GM earns record $2.77B in 3Q
General Motors Co. on Tuesday posted record third-quarter earnings of $2.77 billion that more than doubled from a year ago, driven by its record North America performance and strongly beat analysts’ estimates.
The strong performance puts the company on pace for a record year, but its break-even target for Europe this year is in jeopardy, GM’s Chief Financial Officer Chuck Stevens said.
The Detroit automaker earned $1.76 a share in the third quarter, or $1.72 a share after factoring in recoveries related to the ignition switch. Analysts had expected GM to earn $1.44 a share.
GM posted its best quarterly revenue since emerging as a new company following its 2009 bankruptcy, as revenue soared 10.3 percent year-over-year to $42.8 billion. The increase was driven by strong sales to retail customers and average transaction prices after incentives in the U.S. of $35,700 in the quarter, about $5,000 higher than industry averages.
Stockholders didn’t appear to share the same enthusiasm. GM stock initially was up in pre-market trading Tuesday, but was down about 4.3 percent around 11:40 a.m. .
“While these are very strong results they do little to change the overall narrative of GM and the automotive cycle,” analyst Joseph Spak of RBC Capital Markets LLC wrote in a note to investors Tuesday. “While GM should outperform this morning, we wouldn’t be surprised to see the stock fade through the day.”
GM has been working to break even or make a profit in its European region for the first time in more than 15 years, but Stevens said Tuesday that meeting that goal this year will be a challenge given the impact of Brexit, or the United Kingdom’s June vote to leave the European Union.
“Breaking even this year is going to be very, very challenging,” he said. “I would say the break-even for the year is clearly at risk.”
Third-quarter earnings were supported by a robust showing in North America. The automaker posted record adjusted pre-tax earnings in the region of $3.49 billion and profit margins of 11.2 percent. Earnings in the region were aided by a 92,000 increase in wholesale volume and better pricing on vehicles such as the Chevrolet Malibu.
Some in the industry caution that the U.S. auto industry’s record-setting new car sales pace is slowing down, which ultimately could affect earnings and profit margins.
Stevens told reporters in Detroit that while the market may have plateaued, he believes it will be strong for several years and GM expects continued profit strength in the region next year.
“Over the next 12 to 18 months, we’re going to replace all of our compact crossovers and the balance of our midsize crossovers,” Stevens said. “And those are significantly important products for us and very profitable products and we expect to help us to continue to generate 10-plus percent margins in North America.
North America also will be aided by continued progress in cutting costs in areas such as logistics and materials. GM said it expects to exceed a targeted $5.5 billion savings and GM Chairman and CEO Mary Barra said the company would use additional savings to offset investments “in the future of personal mobility where we see tremendous return potential.”
The company said it expects its full-year earnings per share to hit on the high end of its estimate of $5.50-$6 a share. Last year, GM had net income of $9.7 billion.
“We are on track to deliver a record 2016 on top of a record 2015 and a very strong 2014,” Barra told analysts on a call.
Adjusted pre-tax earnings totaled $3.5 billion in the quarter and the company’s adjusted profit margin hit 8.3 percent.
GM earned $1.36 billion or 84 cents a share in the year ago quarter. When factoring in special items related to the ignition switch, earnings per share would have reached $1.50.
GM’s 2.12 million sales in the U.S. through the first nine months of the year are down 3.8 percent from the same time in 2015, mainly due to the carmaker pulling back on less profitable fleet sales and instead focusing on growing sales with retail customers. With sales of highly profitable SUVs and trucks.
GM sold 2.4 million vehicles globally in the quarter, up 3.8 percent from the same quarter a year ago.
In China, its largest sales market, GM net income with its joint ventures was $459 million, flat from a year ago. Sales in China through September are up 9 percent to a record nearly 2.72 million.
The company reported adjusted pre-tax losses of $142 million in Europe and $121 million in South America, though Stevens said losses in each region narrowed from a year ago. GM International Operations made $271 million. And GM Financial, responsible for cutting loans for the automaker, posted a profit of $229 million.
Stevens warned at second-quarter earnings that Brexit could cost the automaker $400 million in the second half of 2016 due to the pound sterling. The company said Tuesday that Brexit cost about $100 million in the third quarter and with a deteriorating pound sterling, it’s possible to see a $300 million impact in the fourth quarter.
Through the first nine months of 2016, GM posted an $11 million pre-tax loss in Europe. In August, GM said it would cut production hours at two German factories to mitigate the impact of the Brexit vote and on Oct. 1, GM raised prices on vehicles in the U.K. by 2.5 percent.
“The environment in Europe is challenging and uncertain and very volatile at the point in time,” Stevens told analysts on a call.
GM finished its original $5 billion stock buyback program a quarter earlier than planned, the company said. Through Sept. 30 this year, the company spent $1.5 billion to repurchase shares. The company plans to buy another $4 billion in stock by the end of 2017.
Fiat Chrysler Automobiles NV also Tuesday reported earnings of $659 million in the third quarter. Ford Motor Co. is slated to release earnings Thursday.
Staff writer Ian Thibodeau contributed.