GM’s New Pickups Help Third-Quarter Profit Beat Estimates
General Motors Co. (GM), the largest U.S. automaker, rose the most in eight weeks after posting a third-quarter profit that beat estimates as demand for redesigned pickups and other models in North America made up for losses in Europe and in Asia outside of China.
Profit excluding one-time items was 96 cents a share, Detroit-based GM said today, exceeding the 94-cent average of 13 analysts’ estimates compiled by Bloomberg. Chrysler Group LLC, the third-largest U.S. automaker, reported a ninth straight quarterly profit today, and Volkswagen AG, Europe’s biggest car company, topped estimates on gains by the Porsche brand. GM rose 3.2 percent to $37.23 at the close in New York.
GM’s profit rose in North America, powered by new cars and trucks, such as the revamped Chevrolet Silverado pickup, Impala sedan and Cadillac cars. Booming sales of Buicks in China also spurred revenue growth. Less than five years after its government-financed bankruptcy, GM is dramatically improving its lineup and profitability.
“We’re in the very heart of the product launch activity right now and we’re going to build on the momentum that we’ve established here,” Chief Financial Officer Dan Ammann told reporters in Detroit. “We’re commanding good prices, we’re controlling costs.”
GM’s adjusted-EBIT margin rose to 9.3 percent in the third quarter in North America, the highest level since the third quarter of 2011 when it was 10 percent, according to the automaker.
GM’s share increase today was the most since Sept. 4. The shares have gained 29 percent this year, compared with a 24 percent rise for the Standard & Poor’s 500 Index.
Four analysts surveyed estimated that a surge in North America earnings would offset weaker performances in the rest of the world, particularly GM’s International Operations unit, which includes India and Southeast Asia where the automaker has faced expensive recalls and price competition from Toyota Motor Corp. (7203), respectively.
Companywide net income fell in the third quarter to $1.72 billion from $1.8 billion during the same quarter a year ago.
Revenue rose to $39 billion from $37.6 billion a year ago, missing the $39.4 billion average estimate of five analysts. North America adjusted earnings before interest and taxes rose to $2.19 billion from $1.72 billion compared with a year earlier. Adjusted earnings per share rose 3.2 percent compared with 93 cents a year earlier.
GM’s U.S. operations are benefiting from 18 new or refreshed products being introduced this year, including the Silverado, which hadn’t been redesigned since 2006. Large pickups are among GM’s most profitable vehicles. The automaker plans 14 more new vehicles in the U.S. next year, all part of its effort to transform the company’s lineup into one of the industry’s freshest from the among the oldest.
North American profitability was “pretty good,” Christian Mayes, an analyst at Edward Jones & Co. in St. Louis, said today in an e-mail. “Part of that was mix -- selling more profitable crossovers and trucks. Part of it was pricing -- higher prices outstripping incentives.”
Those products may help boost GM’s total 2013 earnings per share by 4 percent this year and double it by the end of 2016 compared with 2012, according to the average estimates of 13 analysts.
“What may initially seem like an uninspiring quarter may end up yielding greater confidence in the 2014 story,” Itay Michaeli, a Citigroup Inc. analyst, wrote in an Oct. 16 note to investors.
GM is transitioning out of its “Government Motors” phase since a 2009 bailout that left the U.S. the automaker’s largest shareholder.
The U.S. Treasury said in December that GM was buying back $5.5 billion worth of shares and that the government would sell off the rest of its stake within 15 months. In September, the Treasury said its ownership in GM had fallen to 7.3 percent from 32 percent in December. Chief Executive Officer Dan Akerson has said the government may exit before the year is over.
The Treasury’s bailout fund has lost about $9.7 billion on its GM rescue and would need to sell its remaining shares in the automaker for an average of $147.95 to break even, a report by Special Inspector General for the Troubled Asset Relief Program said.
Also last month, GM announced a deal to buy $3.2 billion of preferred shares held by the United Auto Workers retiree medical trust. GM recorded one-time costs of about $800 million in the quarter because of the deal.
GM’s improved business led Moody’s Investors Service on Sept. 23 to upgrade the automaker to investment grade for the first time in eight years. Moody’s raised GM’s corporate family rating to Baa3, the lowest investment-grade level.
