General Motors Company — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. GM designs, manufactures and sells vehicles and parts worldwide and provides automotive financing through GM Financial. Unless otherwise noted, amounts are in U.S. dollars.
Key financial results
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Total net sales and revenue | $37.3 billion | $35.7 billion |
| Operating income | $2.0 billion | $0.8 billion |
| Income before income taxes | $2.5 billion | $1.4 billion |
| Net income attributable to common stockholders | $2.0 billion | $0.9 billion |
| Diluted earnings per share | $1.24 | $0.56 |
| Adjusted diluted EPS (non-GAAP) | $1.26 | $0.86 |
| Cash flow from operating activities, consolidated | $(0.2) billion | $0.4 billion |
| Cash and cash equivalents, at period end | $14.9 billion | $15.8 billion |
Revenue rose 4.3%; common-stockholder net income more than doubled. Automotive revenue increased 2.4%, while GM Financial revenue rose 53.6%, mainly from a larger leased-vehicle portfolio. GMNA adjusted EBIT was $2.3 billion; GME reported an adjusted loss of $6 million; GMIO adjusted EBIT was $379 million; GMSA reported an adjusted loss of $67 million. GM Financial adjusted pretax income was $225 million, up 5.1%.
Cash, debt and liquidity
- Consolidated operating cash flow was negative $164 million, compared with positive $375 million a year earlier. Automotive operating cash flow was negative $0.7 billion; adjusted automotive free cash flow was negative $1.5 billion, versus negative $1.7 billion.
- GM cited $1.5 billion of discretionary U.S. hourly pension contributions as a major automotive cash-flow use; a further $482 million contribution was made in April. Capital expenditures were $2.3 billion, versus $1.7 billion.
- Automotive available liquidity was $30.6 billion, including $18.5 billion of cash and marketable securities and $12.1 billion available under credit facilities, down from $32.5 billion at year-end. GM Financial available liquidity was $11.7 billion, down from $13.7 billion.
- Automotive debt was $10.8 billion and GM Financial debt was $60.4 billion at March 31. Combined, these were $71.1 billion, compared with $63.1 billion at December 31, 2015.
- Total assets were $203.6 billion; total liabilities were $162.3 billion; total equity was $41.3 billion. Inventories increased to $15.8 billion from $13.8 billion at year-end.
Material changes and notable items
- Automotive adjusted EBIT increased to $2.4 billion from $1.9 billion. GMNA gains from volume and pricing helped; lower sales and foreign-exchange effects weighed on GMIO and GMSA revenue.
- Worldwide wholesale vehicle sales increased to 1.411 million from 1.391 million. U.S. market share fell to 16.4% from 16.9%; China share fell to 14.8% from 15.0%. South American industry sales declined sharply.
- GM issued $2.0 billion of long-term unsecured notes to fund pension contributions. GM Financial issued $2.75 billion of senior notes and $3.2 billion of securitization notes during the quarter.
- GM repurchased $300 million of shares and declared dividends of $0.38 per share, compared with $0.30 a year earlier. Its repurchase authorization was increased to $9 billion in total.
- GM invested $500 million in Lyft. It also announced a planned acquisition of Cruise Automation, expected to close in Q2 2016, subject to customary conditions.
- GM adopted a pension-cost estimation refinement that reduced Q1 service and interest costs by $191 million; the filing says this is expected to be offset in actuarial gains and losses at the next plan remeasurement.
Outlook, risks and contingencies
- For 2016, management expected adjusted diluted EPS of $5.25–$5.75 and adjusted automotive free cash flow of approximately $6 billion. It also expected improved adjusted EBIT and margins. Longer-term targets include 9%–10% adjusted EBIT margins by early next decade and average annual adjusted automotive free cash flow of approximately $6–$7 billion in 2016–2018.
- GM expected GMNA adjusted EBIT margin of approximately 10% in 2016 and intended to break even in Europe. Management expected moderate China industry growth, continued pricing pressure of 4%–5%, and sustained strong China JV earnings and margins.
- Key regional headwinds include weak South American demand and currencies, pricing competition and macroeconomic uncertainty in China, European costs and currency exposure, and possible labor disruptions in Canada and Korea. GM warned that adverse South American conditions could continue for two years and could lead to further losses or impairments.
- Ignition-switch and other recall-related litigation and investigations remain significant uncertainties. GM stated it was probable that additional liabilities would be incurred on some remaining matters but could not estimate the amount or range. The filing reports $1.3 billion of reserves for probable and estimable legal losses, and $2.346 billion in recall-campaign liabilities at quarter-end.
- Other disclosed exposures include reasonably possible losses of up to approximately $900 million for indirect tax matters and $516 million for GM Korea ordinary-wage claims above accrued amounts. Potential South American escrow deposits were estimated at $400–$500 million. GM cautioned that outcomes of legal matters could materially affect financial results.
- Other risks include potential further Takata air-bag recalls, possible Japan-earthquake supply disruption, European emissions scrutiny, and uncertainty in Venezuela. GM said it may incur an approximately $0.2 billion charge if it loses control of its Venezuelan subsidiaries.
- Management said available liquidity should meet its needs. The filing reported no material changes to previously disclosed risk factors and no significant changes in market-risk exposure. Disclosure controls were considered effective at March 31, 2016.
Important facts for investors to verify
- Whether Q1 earnings and the 2016 EPS and free-cash-flow outlook are sustainable given negative Q1 cash flow, pension funding and higher capital spending.
- How much additional recall-related and other legal liability may arise; the filing does not provide a clear estimate for remaining ignition-switch matters.
- Whether GM Financial’s expanding lease portfolio, rising debt and lower available liquidity remain manageable as originations grow.
- Whether regional targets—especially Europe break-even and continued China JV performance—are achieved amid currency, pricing and demand pressures.
- How future pension remeasurement, South American conditions, emissions inquiries, Takata recalls and supply-chain disruptions affect costs and liquidity.