GM's Q3 net more than doubles to $2.77 billion
Shares slide as Wall Street takes bearish view
DETROIT -- General Motors today said its net income more than doubled to a third-quarter, post-bankruptcy high of $2.77 billion, as its focus on retail sales in the U.S. bolstered transaction prices.
GM also generated record revenue for any quarter since its 2009 bankruptcy of $42.83 billion, up 10 percent from a year earlier.
“Our record third quarter, led by strong performance in the U.S. and China, reflects our determination to deliver on our commitments,” GM CEO Mary Barra said in a statement. “We will continue executing our plan to deliver earnings that enhance shareholder returns.”
GM posted adjusted earnings before interest and taxes of $3.54 billion, a fifth consecutive quarterly record post-bankruptcy. It earned an adjusted $3.5 billion in North America, up 5.9 percent, while modest losses in Europe and South America canceled out income from international operations and GM Financial.
Strong sales in China -- where deliveries rose 9 percent to a record 2.7 million vehicles -- sent earnings in international operations edging up 0.7 percent to $271 million for the quarter.
GM’s adjusted net income, equal to $1.72 a share, was nearly 20 percent better than the estimates from Wall Street analysts.
Surprisingly, GM shares fell 4.2 percent to close at $31.60, highlighting the ongoing disconnect between Detroit and Wall Street as the long U.S. vehicle sales boom cools off.
“Investors must think this is as good as it gets and that it’s peak auto,” said David Whiston, a Morningstar Inc. analyst who has a buy rating on the stock. “It’s frustrating because GM doesn’t deserve to be down this much.”
Barra told analysts: "We are working hard to make sure the core business is operating in a very disciplined fashion" while the company invests in future technology such as self-driving cars.
"GM will say our inventories are fine and our incentives are great," said Matthew Stover, automotive analyst with Susquehanna Financial in Boston. "The truth is their inventories are among the highest in the industry."
GM’s North American margins declined to 11.2 percent from 11.8 percent a year ago. But revenue for the region rose 12 percent to $31.1 billion.
Its earnings were boosted by a $110 million recovery of costs related to its 2014 ignition-switch recalls.
The automaker said it now expects full-year earnings to be “at the high end” of its previous projections of $5.50 to $6 a share, or roughly $8.5 billion to $9.3 billion.
GM’s earnings in the first nine months of the year totaled $7.59 billion, more than double the $3.42 billion posted in the same period of 2015.
GM CFO Chuck Stevens said the automaker generated enough cash to complete a $5 billion share buyback one quarter sooner than planned.
Despite the strong quarter overall, Stevens said the automaker was now unlikely to meet its goal of breaking even in Europe this year because of fallout from the United Kingdom’s June vote to leave the European Union.
Stevens said that a $142 million third-quarter loss in Europe -- narrowing from a loss of $231 million a year earlier -- included a $100 million hit from the so-called Brexit vote and that fourth-quarter earnings would be cut by $300 million.
“Breaking even this year is going to be very, very challenging,” Stevens told reporters at GM’s headquarters this morning. “We’re going to take a look across the business and take whatever action is necessary to get the business back on track.”
In North America, Stevens said GM expects to maintain margins of at least 10 percent even as the U.S. market flattens out and competition intensifies.
Said Stevens: “We’re entering the heart of our product-launch cadence.”
North America’s dominance in GM’s results was evident in a breakdown of the $4.0 billion increase in its revenue.
More than half of the increase -- $2.2 billion -- came from higher volume, which in turn was driven by higher wholesales in North America offset in part by fewer wholesales in international operations.
A more favorable mix of sales added another $800 million. That was again led by North America, mainly due to full-size trucks, the Cadillac CT6 and a decrease in off-lease rental car sales.
Favorable pricing, primarily in North America, contributed another $600 million, and GM Financial, which operates overwhelmingly in North America, added another $800 million.
Those increases were offset by a $400 million decrease in revenues due to foreign exchange, primarily on the British pound, Mexican peso and Argentine peso.
Reuters, Bloomberg and James Treece contributed to this report.
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