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Customer LoginsGM reports USD2.7-bil. EBIT in Q1, revenue of USD37.3 bil.
First-quarter 2016 delivered strong financial growth for General Motors (GM), including an increase in global wholesale deliveries. GM's results in Europe continue to improve, and South American EBIT improved despite wholesale deliveries declines on a difficult market.
IHS Automotive Perspective
- Significance: General Motors' (GM) adjusted earnings before interest and taxation (EBIT) increased 27.5% year on year (y/y) in the first quarter of 2016, while net income grew 107%. Worldwide wholesale deliveries were up 1.4% and revenue jumped 4.3%.
- Implications: GM continues to see income growth and achieved an EBIT-adjusted margin of 7.1% in the first quarter, compared with 5.8% in the same period of 2015. In the first quarter of 2016, GM's return on invested capital improved. GM reports the increased earnings were driven by improvements in all regions, even in difficult South America, and a breakeven in Europe.
- Outlook: GM's results are healthy in North America and the automaker's Chinese joint ventures showed continued strength. GM achieved breakeven results in Europe and reduced losses in the difficult South American market. GM's results show continued profitability and improving margins in most regions. With the bulk of the ignition-switch recall issues behind GM and with profitability improving, the company is more focused on the future of mobility than on restructuring, as evidenced by several investments announced in the first quarter.
General Motors (GM) has continued to improve its global earnings in the first quarter of 2016, achieving the third consecutive quarterly record earnings, despite the impact of currency issues on both revenue and adjusted earnings before interest and taxation (EBIT). GM's revenues increased by USD1.6 billion in the first quarter, and the results included the USD1.3-billion impact of unfavourable currency exchange. Gains in volume, mix, and pricing all contributed to the stronger revenue. Earnings per share increased to USD1.24 in the first quarter, compared with USD0.56 in same period of 2015.
GM delivered a strong first quarter in 2016. In particular, the adjusted EBIT margin improved from 5.8% in first quarter of 2015 and 7.0% in fourth quarter 2015 to 7.1% in the first quarter of 2016. Although 7.1% is the same margin as for full-year 2015, GM expects to see the margin to continue to improve in 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; in the first quarter of 2016, GM's ROIC jumped by 0.9 percentage points to 28.5%. Consolidated wholesale deliveries increased by 1.4% in the first quarter, with increases in North America and Europe offset by declines in South America and GM International Operations (GMIO). Free cash flow decreased by USD200 million in the first quarter as GM increased expenditure on vehicle launches (including manufacturing and marketing costs).
GM's adjusted EBIT delivered a first-quarter record of USD2.7 billion. Volume was positively impacted by increases in GM North America (GMNA) and Europe (GME), partly offset by declines in GM South America (GMSA) and GMIO, while there were favourable pricing impacts for GMNA and GMSA. Costs were flat, with favourable carryover material costs, offset by increased material costs, increased restructuring costs, and incremental engineering, marketing and other costs related to new product launches. These were offset by the USD300-million impact of currency fluctuations. There were EBIT contributions from GMNA, GMIO, and GM Financial in the first quarter, while GME broke even and GMSA saw a loss. As noted above, first-quarter adjusted EBIT was 7.1% of revenue.
Global wholesale deliveries increased to 1.4 million vehicles in the first quarter of 2016. Global market share declined to 10.6%, compared with 10.8% in the first quarter of 2015 and 11.4% in the fourth quarter. The decrease in share was the result of a strategic reduction in daily rental fleet sales in North America, as well as lower share in South America − both regions have reported improved earnings, despite the lower share.
In a company statement, GM CEO Mary Barra said, "We are growing where it counts, gaining retail share in the US, outpacing the industry in Europe, and capitalising on robust growth in SUV and luxury segments in China. This strong quarter also reflects the excellent progress we're making to improve results in our more challenged global markets. Importantly, the continued success of our core business is enabling us to invest in advanced technology and innovations that will help shape the future of personal mobility."
