GM predicts 'strong year' in 2017 after earnings, margins fall in Q4

DETROIT -- General Motors' earnings and profit margins declined in the fourth quarter, but its CFO said the automaker would have “another strong year” in 2017 even as the U.S. market gets tougher. Achieving that goal could mean more production cuts in the months ahead to avoid heavy discounting on slow-selling cars.

GM is projecting margins of more than 10 percent in North America for a third consecutive year as it introduces redesigned versions of high-volume crossovers at a time when demand in those segments keeps surging. At the same time, it forecasted continued losses in Europe, with 2018 now marking the first chance to break even.

For GM's full Q4 report, click here.

In the fourth quarter, GM’s adjusted earnings, before interest and taxes, fell 14 percent to $2.4 billion, and global margins declined to 5.4 percent from 7 percent in 2015. Revenue rose 11 percent to $43.9 billion, but net income fell 71 percent from the same period a year ago, when the company recorded a $4 billion accounting gain related to Europe.

In North America, fourth-quarter profit fell 5.5 percent, and the operating margin was 8.4 percent, down from 10 percent in the same period of 2015. A 34 percent increase in U.S. inventories during the course of 2016 underscores the challenges it’s facing in maintaining such strong results as the market flattens out and consumer demand keeps shifting away from cars.

GM's results beat most Wall Street estimates, however its shares fell 4.7 percent to close at $35.10. 

'Very disciplined' 

GM CFO Chuck Stevens declined to discuss the potential for more production cuts but said the company would take such action whenever it sees a need and that he expects inventories to moderate as the year goes on. GM eliminated shifts at two U.S. plants in January and plans to cut output at a third plant in March, in addition to scheduling weeks of temporary downtime.

“We’ll continue to be very, very disciplined on aligning supply and demand,” CFO Chuck Stevens told reporters at GM’s headquarters this morning. “We will react to the market dynamics.”

For all of 2016, GM’s profit margins and revenue climbed to a post-bankruptcy record. Net income for the year declined 2.7 percent.

GM generated a 2016 record $12 billion profit in North America, 9.3 percent more than a year ago. The gain, even as its U.S. market share slipped, is validation of GM’s strategy to focus on retail sales while cutting less-lucrative deliveries to rental-car companies.

The North American profit means GM’s 52,000 hourly workers will receive profit sharing checks of up to $12,000, which is $1,000 more than last year and $3,000 more than Ford workers are getting.

GM shrank its losses in Europe by two thirds and in South America by 40 percent, while other international operations fell to $1.1 billion.

“By almost any measure, 2016 was a great year for our business and I am confident we can achieve even stronger results,” GM CEO Mary Barra said in a statement. “We’ll work to build on our momentum, while continuing to drive our company to innovate and shape the future of mobility.”

For the full year, GM posted global net income of $9.4 billion, down from $9.7 billion in 2015. Adjusted earnings, before interest and taxes, rose 16 percent to $12.5 billion, as revenue rose 9.2 percent to $166.4 billion. Automotive-adjusted free cash flow more than tripled to $6.9 billion.

2017 outlook

Stevens said earnings in 2017 would be flat or up slightly from 2016, driven by more big numbers in North America.

“We have an extremely strong product launch cadence,” Stevens said. “We’ll be going from the oldest crossover lineup in the industry to the youngest.”

Stevens said GM expects its performance in Europe this year to be about even with its 2016 loss of $257 million, which was down from $813 million a year ago. He said executives are hopeful that GM could finally break even in Europe in 2018.

“We’re going to do everything we can to drive it in that direction,” Steven said. He added that GM would have broken even in Europe last year but for the United Kingdom’s vote to leave the European Union.