The Buick Envision SUV, new last year, helped power a strong profit gain for GM in China's slowing market. Image source: General Motors.
General Motors Company (GM 4.45%) reported its fourth-quarter and full-year 2015 earnings before the bell on Feb. 3. Here's what investors need to know.
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% |
GM CFO Chuck Stevens noted that the company's year-over-year decline in revenue was more than explained by unfavorable exchange-rate shifts. In constant dollars, GM's full-year 2015 revenue would have totaled $161.4 billion, up almost 4% year over year.
What happened at GM around the world during the quarter
Simply put, GM is taking full advantage of a worldwide boom in sales of trucks and SUVs, particularly car-based "crossover SUVs."
In North America, GM earned $2.77 billion before taxes in the fourth quarter, up 26% from a year ago, on increased sales of high-profit pickups and SUVs. U.S. sales of GM's full-size pickups jumped 9.6% during the quarter, and sales increases for important crossover SUV models like the Chevrolet Equinox and Traverse significantly outpaced the overall market's gains.
In China, the story was different -- but similar. China's new-vehicle market slowed significantly in 2015, but GM was able to buck the trend thanks in large part to two strong new crossover SUVs at opposite ends of the market. The inexpensive Baojun 560 and premium Buick Envision both turned out to be big hits for GM. GM earned $579 million in equity income from its China joint ventures during the quarter, up 12% from a year ago.
GM's Buick Envision was a big success in China in 2015. GM will import the Envision to the U.S. starting later this year.
On the other hand, Europe and South America continue to be challenges for GM. GM Europe lost $298 million during the fourth quarter, but that was a $95 million improvement over year-ago results. The company's decision to shut down its operations in Russia is hurting the year-over-year comparisons, but GM is getting real gains in Europe from better pricing on new products and continued good cost discipline.
In South America, where rivals including Ford (F 2.19%) have posted big losses amid severe recessions in key markets including Brazil and Argentina, GM lost $47 million in the fourth quarter, down from a $119 million profit a year ago. The drop was more than explained by lower industrywide sales volumes and unfavorable exchange-rate swings, and offset to some extent by the price increases that GM was able to make in markets hit by inflation.
GM's in-house financing arm contributed $167 million to the company's pre-tax earnings in the quarter, up 40% from a year ago.
What management had to say
"It was a strong year on many fronts, capped with record sales and earnings, and a substantial return of capital to our shareholders," Barra said in a statement. "We continue to strengthen our core business, which is laying the foundation for the company to lead in the transformation of personal mobility. We believe the opportunities this will create in connectivity, autonomous, car-sharing and electrification will set the stage for driving value for our owners for years to come
GM's cash and debt positions as of year-end
GM ended the year with $20.3 billion in cash and another $12.2 billion in available credit lines, and with $8.8 billion in well-managed long-term debt. GM's cash was down by $4.9 billion from a year ago, as the company kept CEO Mary Barra's promise to return cash in excess of its $20 billion reserve target to shareholders. GM paid out $2.2 billion in common-stock dividends in 2015 and spent another $3.5 billion on its share-repurchase program.
What's ahead for GM
GM CFO Chuck Stevens reiterated the company's upbeat guidance for 2016. GM expects improved pre-tax earnings, margin, and free cash flow, with earnings per share (excluding special items) expected to fall between $5.25 and $5.75 for the full year. GM earned $5.02 per share on the same basis in 2015, up 65% from 2014 -- but note that GM's ongoing program of buying back its shares could account for some of its expected per-share profit increase.
