Please ensure Javascript is enabled for purposes of website accessibility

The Market Rewards General Motors' Record Profits With a 4% Sell-Off

By Daniel Miller - Feb 6, 2016 at 4:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Wall Street doesn't seem to care that General Motors' thumped analyst estimates by a landslide.


SUVs and trucks continue to power profits for Detroit automakers. Image source: General Motors.

This week marked the continuation of a couple of trends within the automotive industry. First, General Motors (GM 3.54%) continued the trend of Detroit automakers' posting of strong profits thanks to high sales of SUVs and full-size trucks during 2015. GM's EBIT-adjusted figure reached $2.8 billion during the fourth quarter, which was a record fourth-quarter performance and helped drive a record full-year EBIT-adjusted number of $10.8 billion.

The other trend that continued today was that Wall Street continues to despise automotive stocks, despite record profits, and General Motors' stock price promptly declined about 4% during the company's conference call. Let's dig into some of the fourth-quarter and full-year highlights.

Starting from the top
General Motors' global deliveries increased 4.4% during the fourth quarter thanks to retail sales that increased 14.2% in China and deliveries that rose 8.6% in North America. That would have equated to a $2.4 billion increase in GM's top-line global revenue during the fourth quarter, except it was offset by unfavorable foreign currency exchange -- GM's fourth-quarter revenue was flat year over year at $39.6 billion.

For the full year, the negative net foreign currency exchange impact was a whopping $9.3 billion, bringing GM's full-year revenue to $152.4 billion from 2014's $155.9 billion. However, holding exchange rates constant, GM's net revenue in 2015 would have increased by $5.8 billion over 2014 levels.

As previously mentioned, GM's fourth-quarter EBIT-adjusted number was a record $2.8 billion, driven by an EBIT-adjusted margin of 7%, which was also a fourth-quarter record. Excluding one-time items, GM's diluted earnings per share checked in with a 17% increase to $1.39 during the fourth-quarter, which was far stronger than the average analyst estimates of $1.20 compiled by Bloomberg.

Even better for investors is that GM continues to return value to shareholders. GM handed over roughly $5.7 billion to shareholders in 2015 -- $3.5 billion from its share repurchase program and $2.2 billion in common stock dividends.

GM also remained on track to generate roughly $5.5 billion of efficiencies by 2018, and management noted that it achieved non-raw-material and logistics cost savings in excess of $2 billion last year. It's important for investors to keep an eye on this, as the savings are expected to offset brand and technology investments going forward.

Beyond the numbers
Looking past the quarterly figures, which were certainly strong, GM's four brands performed well globally. Chevrolet grew its retail share faster than any other full-line automotive brand in the U.S. in 2015, with retail sales increasing 9%. General Motors also regained its No. 1 position in China, with retail sales increasing 5% to a record 3.6 million units last year. Cadillac sales managed to post an 8% sales gain globally last year, compared with 2014, driven by strength in its two critical markets: the U.S. and China. Lastly, Buick set its global sales record for the third consecutive year, partly driven by selling a record number of crossovers in the U.S. market.

What's next?
Despite posting a solid fourth-quarter and extremely strong full-year results, the market refuses to give any love to GM, or any automotive stock for that matter. That's primarily because investors are concerned that new vehicle sales in North America are peaking, and since North America drives the profits for automakers, it's a primary concern.

With that said, perhaps the most important takeaway from GM's fourth-quarter presentation was its argument that sales in North America could plateau at strong levels for years, similar to what happened in the early 2000s, rather than peak and decline significantly. GM suggests that a plateau of around 17 million vehicles annually would create a very healthy industry that would continue to drive high profitability in the years ahead.

Only time will tell, but hopefully for automotive investors, GM's plateau argument proves true and automakers begin to trade at more respectable multiples during this era of record-setting profitability.

Daniel Miller owns shares of General Motors. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

General Motors Company Stock Quote
General Motors Company
GM
$37.91 (3.54%) $1.29

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
373%
 
S&P 500 Returns
122%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/10/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.