General Motors (GM 8.35%) said that it earned $2.5 billion in net income in the third quarter, a strong result driven by good sales of trucks and crossovers in North America and a surprisingly good profit from China.
Excluding one-time items, GM earned $1.87 per share, up 41.7% from the third quarter of 2017. Revenue of $35.8 billion was up 6.4% from GM's year-ago result. Both results handily beat estimates: Wall Street analysts polled by Thomson Reuters expected adjusted earnings per share of $1.26, on average, on revenue of $34.84 billion.
GM earnings: The raw numbers
|Metric||Q3 2018||Change vs. Q3 2017|
|EBIT-adjusted margin||8.8%||1.3 ppts|
|Net income||$2.5 billion||--|
|Adjusted automotive free cash flow||$396 million||$1.3 billion improvement|
|Adjusted earnings per diluted share||$1.87||41.7%|
GM's third quarter in a nutshell
"We had strong execution despite the challenges we faced," CFO Dhivya Suryadevara said in an early morning media briefing shortly after GM's results were released. "Revenues up, profits up, margins up."
Suryadevara said that GM was able to more than offset the higher commodity costs that have hurt some of its rivals with stronger pricing, mostly in North America. In China, an improved "mix" of products sold -- a higher proportion of crossovers and Cadillacs -- gave GM's margin a boost that more than offset the effects of a decline in overall sales.
How GM's business units performed
Here's a look at how each of GM's principal business units performed. Except as noted, all of the profit numbers in this section are presented on an EBIT-adjusted basis.
- GM North America earned $2.83 billion, up 37% from a year ago, on an 11% jump in wholesale shipments driven largely by its all-new Chevrolet Silverado and GMC Sierra pickup trucks. GM reduced its incentive spending by about $500 per vehicle in the quarter, helping to boost its margin in the region to 10.2% from 8.3% a year ago.
- GM's International Operations unit, which includes its vast China operation, earned $139 million in the third quarter, down from $389 million a year ago. While China performed well, generating $485 million in equity income (up 5.7%), the unit's overall results were hurt by foreign exchange -- particularly the devalued currencies in Brazil and Argentina.
- GM Cruise, the self-driving subsidiary, lost $214 million versus a loss of $165 million a year ago. That's not a surprise: Cruise is working toward a deployment of self-driving taxis that is expected to begin next year; it will be spending more than it earns for at least several more quarters.
- GM Financial, the company's captive-financing unit, earned $498 million in pre-tax profit. That's an increase of 61% from a year ago and a record quarterly result, driven by healthy portfolio growth. Credit performance remained stable, with the ratios of charge-offs and delinquencies both slightly down from the year-ago period.
Suryadevara said that the recent strong performance of GM Financial had led the subsidiary to initiate an ongoing dividend payment to GM. The first payment will happen in the fourth quarter, when GM Financial will pay a $375 million dividend to GM -- retaining some of its third-quarter profit to expand its lending base.
Special items, cash, and debt
GM took a one-time charge of $440 million related to its 2014 ignition-switch recall scandal. In September, a U.S. district court judge dismissed criminal charges that had been brought against GM in 2015 for actions related to the scandal.
GM had $18 billion in cash available to its automotive business as of September 30, and another $1.8 billion available to its GM Cruise subsidiary. It had an additional $14.1 billion in available credit lines, for total "automotive liquidity" of $33.9 billion -- a hefty reserve intended to fund product-development efforts through a recession, and well within GM's targeted range of $30 billion to $35 billion.
Against that reserve, GM had $16 billion in well-structured long-term debt as of September 30, up from $13.5 billion as of the beginning of 2018.
Looking ahead: GM's full-year guidance
GM reiterated the revised guidance it provided in July. For the full year, it expects:
- Adjusted earnings of about $6 per share in 2018 (2017 result: $6.62).
- Adjusted automotive free cash flow of $4 billion, excluding GM Cruise (2017: $5.2 billion).
- "Significant" year-over-year profit growth in GM Financial (2017: $1.2 billion).
- EBIT-adjusted margin in North America between 9% and 10% (2017: 8.8%).
But the guidance reiteration came with some optimism. Suryadevara said that thanks to GM's strong operating performance through the first three quarters, and a favorable outlook for the company's tax rate, the company's adjusted earnings per share could exceed its guidance. Through the first three quarters of 2018, GM earned $5.11 per share on that basis.