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Customer LoginsGM reports record Q3 results, with USD42-bil. revenue and USD2.77-bil. income
GM continues to perform well, the third-quarter 2016 results have carried on the strengths of first two quarters. The company delivered strong financial growth, including an increase in global wholesales.
IHS Markit Perspective
- Significance: GM's adjusted earnings before interest and taxation (EBIT) increased 14.4% y/y in the third quarter of 2016, while net income grew 104%. Worldwide wholesale deliveries up 5.2%, and revenue jumped 10.3%. ROIC on four quarters ending 30 September 2016 reached 30.6%.
- Implications: GM continues to show growth in key financial metrics, with another record quarter. Quarterly EBIT-adjusted margin reached 8.3% in the third quarter of 2016, compared with 8.0% a year ago, improving return on invested capital and increasing earnings per share to USD1.72 for the quarter and USD4.84 for the first three quarters.
- Outlook: GM is healthy in North America, demonstrating continued strength from its Chinese JVs, broke even this quarter in Europe, and is showing reduced losses in the difficult South American market. GM's results show continued profitability and improving margins in most regions, though market share has slipped, indicating stronger revenue generation for a healthier company. With the bulk of the ignition-switch recall issues behind GM and improving profitability, the company is focused on the future of mobility.
General Motors' (GM) growing global earnings and quarterly record setting has continued in the third quarter of 2016, with the fifth consecutive quarterly records, despite the impact of mix and currency issues on revenue and adjusted EBIT (earnings before interest and tax expenses). Revenue increased by USD4 billion compared with the third quarter of 2015, with a USD0.4-billion impact of unfavourable currency impact, although volume, mix and price were all contributors to improved revenue. Gains in volume and pricing positively contributed USD2.2 billion and USD0.8 billion, respectively. Earnings per share diluted increased to USD1.76, compared with USD1.50 in third quarter 2015.
GM has had three strong quarters in 2016, driving up earnings before interest and taxation (EBIT)-adjusted margin from 8.0% in the third quarter of 2015 and 7.5% in the second quarter of 2016 to 8.3% in the third quarter of 2016. In the first quarter of 2015, GM began reporting return on invested capital (ROIC), a rolling figure covering the four quarters up to the present; third-quarter 2016 saw that figure jump by 4.6points to 30.6%. Wholesale deliveries increased by 5.2%, with increases in North America (GMNA) and South
America (GMSA) offset by declines in Europe (GME) and International Operations (GMIO). Free cash flow was relatively increased by USD0.8 billion, to USD3.5 billion, compared with the third quarter of 2015.
GM's adjusted EBIT delivered a third-quarter record of USD3.5 billion. Volume was helped by increases in GMNA, while favourable pricing impacts came from GMNA and GMSA. Mix was unfavourable on launch of new passenger cars in GMNA. Costs had an unfavourable impact, on material majors and incremental fixed costs. These were offset by the USD300-million impact of currency fluctuations. EBIT contribution came from GMNA, GMIO and GM Financial, while GMSA and GME saw decreasing losses. GM has advised that its plan for breakeven at GME in 2016 is at risk on currency fluctuations relating to the British pound, but noted that Opel and Vauxhall remain strong. As noted above, second-quarter adjusted EBIT was 8.3% of revenue.
Global wholesale deliveries increased to 1.58 million in the third quarter of 2016, a gain of 5.2%. Global market share has slipped to 10.7%, compared with 11.1% in third quarter 2015, though better than second quarter 2016 share of 10.3%. The decrease in share is a primarily result of strategic reduction of daily rental fleet in North America, according to GM.
In a company statement, CEO Mary Barra said, "Our record third quarter, led by strong performance in the US and China, reflects our determination to deliver on our commitments. We will continue executing our plan to deliver earnings that enhance shareholder returns."
GMNA's net revenue increased to USD31.1 billion, from USD27.8 billion in the third quarter of 2015, on wholesale increase to 1,030,000 units, up from 938,000 units. Market share was flat (17.0%) compared with the third quarter of 2015, with improvements in retail share as the company pulls back on fleet sales. EBIT-adjusted margin came in at 11.2% in the third quarter of 2016 - strong, but below the 11.8% reflected in third-quarter 2015 GMNA results. GM reported margin of 8.7% in the first quarter of 2016, 12.1% over the second quarter of 2016. Going forward, GM notes US dealer inventory for the fourth quarter is strong, and includes high availability of recently launched Chevrolet Cruze and Malibu and Cadillac XT5.