Akerson is betting the new products will help GM meet several mid-decade goals including increasing North America operating margins, stemming losses in Europe and boosting sales in China.
Despite GM’s global deliveries rising 4.6 percent to almost 2.4 million during the third quarter, the automaker failed to outsell Toyota, which, after nine months, is leading the global sales race. GM continues to surpass Volkswagen (VOW), though the German automaker finished the third quarter ahead of the U.S. automaker in China, where both companies are targeting sales of 3 million vehicles this year.
In the U.S., the new products have helped GM sell vehicles at higher prices. The average transaction price, or ATP, for GM vehicles in the third quarter rose 3 percent to $31,626 from the second quarter, according to Edmunds.com, a website that tracks auto sales. Those ATPs were boosted in part by people paying 6.7 percent more for pickups.
“The redesigned Silverado and Sierra lead the segment in quarterly ATP growth,” Jeremy Acevedo, an Edmunds analyst, said in an e-mail. The Sierra, the GMC brand large pickup, was also redesigned.
New vehicles in North America, including the pickups, helped boost adjusted EBIT by about $1 billion, including money made from buyers getting more expensive models and paying higher prices, while the introduction of those vehicles added $400 million in cost, GM said.
Third-quarter North America production was skewed toward higher-trim pickups, Brian Johnson, an analyst with Barclays Plc, said prior to the release.
“It reflects what you see, for example, with European luxury makers as they roll out their cars,” he said. “The best practice for auto rollouts is to start with your most profitable, highest-trim models first and work your way down.”
GM continued to narrow losses in Europe after losing more than $18 billion in Europe since 1999. GM has been cutting costs in the region along while European vehicle sales increased 4.2 percent in the quarter compared with a year earlier.
“Our overall objective of getting to break-even by mid-decade, clearly, we’re well on track toward that objective,” Ammann said. “This is the first quarter in a couple of years that we’ve had revenue growth year over year.”
The adjusted loss before interest and taxes in Europe narrowed to $214 million from $487 million a year earlier, the company said. That compares with the $246 million average of four analysts. Sales in the region rose 3.3 percent to $4.86 billion.
Earnings in International Operations dropped to $299 million compared with $761 million a year earlier, the company said. The unit’s results include China, which remained profitable with equity income of about $400 million, according to Ammann. The results follow the second quarter’s decline brought about by recalls in India and the sting of the weakening yen in Southeast Asia and Australia.
The results missed the average of four analyst estimates for International Operations adjusted EBIT to decline to $317 million.
“As much as they’ve been successful in the U.S., and Europe seems to be moving toward break-even, it’s pretty clear that there are new trouble spots emerging,” Johnson said.
GM’s adjusted EBIT for its South America operations rose to $284 million from $159 million, the company said.
GM reported total one-time expenses of almost $900 million for the quarter. Besides costs associated with repurchasing shares from the UAW trust, the company had a writedown of goodwill of about $50 million in its South Korea operations related to fresh-start accounting, said Tom Henderson, a GM spokesman.
GM provided details of possible drags on future earnings.
The automaker said that it could face greater challenges in South America where unfavorable currency changes cost the company $600 million and in Asia not including China. GM may also start seeing expenses as soon as this quarter related to shutting down its Bochum, Germany, assembly plant, slated for closing at the end of next year, Ammann said.
“We expect to incur significant restructuring costs,” he said.
In addition, production of GM’s pickups has hit a snag with shortages of components from America Axle & Manufacturing Holdings Inc. (AXL) used in the new pickups, GM said.
“We expect it to be resolved here in the relatively near term,” Chuck Stevens, GM CFO for North America, told analysts.
Demand for the pickups is exceeding the supplier’s ability to produce some drivetrain parts used with the 5.3-liter, V-8 version, the most popular size, and GM is limiting how many dealers can order, two familiar with the situation said last month. While one of the people said at the time the issue could be resolved soon, another said it could take longer than a couple of months.
“It has had a small impact on production in the month of October,” Stevens said. The company expects “to make that up here again in Q4.”
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