GMNA saw net revenue increase to USD26.5 billion in the first quarter, from USD24.7 billion in the same quarter of 2015, on a wholesale deliveries increase to 874,000 units, from 829,000 units. GM's North American market share slipped to 15.9% from 16.4%, as the company is reducing fleet sales in the US. EBIT-adjusted margin slipped slightly from 8.8% a year before to 8.7% in the first quarter of 2016, while the metric reached 10.0% in the fourth quarter of 2015. The first-quarter result was impacted by increased launch expenses for upcoming products, as well as restructuring costs. GMNA chief financial officer (CFO) Chuck Stevens said in a call reporting the figures that he expects North America to deliver an EBIT increase of 10.0% in 2016. North American market share dropped to 15.9% in the first quarter, from 16.4% in the same period last year, on reduced fleet sales in the US. Market share shifts are related to a reduction in rental-fleet sales, with GM reporting an increase in US retail share to 16.6%. GM reported a positive effect from volume and price, though mix was flat and costs increased.
GMIO accounted for USD2.7 billion in revenue in the first quarter on fewer deliveries, and USD379 million of the company's adjusted EBIT. GM's prices and mix were flat, while volume had a negative impact. However, GM's costs improved compared with a year earlier.
GMSA saw an EBIT improvement in the first quarter compared with the first quarter of 2015, though there was still a loss of USD67 million, as the Brazilian market was down 28.4% in the first quarter. Prices improved despite inflationary and foreign exchange pressures, while mix was flat and volume fell. GM says that its labour cost reduction, production cuts and pricing changes in 2015 are having a positive impact on the 2016 performance in the region.
GME saw improved results and broke even in the first quarter of 2016, with profitability forecasted for 2016. Revenues ticked up to USD2.3 billion, on increases in wholesale deliveries. Mix and prices were flat, though costs improved. Market share was flat, reflecting that the impact of the exit from the Russian market is offsetting the gains at Opel, particularly from the Astra.
GM's Chinese market performance showed joint-venture (JV) wholesale deliveries increasing, despite the country's economic slowdown and pricing pressures, as GM's new SUV products are well positioned. GM's JVs' wholesale deliveries in China increased to 986,000 units in the first quarter. Additionally, the company reported a 9.7% margin for the Chinese JVs. 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. In the first quarter, material cost performance was favourable, offset by the price reductions and additional fixed costs for the Cadillac plant and product launches.
Outlook and implications
GM's results are healthy in North America and the automaker's Chinese joint ventures are demonstrating continued strength, while GM reached breakeven in Europe and saw some reduced losses in the difficult South American market. GM's results show continued profitability and improving margins in most regions. With the bulk of the ignition-switch recall issues behind GM and improving profitability, the company is more focused on the future of mobility than on restructuring, evidenced by several investments announced in the first quarter.
GM expects that it is on the path to another record-setting year, and reaffirmed its guidance of improvements in the group's adjusted EBIT, adjusted EBIT margins, and automotive adjusted free cash flow for 2016, compared with 2015. Strong sales of trucks and SUVs in North America and China helped offset the impact of declining deliveries in other markets, despite flat sales in North America on a strategic pullback in US fleet sales. North America continues to be GM's most significant market, delivering 70% of net revenue in the first 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 investment in mobility business streams, with the impact of the ignition-switch recall largely absorbed. GM's fundamentals remain sound and the group is profitable. GM's cash position is favourable, with USD30.6 billion in liquidity at the end of the first quarter, and it debt is manageable. GM returned USD3.5 billion to shareholders through share buybacks and USD2.2 billion in dividends in 2015, and repurchased USD300 million in shares and paid USD600 million in dividends in the first quarter of 2016.
GM has said that, in 2016, it expects the first quarter to be seasonally weaker, the second and third quarters to be stronger, and the fourth quarter to be about average. GM's financial targets for 2016 are unchanged and include improved group adjusted EBIT and adjusted EBIT margins and automotive free cash flow, as well as sustained strong margins in China and profitability in Europe.
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.