GMIO accounted for USD2.96 billion in revenue in the third quarter, flat year on year (y/y) despite a decline of 6.8% in wholesales, and USD271 million of the company's adjusted EBIT. GMIO's volume and price were flat, while mix had a negative impact and costs improved. GMSA's EBIT improved y/y, although it was still a loss of USD121 million, as the Brazilian market continues to struggle. Price improved despite inflationary and foreign exchange pressures, while mix and volume were flat. GM says cost-containment efforts continue to have favourable impact on the region's 2016 performance.
GME EBIT-adjusted improved by USD0.1 billion y/y, which GM characterised as reaching breakeven. For the year, breakeven is at risk on an impact from unfavourable impact of a weaker British pound. Relative to the Brexit situation, GM reaffirmed expectations of a USD0.4-billion impact to the second half of 2016, with a USD0.2-billion impact in the third quarter. Revenues pulled back slightly to USD4.2 billion compared with USD4.5 billion in the third quarter of 2015. Year to date, deliveries are up in GME, although the third quarter brought a decline in wholesale deliveries. Relative to EBIT-adjusted, volume, mix and price were flat, with increased costs and unfavourable currency. Market share contracted from 6.3% in the third quarter of 2015 to 6.0% in the same period in 2016, reflecting that the impact of the exit from Russia is offsetting the gains at Opel, particularly with the Astra.
GM's Chinese market performance showed joint venture (JV) wholesales increasing, on the strength of the Baojun, Buick and Cadillac brands. GM's quarterly China JV wholesale deliveries increased to 905,000 units in the third quarter of 2016. Additionally, the company reported 8.7% margin for the JVs, down from 9.8% in the third quarter of 2015. GM's revenues and wholesale deliveries from the JVs are not reflected in the company's consolidated results. GM continues to offset slowing demand for smaller vehicles and pricing pressure in China with a greater mix of more-profitable vehicles. GM continues to expect significant pricing pressure, around 5% for the year, partially offset by launches of Cadillac CT6 and XT5 and Baujun 560, as well as continued success of Buick Envision.
Outlook and implications
GM is healthy in North America, demonstrating continued strength from its Chinese JVs, broke even this quarter in Europe, and is showing reduced losses in the difficult South American market. GM's results show continued profitability and improving margins in most regions, though market share has slipped, indicating stronger revenue generation for a healthier company. With the bulk of the ignition-switch recall issues behind GM and improving profitability, the company is focused on the future of mobility.
GM expects that it is on the path to another record-setting year, and has revised upward its guidance for full-year earnings per share (EPS) diluted-adjusted to be between USD5.50 and USD6.00 for the full year, up from prior guidance of USD5.25 to USD5.75.
Much of the story carries over, as strong sales of trucks and sport utility vehicles (SUVs) in North America and China helped offset the impact of declining deliveries in other markets - despite a drop in retail US sales in on a strategic pullback in US fleet sales. North America continues to be GM's most significant market, delivering 72.5% of net revenue in the third quarter. With a healthy North American region, the company is better positioned to withstand difficulties in other markets.
Since late 2015, GM has been able to focus on continuing to strengthen the company for the future, including the investment into mobility business streams. GM's fundamentals remain sound and the group is profitable. GM's cash position is favourable, with USD35.5 billion in liquidity at the end of the third quarter, and it debt is manageable.GM returned USD1.5 billion to shareholders through share buybacks and USD1.8 billion in dividends through September 2016, and reaching a goal of returning USD5 billion one quarter early.
Earlier in 2016, GM said it expected the first quarter to be seasonally weaker, second and third quarters to be stronger and the fourth quarter to be about average. The first three quarters have followed that guidance. When reporting third quarter, GM noted that it is on track to deliver on its commitment for another strong year. Earlier financial targets for 2016 included improved total company EBIT-adjusted, EBIT-adjusted margins and autos free cash flow, as well as sustaining strong margins in China.
About this article
The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.