If “peak auto” truly is a problem for the automobile industry, you certainly can’t tell it based on the recent results reported by General Motors Company (NYSE:GM). The company posted record-breaking third-quarter sales and earnings on Tuesday morning, and feels good about the remainder of the year thanks to a strong mix of high-quality vehicles that are still relatively easy to sell.
Last quarter, iconic U.S. automaker General Motors earned $2.8 billion, or $1.72 per share of GM stock, and sales of $42.8 billion. The top line was up 10% on a year-over-year basis, while net income more than doubled from the year-ago bottom line of $1.36 billion. On a per-share basis, profits also more than doubled the bottom line of 84 cents per share earned in the third quarter of 2015.
Last quarter’s results also topped analyst expectations. The pros were calling for earnings of $1.47 per share of GM stock and sales of $39.29 billion.
CEO Mary Barra commented:
“Our record third quarter, led by strong performance in the U.S. and China, reflects our determination to deliver on our commitments. We will continue executing our plan to deliver earnings that enhance shareholder returns.”
General Motors Earnings Driven by Trucks, China
While the bottom line growth was impressive, it wasn’t quite as impressive as a superficial look at the numbers might suggest. The year-ago earnings figure of $1.36 billion was after a one-time charge of $1.5 billion. On a per-share basis, that charge reduced earnings by 66 cents.
Still, even stripping out the effects of the charge from a year earlier, GM reported measurable progress.
The bulk of that growth was driven by strong demand for trucks and sport utility vehicles in North America, and by demand for higher-end vehicles in China.
In North America, vehicle sales grew from 938,000 to 1.03 million units, with trucks representing the biggest piece of that mix. Operating income in North America ramped up from $3.29 billion in the third quarter of 2015 to $3.49 billion last quarter. North American EBIT profit margins grew to a best-ever 11.2%, boosted by the company’s decision to focus less on lower-margin fleet sales and more on retail sales.
Income from its joint ventures in China rolled in at $459 million, or just a bit less than the $463 million booked for General Motors’ stake in its Chinese operation a year earlier.
Europe and South America continue to work against the bottom line, however, according to the General Motors earnings report. The former imposed an operating loss of $142 million, while the latter booked an EBIT loss of $121 million. Both of those losses are smaller than the losses taken a year earlier, suggesting progress. But, GM sold fewer cars in Europe on a year-over-year basis, and South American unit sales were only up 8%.
Bottom Line for GM Stock
There’s still work to be done, but as a whole, General Motors is winning where it needs to win. That is, in North America, and with higher-margin trucks and SUVs in particular.
There’s no denying GM is winning the war on that front either, fiscally as well as psychologically. Although its U.S. market share slipped a bit last quarter, from 17.1% to 17.0%, General Motors’ Buick brand rated among Consumer Reports’ top three brands — in terms of quality — in this year’s review. It was the first time in three decades a U.S. automaker ranked among the top three names for the annual report.
Granted, the accolade doesn’t immediately make GM stock worth more than it already is. It does, however, help keep General Motors brands at the top of mind for consumers in the market for a new car or truck.
That’s a big part of the reason General Motors boldly reiterated its expectation of earning at the higher end of its full-year profit guidance, which ranges from $5.50 to $6 per share. Analysts are collectively expecting $5.85 per share of GM stock, on revenue of $158.85 billion. Both are well up from last year’s figures.
The market was unimpressed though. GM stock fell more than 4% following the report, after surging by as much as 3% on Monday. Indeed, it has struggled to make any net progress all year long, despite the company’s recurring success.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
