GM Q3: Higher Pricing Vs Soft Volume, Unfavorable Mix and Higher Commodity Costs

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General Motors (NYSE: GM) reported its third-quarter earnings on October 31, 2018, and conducted a call with analysts the same day. The company posted an Adjusted EPS (Non- Gaap) of $1.87, beating by $0.62, and a rise of $0.55 as compared to the same period last year. Revenue was reported at $35.8 billion, a rise of 6% from the same period last year. The better than expected results were an outcome of higher pricing in North America, which were driven by higher proportionate sales of all new-full sized trucks and crossovers. Further, GM financial reported a strong quarter with record earnings.

We have a price estimate of $36 per share for the company, which is higher than the current market price. View our interactive dashboard – GM Q3 Earnings: Higher Pricing Drives Q3 Results– and modify the key assumptions to arrive at your own price estimate for the company.

 

Q3: Higher Pricing V/s Soft Deliveries, Unfavorable Mix and Higher Commodity Costs

The company reported its third-quarter sales of 694,638 vehicles in the North-American market, which is an 11% decline in sales in this region. However, a higher proportionate sales of new full-sized trucks and crossovers, which have a higher average transaction price, helped offset the declining volumes and aided to the revenue growth in this quarter. GMNA posted strong EBIT margins of 10.2% in this quarter, where the average transaction prices rose by $800 to nearly $36,000 per vehicle. With the new vehicles meeting expectations of production, GM expects to ship 120,000 of the new trucks in the second half. Having launched 3 new vehicles in this quarter and received a positive response, GM is all set to start production of Chevrolet Blazer late in the fourth quarter.

Further, despite challenging market conditions, GM China achieved record third-quarter equity income, driven by a strong mix of vehicles in popular segments. The company sales for this quarter in this region stands at 835,934 vehicles, led by record Cadillac sales and strong Chevrolet deliveries. GM China is expected to launch 10 new models in the second half of this year, with a wave of electric vehicles launched in China after several years. This displays the company’s ability to manage risks and deliver strong business results while continuing towards the future of mobility.

The company posted a GAAP EPS of $1.75 and an adjusted EPS of $1.87. Earnings were largely due to higher pricing and better margins. Additionally, GM financial delivered an all-time record for revenue and record EBT of 1/2 a billion, as a result of portfolio growth and stable credit. The above-mentioned factors have delivered a strong quarter for the company and thus helped in mitigate costs related to commodities and cost headwinds related to currency volatility.

Additionally, GM’s Cruise, majorly funded by Softbank, received an equity investment worth $750 million from Honda Motor Company in this quarter. Softbank Vision fund had invested the first tranche of $900 million in the second quarter and will complete the second tranche of $1.35 billion in the near term, following which GM will invest $1.1 in GM’s Cruise, which will bring the Softbank’s stake in Cruise to 19.7%. Honda joins the Cruise with the equity investment and will invest over $2 billion in the next 12 years, which will bring Honda’s stake in GM’s Cruise to 5.7%. Cruise has been set up for investment that serves the purpose of mass production of autonomous vehicles for global and commercial deployment. GM Cruise posted an adjusted EBIT of $0.2 billion in this quarter and has attracted $5 billion in third-party capital.

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