"You're welcome" is what General Motors (NYSE:GM) should be telling the rest of the automotive industry. GM's great third-quarter results last week not only boosted its own stock, it pulled along the likes of Honda, Toyota, Nissan, and Ford. Heck, even the much-maligned Volkswagen stock moved higher.
GM posted strong results in its key North America region as cheaper gas prices fueled sales of profitable full-size trucks and SUVs. Let's take a look at just how lucrative GM's third quarter was for investors, and at a couple of important takeaways.
Show me the money!
Starting with top-line revenues, GM checked in with $38.8 billion in the third quarter, which was a decline from last year's $39.3 billion. Investors need to consider that this year's result would have been roughly $2.3 billion higher if currencies had remained constant.
GM's EBIT-adjusted moved 37% higher, from $2.3 billion during last year's third quarter to a quarterly record $3.1 billion in this year's third quarter. Furthermore, GM's EBIT-adjusted margin moved up a staggering 220 basis points, to 8%. For additional context, here's how those results look compared to recent history.
GM's total results were driven largely by the success in North America, where the automaker posted a second-consecutive quarterly record of $3.3 billion EBIT-adjusted. Fueling that performance was the region's very strong 11.8% EBIT-adjusted margins, also a quarterly record, and the ninth-consecutive quarter of year-over-year margin improvement based on core performance.
Here's the kicker: In part because of this strong third-quarter performance, GM expects to reach 10% EBIT-adjusted margins in North America for the full year. Not only is that ahead of schedule, it's also in spite of the fourth quarter, which is historically tougher on margins because of a seasonal decline in production and increased launch costs.
Beyond GM's success in North America, there were additional takeaways for investors to consider.
One takeaway that caught my eye was GM Financial, which posted a quarterly net revenue record of $1.7 billion in the third quarter. The thing that caught my eye was the sizable increase in GMF as a percentage of total GM retail sales, moving from 22% to 35% in the third quarter compared to last year. Most of that gain was fueled by GMF's increased presence with GM dealers in North America, where GMF's percentage of retail sales nearly tripled, from 11% to 32% in the third quarter compared to last year.
Also, GM continued to return value to shareholders, spending $2.9 billion to repurchase roughly 86 million shares, and has also dished $1.7 billion back to investors through dividends. That puts GM more than halfway through completing its previously announced $5 billion repurchase plan that is expected to be completed by the end of next year.
GM's adjusted automotive free cash flow increased to $0.8 billion in the third quarter, which was a turnaround from last year's negative $0.8 billion in the 2014 third quarter. A large part of that was due to timing, as the automaker had one less regularly scheduled supplier payment cycle during the third quarter. Investors should also note that the adjusted automotive free cash flow figure was affected by a $0.9 billion payment to the Department of Justice.
GM's third quarter makes it clear that the company will generate strong earnings in the current environment of cheaper fuel prices, increased fuel economy for larger SUVs and full-size trucks, and easily available credit for consumers. That, in combination with GM's share repurchase plan, should fuel double-digit earnings gains over the near term.