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GM sold a lot of high-profit trucks and SUVs during the fourth quarter, and not just in the United States. But there's more to GM's very good 2015 story, as CEO Mary Barra positions the General for a strong future.
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Big sales of big SUV's like the GMC Yukon XL were an important part of GM's profit story in 2015. But GM's success goes well beyond big trucks and SUVs. Image source: General Motors
General Motors (GM +0.00%) said on February 3 that it earned a net profit of $6.3 billion in the fourth quarter, as a record profit from operations got an extra boost from a one-time accounting adjustment.
Excluding that accounting adjustment and other special items, GM earned $1.39 per share, up 17% from a year ago and well ahead of the $1.21 per-share Wall Street estimate.
GM earnings: The key numbers
Financial results are in billions of dollars. Negative results are in parenthesis.
| Q4 2015 | Q4 2014 | Full year 2015 | Full year 2014 | |
| Revenue | $39.6 | $39.6 | $152.4 | $155.9 |
| EBIT-adjusted | $2.8 | $2.4 | $10.8 | $6.5 |
| EBIT-adj margin | 7% | 6.1% | 7.1% | 4.2% |
| Net income | $6.3 | $1.1 | $9.7 | $2.8 |
| Adjusted free cash flow | $(0.3) | $1.8 | $2.2 | $3.1 |
| Return on invested capital | 27.2% | 15.4% | 27.2% | 15.4% |
How GM's business units performed during the quarter
It was a record quarter and a record year for GM in terms of pre-tax earnings and margins, CFO Chuck Stevens told reporters in a conference call on Wednesday morning. That record profit came despite GM's revenue results: Revenue was flat for the fourth quarter and down year-over-year for the full year. Stevens said that the year-over-year decline was more than explained by unfavorable exchange-rate swings. Had exchange rates been constant, Stevens said, GM's net revenue in 2015 would have been $161.7 billion, up almost 4% over its 2014 result.
GM's record profit was powered by very strong results in North America and year-over-year improvements in Asia and Europe. In North America, GM earned $2.77 billion before taxes in the fourth quarter, up from $2.2 billion a year ago. That was powered primarily by sales gains, as GM sold about 64,000 more vehicles -- and much of that increase was made of highly profitable pickups and SUVs. GM's average transaction prices in the U.S. were up almost $500 per sale versus the fourth quarter of 2014.
GM Europe posted a pre-tax loss of $298 million, a $95 million improvement over last year's result. GM's decision to shut down its operations in Russia continues to impact its year-over-year sales and market-share comparisons. But GM Europe is making progress: New products have helped boost pricing, and costs are down versus a year ago. GM Europe has posted annual losses for over a decade, but the company anticipates that it will break even in 2016.
GM's International Operations unit includes its vast Chinese presence. The unit earned $408 million during the fourth quarter, up from $396 million a year ago. GM was once again the market leader in China in 2015, as hot-selling new SUVs (including the Buick Envision, below) helped power it past longtime rival Volkswagen (VLKAY +0.01%). GM is also stealing market share from VW with affordable small cars like its China-designed Chevrolet Sail, helping it post gains in a slowing market. Equity income from GM's joint ventures in China totaled $579 million during the quarter, up from $516 million a year ago.
The new Buick Envision SUV was a big hit for GM in China even as the world's largest auto market slowed. The Envision is coming to the U.S. -- from China -- in 2016. Image source: General Motors
GM's operation in South America is suffering from the same challenging economic conditions that hurt rival Ford's (F 0.02%) result in the region. Severe recessions in key markets like Brazil and Argentina have hammered new-car sales. GM South American lost $47 million in the fourth quarter, versus a $119 million profit a year ago. The drop was more than explained by lower sales volumes and a drop in value of the Brazilian Real, Stevens said, offset somewhat by the aggressive price increases that GM made to stay ahead of high local inflation rates.
GM Financial, the company's in-house financing operation, made $167 million during the fourth quarter, up from $119 million a year ago. Its credit performance continues to be stable in both its U.S. and overseas operations, GM said.
GM's free cash flow
GM's "adjusted automotive free cash flow" (the free cash flow related to GM's core automaking business, not including its financial-services unit) dropped to a net outflow of $289 million during the quarter, from a positive $1.8 billion a year ago. That change was driven by several major expenses that hit GM during the quarter, including about $400 million for ratification bonuses due under its new U.S. labor agreement, litigation settlements (related to GM's 2014 recall scandal) of about $300 million, and capital expenditures that were about $500 million higher than a year ago.
For the full year, GM generated a positive $3.1 billion in automotive free cash flow, up from $2.2 billion in 2014.
GM's debt and liquidity
GM ended 2015 with $20.3 billion in cash, down from $25.2 billion a year ago. That drop isn't a bad thing: GM's target for its cash reserve is $20 billion on an ongoing basis. CEO Mary Barra has committed to returning cash above that level to GM's shareholders, and GM lived up to that commitment in 2015: It paid out about $2.2 billion in shareholder dividends in 2015, and spent another $3.5 billion repurchasing shares of its common stock.
GM's debt stood at $8.8 billion as of the end of 2015, down from $9.4 billion a year ago. This is well-structured long-term debt, not a problem for GM.
The upshot: GM continues to impress
2015 was an excellent year for GM, for reasons that go far beyond strong truck and SUV sales in the U.S. The General managed to generate a strong profit in China despite a slowing market, it's making progress in Europe, and it continues to make well-thought-out changes to structure its overall business for long-term profitability. GM's share price has yet to reflect the huge improvements that have been made under CEO Mary Barra, but I continue to think that it will in time.