General Motors' (GM 1.80%) executives are all absolutely professional, but it's fun to imagine GM CEO Mary Barra rushing into the GM conference room and spiking a football in celebration with the ferocity that Rob Gronkowski does nearly every Sunday -- and with the third-quarter performance GM posted, nobody would have blamed her.
GM crushed its third quarter, with earnings-per-share rising 55% to $1.50, excluding special items, and its EBIT-adjusted soaring 37% from $2.3 billion to $3.1 billion in the third quarter compared to last year.
"The third quarter was evidence of the earnings power of this company, as we continue to build on our track record for generating results and delivering on our financial commitments," said Chuck Stevens, GM executive vice president and chief financial officer, in a press release. "We expect our earnings to accelerate in the next several years, with double-digit earnings-per-share growth."
Looking beyond GM's excellent top- and bottom-line figures, let's dig into three other key takeaways for investors.
Overlooked potential
One development that is intriguing for GM investors is the potential GM Financial has to fuel growth down the road.
Image source: General Motors investor presentation.
In the third quarter, GMF's EBIT-adjusted increased to $231 million, compared to last year, on record quarterly net revenue of $1.7 billion. While GMF's total earnings for the full year will be roughly equal to last year's performance, earnings should move higher in the coming years as GMF continues to increase its sales penetration of GM's retail sales.
For instance, GMF financed 22% of GM's retail sales units in the third quarter of 2014, but that figure soared to 35% during this year's third quarter. Much of that gain was fueled by GMF's increased presence at GM dealers in North America, where GMF as a percentage of GM retail sales units nearly tripled from 11% to 32% in the third quarter compared to last year.
Reduced obligations
Another bright spot for investors was found on General Motors' balance sheet. General Motors still has plenty of liquidity in the event of a sudden downturn, with nearly $22 billion in cash and current marketable securities as well as $12.2 billion available from credit facilities. The bright spot for investors, though, is that GM has continued to reduce its key obligations in addition to returning value to shareholders.
Through the first three quarters of 2015, GM's automotive debt has declined from $9.4 billion to $9.1 billion -- a small but positive movement. The biggest change was in GM's underfunded pension status, where its U.S. pension obligation declined roughly $600 million through the first three quarters of 2015, down to $10.3 billion, and GM's non-U.S. pension obligation declined from $13.1 billion at the end of 2014 down to $11.5 billion at the end of the third quarter.
While GM made progress paying down its obligations, it also returned value to shareholders by repurchasing $2.9 billion worth of shares during the first three quarters as well as paying out $1.7 billion in dividends.
Doom and gloom?
One last takeaway for investors remains a major concern for automakers over the near-term: China. CFO Stevens put it nicely: "China has not fallen off a cliff as everyone expected."
General Motors' results in its International Operations segment was fueled by China, where the automaker posted a strong $500 million in equity income from its joint ventures and a net income margin of 9.8%, a 20-basis-point increase year over year. That all happened despite a 4% decline in sales, mostly reflecting the importance of GM's newly launched and higher-priced SUVs.
Sure, industry analysts and executives will agree that China's automotive market is maturing and that double-digit growth is a thing of the past. However, China is still the world's largest automotive market and will likely post annual growth of 3% to 5%. The kicker is that GM is focusing on launching vehicles in specific segments that should nearly double the country's overall growth.
Image source: General Motors Global Business Conference Call.
Ultimately, GM's third quarter was a very strong performance. Investors should remain optimistic that GM continues to be a very valuable investment in the automotive industry as it improves its balance sheet, accelerates GMF's earnings potential, and focuses on producing highly profitable vehicles in its two critical markets, the U.S. and China.
