General Motors (NYSE:GM) said that its third-quarter net income fell 8.7% from the third quarter of 2018 to $2.3 billion, a better-than-expected result after a nationwide strike shut down GM's U.S. factories in mid-September.

Excluding one-time items, GM earned $1.72 per share, well above the $1.31 average estimate from analysts polled by Thomson Reuters. Revenue of $35.5 billion, down 0.9% from a year ago, was also solidly above Wall Street's $33.82 billion estimate.

As expected, GM also cut its full-year guidance to reflect the effects of production lost during the strike.

The raw numbers

Metric Q3 2019 Change vs. Q3 2018
Revenue $35.5 billion (0.9%)
Global deliveries 5,684,871 (7.4%)
EBIT-adjusted $3.0 billion (5.9%)
EBIT-adjusted margin 8.4% 0.4 ppts lower
Net income $2.3 billion (8.7%)
Adjusted earnings per share $1.72 (8%)
Automotive operating cash flow $5.0 billion $2.5 billion higher
Adjusted automotive free cash flow  $3.8 billion $3.4 billion higher

Data source: General Motors. "EBIT-adjusted" is GM's non-GAAP expression of earnings before interest and taxes (EBIT) minus one-time items and with some other small adjustments. Automotive results exclude results related to GM's captive-financing subsidiary. Ppts = percentage points.

What was the impact of the strike?

Per GM, here is how the United Auto Workers' national strike against the automaker affected its third-quarter results:

  • Adjusted earnings per share would have been $0.52 higher had the strike not happened.
  • Adjusted automotive free cash flow would have been about $400 million higher.
  • GM North America's revenue would have been $3.3 billion higher.
  • GM North America's EBIT-adjusted would have been $1.3 billion higher.
A 2020 Chevrolet Silverado 2500HD, a heavy-duty full-size pickup truck, driving on a road with trees in the background

The all-new heavy-duty versions of the Chevrolet Silverado and GMC Sierra pickups helped push GM's margin higher in the third quarter. Image source: General Motors.

What else happened at GM in the third quarter?

Except as noted, all profit and loss figures in this section are presented on an EBIT-adjusted basis.

  • GM North America's EBIT-adjusted rose 7% from the third quarter of 2018 to $3.02 billion, despite a 5% decline in wholesale shipments. The region's revenue inched up 1.1% to $27.97 billion. The results reflect the strong sales and profitability of the company's all-new pickups, continued growth in crossover SUV sales, and the effects of an ongoing cost-reduction effort, offset somewhat by the impact of the strike and recall-related costs.
  • GM North America's EBIT-adjusted margin, a number that is closely followed by auto investors, was 10.8% in the third quarter versus 10.2% a year ago.
  • The company's equity income from its joint ventures with Chinese automakers fell to $282 million from $485 million in the prior-year period. That was not unexpected; GM's sales in China dropped 15.8% in the third quarter amid ongoing market weakness, though a more favorable mix of products sold helped offset the impact of the sales decline.
  • GM International posted a loss of $65 million, down from a profit of $139 million a year ago, on the decline in China equity income.
  • GM Cruise, the self-driving subsidiary, lost $251 million versus a loss of $214 million in the prior-year quarter. The company said that Cruise's spending continues to be "on plan" as it works toward the launch of its self-driving taxi service.
  • GM Financial, the financial-services subsidiary, generated adjusted pre-tax profit of $711 million, up sharply from $498 million in Q3 2018. The loan and lease portfolio is growing, while credit metrics remain solid (and are slightly improved from a year ago).

Special items, cash, and debt

GM took two special items totaling $267 million in the third quarter: a one-time charge of $390 million related to its restructuring efforts and a one-time credit of $123 million related to a favorable tax-related court decision in Brazil. GM took total charges of $440 million in the third quarter of 2018.

As of Sept. 30, 2019, GM had $20.7 billion in cash available to its automotive business, and an additional $16.5 billion in available credit lines, for total liquidity of $37.2 billion. That's up from $33.8 billion as of the end of 2018.

On the other side of the ledger, the automaker had $15.3 billion in long-term debt as of Sept. 30, versus $14 billion at the end of 2018. Its unfunded pension obligations stand at $5.7 billion, unchanged from the end of 2018.

Looking ahead: GM's guidance for 2019

As anticipated, the effects of the strike led GM to trim its full-year 2019 guidance. It now expects:

  • Earnings per share (GAAP) between $4.28 and $4.69. (2018 result: $5.58.)
  • Adjusted earnings per share between $4.50 and $4.80. (Prior guidance: Between $6.50 and $7.00. 2018 result: $6.54.)
  • Automotive operating cash flow between $5.5 billion and $7.5 billion. (2018 result: $11.7 billion.)
  • Adjusted automotive free cash flow between $0 and $1 billion. (Prior guidance: Between $4.5 billion and $6 billion. 2018 result: $3.8 billion.)