General Motors Co quarterly report, Q1 FY2019

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General Motors Company — Q1 2019 Form 10-Q

Business context and period: The filing covers the three months ended March 31, 2019, compared with Q1 2018. GM designs, manufactures and sells vehicles and parts globally, provides financing through GM Financial, and is developing autonomous-vehicle technology through GM Cruise.

Financial performance

  • Revenue: $34.878 billion, down 3.4% from $36.099 billion. Automotive revenue was $31.261 billion, down 4.4%; GM Financial revenue was $3.617 billion, up 6.1%.
  • Profit and earnings: Operating income was $1.244 billion versus $529 million. Net income was $2.145 billion versus $1.040 billion; net income attributable to stockholders was $2.157 billion. Diluted GAAP EPS was $1.48 versus $0.72. Adjusted diluted EPS, a non-GAAP measure, was $1.41 versus $1.43.
  • Margins and segments: Consolidated operating margin was approximately 3.6%, versus 1.5%. GMNA adjusted EBIT was $1.896 billion, with a 6.9% margin versus 8.0%; GMI adjusted EBIT was $31 million, with a 0.8% margin versus 3.9%. GM Financial adjusted EBT was $359 million versus $443 million; GM Cruise’s adjusted loss was $169 million.
  • Cash flow: Consolidated operating cash flow was negative $81 million versus positive $448 million. Automotive operating cash flow was negative $2.2 billion versus negative $1.1 billion, and automotive capital expenditures were $2.0 billion. GM Financial operating cash flow was positive $2.1 billion. Cash, cash equivalents and restricted cash ended at $20.781 billion, down from $23.496 billion at year-end 2018.
  • Liquidity and debt: Cash and cash equivalents were $17.176 billion and marketable securities were $6.021 billion. GM reported total available liquidity of $34.7 billion, including available credit facilities; $2.1 billion of cash was designated for GM Cruise. Automotive debt, including finance lease liabilities, was $14.953 billion; GM Financial debt was $92.131 billion. GM Financial separately reported available liquidity of $27.3 billion.
  • Other metrics: Total assets were $233.132 billion and total liabilities were $188.494 billion. Dividends declared were $0.38 per common share. Wholesale vehicle sales declined to 1.095 million from 1.159 million.

Changes versus Q1 2018

  • Revenue declined, primarily reflecting lower automotive wholesale volumes and weaker international results. GM Financial revenue increased, but higher interest costs and loan-loss provisions reduced its adjusted earnings.
  • Net income increased substantially, but the comparison includes significant unusual items. Q1 2019 included an $857 million pre-tax Brazilian indirect-tax recovery in automotive cost of sales, a $285 million unrealized gain on GM’s Lyft investment, and lower income-tax expense. Q1 2018 included $942 million of GMI restructuring adjustments and a $70 million discontinued-operations loss.
  • China joint-venture equity income fell to $376 million from $597 million; the joint ventures’ net income declined to $767 million from $1.177 billion. GM’s China market share fell to 13.3% from 15.1%.
  • Automotive operating cash flow weakened, mainly due to working-capital timing and other outflows. GM’s consolidated cash balance also declined from December 31, 2018.

Outlook, commentary and risks

  • 2019 outlook: GM forecast diluted GAAP EPS of $5.96–$6.79 and adjusted diluted EPS of $6.50–$7.00. It expected capital expenditures of approximately $8–$9 billion.
  • Transformation: GM targeted approximately $6.0 billion of annual cash savings by the end of 2020, including a stated approximately $4.5 billion cost-savings target. It had recorded $2.1 billion of cumulative charges, including $790 million in Q1 2019, and expected a further $900 million–$1.5 billion of charges in the remaining nine months of 2019. It expected approximately $1.5 billion of additional cash outflows, substantially complete by the end of 2020.
  • Markets and operations: Management cited weak conditions, competition, pricing pressure, emissions requirements, foreign-exchange volatility, material costs, tariffs and trade-policy uncertainty. GM expected 2019 U.S. industry sales of approximately 17 million units and expected China industry sales to remain relatively flat, with continued pressure on China equity income.
  • Financing and residual values: GM Financial expected used-vehicle prices to decline 4%–5% in 2019, creating potential pressure given its leasing exposure. Its average debt outstanding rose 13.2% year over year, and its effective interest rate increased to 4.2% from 3.6%.
  • Contingencies: GM reported $1.4 billion accrued for litigation-related and tax administrative matters. Disclosed possible exposures included approximately $580 million for certain GM Korea hourly-worker wage claims, $170 million for salaried-worker claims, $140 million for potential subcontract-worker claims, and up to $900 million of indirect-tax losses in excess of accruals. GM estimated a possible Takata-related impact of approximately $1.2 billion if repairs are ultimately required for certain U.S. vehicles; it had not accrued for those repairs. Certain Opel-related emissions and product-liability indemnities also remain unresolved.
  • Other unusual items: GM expected to record up to $450 million of pre-tax Brazilian tax recoveries in Q2 2019 following an April decision, and estimated up to $100 million of further possible recoveries for other periods. A separate contingent share obligation could require up to 30 million additional shares if specified bankruptcy claims exceed the contractual threshold; GM could not estimate a loss for this matter.
  • Management said risk factors were not materially changed from those in the 2018 Form 10-K. It cited market, regulatory, labor, litigation, recall, supplier, pension, China and technology-commercialization risks.

Important facts for investors to verify

  • How much of the earnings increase came from the Brazilian tax recovery, investment revaluations and tax benefits, versus recurring operating performance; compare GAAP and adjusted results.
  • Whether automotive cash use and working-capital outflows reverse, and whether GM maintains its liquidity and investment-grade balance-sheet objectives while funding transformation and planned capital expenditures.
  • Progress on transformation savings, the expected additional charges and cash outflows, and any operational effects of manufacturing and workforce changes.
  • Developments in China demand and joint-venture income, GM Financial credit losses and used-vehicle residual values, and the material legal, recall, wage and tax contingencies described in the filing.