General Motors: $2 Billion Profit on Strong Truck Sales

General Motors (GM 1.98%) reported net income of $2 billion for the fourth quarter of 2018, as strong sales of crossovers and pickups in the U.S. helped offset restructuring costs and losses abroad.

Excluding one-time items, GM reported earnings of $1.43 per share, down 13% from the year-ago period but well ahead of the $1.22 consensus Wall Street estimate. 

For the full year, GM reported net income of $8.1 billion and adjusted earnings per share of $6.54.

GM earnings: The raw numbers

Data source: General Motors. EBIT is earnings before interest and taxes. "Adjusted" figures exclude one-time items. Ppts = percentage points. Adjusted automotive free cash flow for the full year (2018) includes the impact of pre-funding payments to some of GM's pension portfolios; excluding that impact, GM's adjusted automotive free cash flow would have been $4.4 billion, down from $5.6 billion in 2017.

Good sales of the all-new 2019 Chevrolet Silverado and GMC Sierra in North America helped offset weak results internationally. Image source: General Motors.

GM's fourth quarter in a nutshell

GM's profit in the fourth quarter was driven by the North America unit and the financial-services arm, thanks to strong sales of GM's new pickup trucks and its still-fairly-new crossover SUVs, as well as GM's success in expanding its leasing and lending business around the world. 

GM managed a good result despite several challenging headwinds: rising commodity costs, a slumping new-car market in China, and inflation pressures and currency devaluations in South America. 

Check out the latest GM earnings call transcript. 

How GM's business units performed

Below are results for each of GM's principal business units. Except as noted, all of the profit and loss numbers in this section are presented on an EBIT-adjusted basis. 

• GM North America earned $3.04 billion, up from $2.88 billion a year ago, despite a 2.1% decline in wholesale shipments. GM's all-new Chevrolet Silverado and GMC Sierra sold well at strong prices, offsetting a rise in costs driven by higher prices for aluminum and steel. GM's margin in North America was a healthy 10.2%, up 0.2 percentage points from the fourth quarter of 2017.
• For the full year, GM earned $10.77 billion in North America, down 9.4% from a year ago, with an EBIT-adjusted margin of 9.5%. 
• GM's International Operations unit, which includes its vast China operation, lost $48 million in the fourth quarter, down from a $416 million profit a year ago, on currency devaluations in South America and a drop in sales in China. GM's sales in China fell 25.4% in the quarter as the broader market slumped; equity income from GM's joint ventures with Chinese automakers fell to $307 million from $504 million a year ago. 
• For the full year, GM International Operations earned $423 million, down from $1.3 billion a year ago. 
• GM Cruise, the self-driving subsidiary, lost $194 million versus a $158 million loss a year ago. GM ramped up its investment in Cruise to fund an expansion of its engineering team as the unit aims to roll out its self-driving taxi service later this year. 
• For the full year, GM Cruise lost $728 million, versus $613 million in 2017.
• GM Financial, the company's captive-financing arm, earned $416 million in the fourth quarter, up from $301 million in the year-ago period. The story is growth: GM Financial provided loans or leases in 54% of GM's retail sales around the world, up from 34% a year ago. 
• For the full year, GM Financial earned $1.89 billion, up from $1.19 billion in 2017.

Special items, cash, and debt

GM took a one-time charge of $1.33 billion in the fourth quarter for "transformation activities" related to the restructuring effort in North America that it announced in November of last year. Much of that charge went to cover the costs of employee separations and accelerated depreciation, GM said. 

As of Dec. 31, 2018, GM had $19.6 billion in cash, unchanged from a year prior, and an additional $14.2 billion in lines of credit, for $33.8 billion in total liquidity available to its automotive business. Against that, GM had $14 billion in well-structured long-term debt, up from $13.5 billion at the end of 2017.

GM also issued its annual update on its pension funding status. GM said that while its U.S. pension, non-U.S. pension, and OPEB ("other post-employee benefits") portfolios are all still underfunded, they are all better funded than at any time since GM emerged from bankruptcy in 2009. 

Data source: General Motors. 

Looking ahead: GM's guidance for 2019

GM's guidance for 2019 is unchanged from the presentation it gave to investors in January. It still expects full-year adjusted earnings per share between $6.50 and $7, and adjusted automotive free cash flow of between $4.5 billion and $6 billion.