Earnings Review: GM Starts Off 2017 Strongly

-8.32%
Downside
45.35
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41.57
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GM
General Motors

General Motors (NYSE:GM) reported its earnings for the first quarter of fiscal year 2017 on Friday, April 28th. The Detroit-based auto maker reported earnings per share of $ 1.70, nearly 37% greater than the prior year figure. This growth came on the back of a 10.6% increase in revenue and a 140 basis point increase in operating margin. The company’s unit sales declined by 1.4% for the quarter, reaching 2.34 million units compared to last year’s 2.38 million units. Excluding China, where the company saw its unit sales decline by 6.5% year over year, the company’s unit sales actually increased by close to 2%. Still, GM managed to grow its average unit pricing by close to 8.3% for the quarter

gm q1 17

In the January-March period, GM saw its sales in North America grow by 7.6% year over year. The company saw its unit sales in the U.S. stay just about flat in the quarter. However crossover sales grew by 15.9%. Along with the growth in sales and market share, GM has been able to raise its average transaction price from $ 30.3 K in 2016 to around $ 31.2 K in 2017.

On the other hand, the company saw its unit sales in China decline by over 6.5% in the quarter. This was because of the reduction of the sales tax on small engine vehicles to 5% and heavy discounts offered by auto makers. Consequently, even though GM sold fewer vehicles in the quarter, it saw its equity income from China decline by only 2.7%, implying an increase in equity income per unit sold of 4%.

gm q1 17-2

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Going forward, the company needs to keep its performance in North America going on the same trajectory and to return its performance in China to levels seen a couple of years ago. China is the biggest car market in the world and the biggest profit opportunity for GM. By increasing the number of higher margin cars in its sales mix, GM can raise its equity income per unit sold from the region and thus increase overall cash flow.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for General Motors

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