GM reports 3Q North American earnings set record
General Motors Co. expects overall results for 2015 to top last year’s, the automaker said Wednesday as it reported net income fell slightly for the third quarter but set post-2009 bankruptcy records for overall adjusted and North American earnings.
The automaker earned $1.36 billion in the quarter, buoyed by continued strength in pickup and SUV sales and a strong-performing North American market that offset weakness in other global regions. The North America region had record adjusted pre-tax earnings of $3.29 billion, up more than 34 percent from a year ago and revenue hit a quarterly record. The region also posted a record adjusted pre-tax margin — its adjusted earnings divided by revenue — of 11.8 percent.
The strong performance in North America, even with $1.5 billion in pre-tax charges related to the ignition switch crisis, helped the company beat financial analysts’ estimates. Shareholders were pleased, as GM’s stock jumped 5.85 percent in trading Wednesday. It closed at $35.44, up $1.96 a share.
The company is set to hit a milestone of 10 percent adjusted margins in North America this year, one year early, the automaker said.
“We will achieve our 10 percent margin objective in 2015,” GM Chief Financial Officer Chuck Stevens told reporters at the company’s headquarters Wednesday.
Stevens said GM remains on target for meeting its objectives this year.
“We will achieve our objectives for the year of higher margins and higher profit versus 2014,” Stevens said. “And we fully expect at a company level to generate $10 billion of (adjusted pre-tax) profitability in 2015.”
GM made 84 cents a share in the third quarter. But when factoring in special items related to the ignition switch, earnings per share would have reached $1.50. Analysts predicted earnings per share of $1.19 compared to 81 cents (97 cents including 16 cents earnings per share of special items) earned in the period a year ago.
Industry financial analysts were pleased with results and said the beat is a step for GM to change its perception with investors. Ryan Brinkman with J.P Morgan started his note to investors Wednesday with the headline: “GM Quiets Critics With Thunderous 11.8% North America Margin.”
Itay Michaeli, an analyst with Citi Research, believes the company’s third quarter performance “should continue to reshape sentiment particularly as GM enters a growth phase.” He rates the stock a buy.
The company’s revenue fell slightly to $38.8 billion from $39.3 billion a year ago, which GM attributed to a negative impact from foreign currency exchange. More than 70 percent of the company’s quarterly revenue was generated in North America.
“As strong as the third quarter performance was though, we do understand and we are working to mitigate the headwinds that are in several areas around the globe,” GM CEO Mary Barra said in a conference call with analysts and others.
Special charges in the quarter cost shareholders 66 cents a share in earnings. Those charges included the $900 million Justice Department settlement reached last month following an investigation over the delayed recall of 2.59 million cars for ignition switch defects. The company also had charges totaling $575 million that included $275 million to settle some 1,380 claims related to the ignition switch and a $300 million class-action lawsuit settlement.
As of Oct. 16, GM said it had paid $453 million to about 300 claimants as part of the compensation program for those injured by the ignition switch problem or to families who lost loved ones. GM estimates in total the program will cost the company $625 million.
The company still faces the likelihood of further fines and settlements. Barra said the company faces investigations by the U.S. Securities and Exchange Commission, Federal Trade Commission and 50 state attorneys general. It also is being investigated by Transport Canada. The company said it is aware of more than 100 economic loss cases in the U.S. and more than 200 cases alleging injury or deaths tied to recalls, with additional cases in Canada, according to a regulatory filing.
The company during the quarter improved its European losses to $231 million pretax as it works to turn a profit next year in Europe.
The automaker’s sales growth has slowed in China — which has been its largest sales market the past several years — but Stevens said sales have gotten stronger and are up about 10 percent year-over-year so far in October.
GM posted pre-tax income of $463 million in China, down 4.3 percent from a year ago, though net income margin rose to 9.8 percent.
“China has not fallen off the cliff as everyone expected,” Stevens said.
GM South America losses worsened to $217 million pretax, up significantly from the same quarter a year ago.
Earlier this year, GM said it expected to see a year-over-year profitability gain in South America, but it has backed off that statement given macroeconomic conditions.
“I certainly don’t see a light at the end of the tunnel from a macro perspective,” Stevens said.
GM International Operations posted a slight gain, earning $269 million pretax and GM Financial pretax earnings also were up in the quarter to $231 million.
GM is the first of the Detroit Three to release third quarter figures. Ford Motor Co. will release its third quarter earnings Tuesday, followed by Fiat Chrysler Automobiles NV Oct. 28.