GM's Q3 operating profit jumps 37% to $3.1 billion on truck gains
Charges tied to ignition-switch settlements total $1.5 billion
DETROIT -- General Motors’ surging truck sales delivered heavy-duty profits during the third quarter, leading the automaker to its best financial performance since before its 2009 bankruptcy.
The automaker’s pretax operating profit -- the number that GM says best represents its underlying financial performance and a key focus for investors -- surged 37 percent, to $3.1 billion, the automaker said today in its Q3 report. GM officials called it a quarterly record, although that doesn’t take into account pre-bankruptcy results.
North America accounted for all of that gain and then some, offsetting continued losses in Europe, South America and parts of Asia, excluding China.
The company's growing retail market share in mid- and full-size pickups helped North America operating income jump 34 percent, to $3.29 billion. That tally beat the average forecast of analysts by about $500 million.
The combined market share of the Chevrolet Silverado and GMC Sierra in the highly profitable full-size pickup segment rose to 32.4 percent in September, from 31.5 percent in June, according to the Automotive News Data Center.
Analysts zeroed in on GM’s 11.8 percent profit margin in North America, also the highest since before bankruptcy. GM said its margin for the year would surpass 10 percent, ahead of its goal of sustaining that level in 2016.
Despite the strong operating numbers, GM’s bottom line was hurt by the fallout from last year’s recall crisis. Net income dropped 1.4 percent from a year earlier to $1.36 billion, reduced by about $1.5 billion in one-time, pretax expenses related to the settlement of ignition switch-related lawsuits and GM’s agreement last month to pay $900 million to settle federal charges related to its handling of the deadly defect.
GM’s pretax operating earnings per share of $1.50 rose 55 percent from a year earlier and breezed past analysts’ estimates of $1.19.
Revenue slipped 1 percent, to $38.84 billion, hurt by a negative foreign-currency exchange.
“This performance increases our confidence in our plan to drive shareholder value,” GM CEO Mary Barra told analyst during a conference call. “We’re working extremely hard to make sure we deliver on what we say we’re going to do.”
Barclays Capital analyst Brian Johnson wrote in an investor note that GM’s big quarter was the result of both “external tailwinds” -- low gas prices stoking truck demand for example -- as well as “self help.”
“We have long argued that investors underappreciated the new management discipline, and we see that paying off in successful product initiatives … accelerated cost-reduction efforts and quick moves to stabilize China,” Johnson wrote.
GM shares rose 6 percent to close the day at $35.42.
The strong sales volume in North America was aided by increased incentives, equal to 12.3 percent of average transaction prices, vs. 11.4 percent a year earlier. Average transaction prices also rose, though, by more than $500 per unit.
GM said its North American performance was also helped by a reduction in logistics and materials costs.
In Europe, GM narrowed its losses to $231 million, from $387 million a year earlier. Stevens said GM is benefiting from improved profitability on its redesigned Corsa subcompact, Opel’s highest-volume vehicle, which was launched earlier this year. He reiterated that GM will turn a profit in Europe next year.
Losses widened in South America, as sales volumes plunged amid the continent’s economic troubles. GM lost $217 million on the continent, vs. $32 million a year earlier.
“I certainly don’t see a light at the end of the tunnel from a macro perspective” in South America, Stevens said. He said GM has laid off as many as 5,000 workers -- around 20 percent of its employees there -- which saved “a couple hundred million,” and is working to improve productivity and sell higher-priced vehicles to blunt the losses.
At GM Financial, the company’s captive finance arm, pretax operating profit rose 13 percent, to $231 million.
Editor's note: The headline on an earlier version of this story was incorrect. The company's Q3 operating profit was $3.1 billion.
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