General Motors' Profit Crushed Wall Street's Estimate Despite the Chip Shortage

General Motors (GM 2.11%) surprised Wall Street with a first-quarter net profit of $3 billion, up from just $294 million a year ago, despite a series of production disruptions amid a global semiconductor shortage.  

On a per-share basis, excluding one-time items, GM earned $2.25 per share in the first quarter, crushing the $1.04 per-share average estimate from Wall Street analysts surveyed by Thomson Reuters. GM's revenue, $32.5 billion, was roughly in line with estimates -- a sign that Wall Street underestimated GM's ability to generate a strong profit margin amid the chip shortage. 

On a similar note, GM also said that it now expects its full-year pre-tax profit to hit the high end of its guidance range.

What GM said about the chip shortage

In a letter to shareholders, CEO Mary Barra cited "the speed and agility of our team" as a key factor in GM's ability to navigate through the chip shortage relatively unscathed. 

"Our supply chain and manufacturing teams are maximizing production of high-demand and capacity-constrained vehicles," Barra wrote. "Our engineering teams are creating effective alternative solutions, and our sales teams, together with our dealers, are finding creative ways to satisfy customers despite lean inventories."

Barra said that while GM does expect to have more production cuts in the current quarter, it still expects its overall first-half results to be quite strong. She also reiterated GM's prior guidance for the full year, which calls for an adjusted operating profit between $10 billion and $11 billion -- and said that the company now expects its result to come in at the "higher end" of the range.

GM has prioritized production of the all-new versions of its biggest SUVs. That helped drive a very strong profit in the first quarter, despite revenue that was down slightly year over year. Image source: General Motors.

Highlights of GM's first-quarter result

• As expected, GM's North America unit benefited as the chip shortage forced the company to prioritize production of high-profit pickups and SUVs for retail customers -- and as industrywide shortages ensured that GM could sell all the trucks it could make at strong prices. The unit generated $3.13 billion in adjusted earnings before interest and tax ("EBIT-adjusted," in GM speak), up from about $2.2 billion in the first quarter of 2020. 
• GM's EBIT-adjusted margin in North America, a widely watched figure, was a stout 12.1%, up from 8.5% a year ago.
• GM International, the company's rest-of-the-world unit, generated EBIT-adjusted of $308 million, versus a loss of $551 million a year earlier. Much of the difference was attributable to improvements in China, which was effectively shut down for much of the first quarter of 2020 as the initial outbreak of COVID-19 peaked in that county. 
• GM's equity income from its joint ventures with Chinese automakers was $308 million, up from a loss of $167 million a year ago.
• Cruise, GM's self-driving subsidiary, posted an EBIT-adjusted loss of $229 million, versus a loss of $228 million a year ago. Cruise has hit several important milestones in recent months, but it isn't yet generating any meaningful revenue. 
• GM Financial, the company's financial-services subsidiary, generated adjusted pre-tax profit of $1.18 billion, up from $230 million a year ago. Better auction prices for returned leased vehicles, plus the recovery in China, was most of the story here.

Cash, debt, and special items

As of March 31, GM had $19 billion in cash, plus another $18.2 billion in credit lines available to its automotive businesses, for total "automotive liquidity" of $37.2 billion. Against that, it had a total of $17.6 billion in debt attributable to its automotive business, up slightly from the end of 2020. 

GM took no significant special items in the first quarter of 2021. A year ago, it booked $489 million in one-time charges related to restructuring in Australia, New Zealand, and Thailand. 

Looking ahead: GM reiterated its 2021 guidance with an upbeat note

As I mentioned above, GM reiterated the full-year guidance it provided in February, with a new note that it now expects its results to come in at the high end of the ranges. For reference, here's what GM told auto investors to expect in 2021:

• EBIT-adjusted between $10 billion and $11 billion. (2020 result: $9.7 billion.)
• Adjusted earnings per share between $4.50 and $5.25. (2020: $4.90.)
• Adjusted automotive free cash flow between $1 billion and $2 billion. (2020: $2.6 billion.)

That guidance includes GM's current estimate of the net impact of the ongoing semiconductor shortage, $1.5 billion to $2 billion of EBIT-adjusted, and $1.5 billion to $2.5 billion of adjusted automotive free cash flow. But, GM said, the chip shortage will not affect its electric-vehicle and longer-term growth plans, and the company will continue to prioritize production of pickups, its new full-size SUVs, and electric vehicles in the near term.

GM reiterated that its upcoming wave of electric vehicles, including the GMC Hummer EV, remain on schedule despite the chip shortage. Image source: General Motors.

The raw numbers

Data source: General Motors. EBIT = earnings before interest and tax. "Adjusted" figures exclude one-time special items and are used to facilitate year-over-year comparisons. "Automotive" items exclude results related to GM Financial.