of foreign currency, primarily the Argentine Peso. Wholesales were flat Y-o-Y while the industry was down 4%. Market share increased to 16.8%, a 90 bps gain over Q4 FY15 and is primarily due to growing share by 240 bps in Brazil and 60 bps in Argentina. For FY16, EBIT-adjusted improved $0.2 billion versus FY15 while industry volumes decreased 12.3% Y-o-Y.

GM Financial: GM Financial, which provides loans for customers and financing for dealers, continued to expand its captive presence with GM customers and dealers and increased its penetration of GM’s retail sales during FY16. Net revenue increased to $2.7 billion in Q4 FY16 and $9.6 billion for full-year FY16, both records, as it continues to execute on its full captive strategy. EBT-adjusted relatively flat for Q4 FY16, but increased nearly $0.1 billion for FY16 versus FY15. Credit losses and retail delinquencies remained stable in both North American and International portfolios. Earning assets grew 36% to about $77 billion, supporting expected future earnings growth.

Other highlights

Share buyback: GM returned $4.8 billion in FY16 to shareholders in the form of dividends and share repurchases. It completed the initial $5 billion common share repurchase program and started on the second share repurchase authorization in Q4 FY16. The board approved the third authorization of $5 billion in common share repurchases.

Global vehicle sales: For the year ended December 31st, 2016, GM sold a record 10 million vehicles around the world, up 1.2% from 2015. In Q4 FY16, GM sold 2.78 million vehicles, up 3.3% compared to Q4 FY15. December 2016 global volume of 1.05 million units was the highest in the company’s history, capping the fourth consecutive record year for global deliveries. For the full year FY16, GM sold 3.04 million vehicles in the US and increased retail share 0.5 percentage points – more than any full-line automaker. In China, deliveries increased 7.1% to a record 3.87 million vehicles. In Europe, Opel/Vauxhall posted a 4% sales increase.

US investments: GM announced a $1 billion US investment plan involving new models and plant updates, becoming the latest automaker to bow down to pressure from Donald Trump to create more domestic jobs, on January 17th, 2017. The announcement comes after Ford Motor Co. (NYSE: F), and Fiat Chrysler Automobiles N.V. (NYSE: FCAU) detailed out US spending plans, including product updates, manufacturing changes that brings back manufacturing jobs to the US, and a lending expansion.

General Motors’ $1 billion in investments are in addition to the $2.9 billion investment that the automaker had announced in 2016. As part of its recent announcement, General Motors said it will shift axle production for its next generation of full-size pickup trucks, including work previously done in Mexico, to operations in Michigan, thereby creating 450 US jobs. The part was previously built by American Axle & Manufacturing Holdings Inc. (NYSE: AXL). The automaker also said that about other 1,500 workers will be added or retained at factories to be detailed later during 2017. In addition, GM will add about 5,000 employees to develop its engineering capabilities, advanced technology, or join its lending subsidiary, GM Financial.

In all, the automaker plans to add 7,000 new US jobs over the next two to three years. The 7,000 figure includes the 450 jobs on axle production, 1,500 jobs tied to the $1 billion announcement and more than 5,000 new jobs tied to engineering, GM Financial, and advanced technology.

GM announced at least $2.9 billion in US investments in 2016, bringing its total since 2009 to $29 billion. However, the Detroit-based company stated that not all of its investments are geared towards new product launches for the US market.

GM to continue Mexico investments, cut jobs: Even as GM invests in US plants, it has also been making job cuts given the general economic slowdown in the US market and consumers postponing automobile purchases. In recent months, the company announced plans to lay off about 3,300 employees at three passenger-car plants. In November 2016, the company said that it would cut about 2,000 jobs when it ends the third shift at its Lordstown, Ohio, and Lansing, Michigan, plants in January 2017. In December 2016, GM said that it planned to cancel the second shift and cut nearly 1,300 jobs from its Detroit-Hamtramck assembly plant by March 2017 due to slackening demand.

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 FY17

GM expects full-year adjusted earnings for this year to come in between $6 and $6.50 per share, which is well ahead of the current consensus of $5.86 per share. The automaker expects to maintain or improve its adjusted EBIT and adjusted EBIT margin and record an increase in sales. It expects global volumes for new or refreshed vehicles to rise to 38% between 2017 and 2020 from 26% between 2011 and 2016.

Stock Performance

General Motors’ stock finished the day at $37.24, gaining 4.84%, at the close on Tuesday, February 14th, 2017, having vacillated between an intraday high of $37.40 and a low of $36.67 during the session. The stock’s trading volume was at 31,226,466 for the day. The Company’s market cap was at $55.64 billion as of Tuesday’s close.

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