General Motors Profits Increase Demand for Trucks and SUVs – The Fool Motley

General Motors (NYSE: GM) reported net income of $ 2.5 billion in the third quarter, a solid result driven by good sales of trucks and crossover vehicles in North America and surprisingly good earnings from China.

Excluding non-recurring items, GM posted earnings per share of $ 1.87, up 41.7% from the third quarter of 2017. Products, which totaled $ 35.8 billion, grew by 6.4% compared to GM's. Both results far exceeded estimates: Wall Street analysts surveyed by Thomson Reuters adjusted earnings per share expected of $ 1.26 average on revenue of $ 34.84 billion.

GM Earnings: The raw numbers

Data source: General Motors. EBIT is earnings before interest and taxes. "Adjusted" is the term used by GM to denote non-GAAP figures that exclude the effects of non-recurring items. Ppts = percentage points.

The third quarter of GM in a nutshell

"We had a solid execution despite the difficulties we faced," said CFO Dhivya Suryadevara early in the morning, shortly after the release of GM's results. "Revenue up, profits up, margins up."

Suryadevara said GM was able to more than offset the high commodity costs that affected some of its competitors with higher prices, mainly in North America. In China, an improved "combination" of products sold – a higher proportion of crossovers and Cadillacs – boosted GM's margin, which more than offset the effects of lower overall sales. .

How GM's business units behaved

Here is an overview of the performance of each of GM's main business units. Unless otherwise indicated, all earnings figures in this section are presented on an adjusted EBIT basis.

• GM North America earned $ 2.83 billion, up 37% from a year ago, thanks to an 11% increase in wholesale shipments, thanks largely to the all-new Chevrolet Silverado pickup trucks and GMC Sierra. GM cut back its incentive spending of about $ 500 per vehicle during the quarter, which allowed its margin in the region to increase by 10.3% from 8.3 % a year ago.
• GM's Global Operations unit, which includes its extensive business in China, recorded a third quarter revenue of $ 139 million, down from $ 389 million a year ago. While China was performing well, generating equity income of $ 485 million (+ 5.7%), the overall results of the unit were affected by exchange rates, especially by devalued currencies in Brazil and Argentina.
• GM Cruise, the arm's length subsidiary, lost $ 214 million from a loss of $ 165 million a year ago. This is not a surprise: Cruise is working on an autonomous taxi deployment that is expected to begin next year. he will spend more than he earns for at least several quarters.
• GM Financial, the captive financing unit of the company, realized a pre-tax profit of $ 498 million. This represents a 61% increase over a year ago and a record quarterly result driven by healthy portfolio growth. Credit performance remained stable as both the depreciation and non-payment ratios decreased slightly compared to the same period of the previous year.

Suryadevara said GM Financial's recent strong performance led the subsidiary to start paying a dividend to GM. The first payment will be made in the fourth quarter, when GM Financial will pay a $ 375 million dividend to GM, retaining a portion of its third quarter earnings to increase its loan base.

Special items, money and debt

GM bore a one-time charge of $ 440 million related to the 2014 ignition switch recalls scandal. In September, a US district court judge dismissed GM's criminal lawsuit in 2015 for related actions. scandalous.

At September 30, GM had $ 18 billion in cash for its automotive business and $ 1.8 billion for its GM Cruise subsidiary. It had additional available credit lines of $ 14.1 billion, for a total "auto liquidity" of $ 33.9 billion – a significant reserve to finance product development efforts during a recession, and well in GM's $ 30 to $ 35 billion target range.

Faced with this reserve, GM had a well-structured long-term debt of $ 16 billion as of September 30, compared with $ 13.5 billion in early 2018.

Looking to the future: GM's forecasts for the whole year

GM reiterated the revised guidelines provided in July. For the whole year, he expects to:

• Adjusted earnings of approximately $ 6 per share in 2018 (2017 result: $ 6.62).
• Adjusted free cash flow of $ 4 billion for the automobile, excluding GM Cruise ($ 5.2 billion in 2017).
• "Significant" year-over-year earnings growth at GM Financial ($ 1.2 billion in 2017).
• The adjusted EBIT margin in North America is between 9% and 10% (2017: 8.8%).

But the reiteration of the guidelines came with some optimism. Suryadevara said that, with strong operating results from GM in the first three quarters and a favorable outlook for the company's tax rate, the company's adjusted earnings per share may exceed expectations. In the first three quarters of 2018, GM earned $ 5.11 per share on this basis.