General Motors Company — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; unaudited. Comparisons are with Q1 2016 unless otherwise stated. GM designs, manufactures and sells vehicles and parts globally and provides financing through GM Financial. Amounts below are U.S. dollars.
Financial results
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Total net sales and revenue | $41.2 billion | $37.3 billion |
| Operating income | $2.745 billion | $1.972 billion |
| Net income | $2.617 billion | $1.931 billion |
| Net income attributable to common stockholders | $2.608 billion | $1.953 billion |
| Diluted EPS | $1.70 | $1.24 |
| Dividends declared per common share | $0.38 | $0.38 |
- Revenue increased 10.6%; operating income rose about 39%, and common-stockholder net income rose about 34%. Automotive revenue was $38.3 billion; GM Financial revenue was $2.875 billion.
- GM reported $2.041 billion of consolidated operating cash flow, versus cash used of $108 million. Investing used $6.805 billion and financing provided $5.047 billion. Automotive operating cash flow was $1.4 billion versus negative $0.7 billion; adjusted automotive free cash flow was negative $0.6 billion versus negative $1.4 billion.
- Cash and cash equivalents were $12.864 billion and marketable securities were $10.260 billion at quarter-end. Automotive available liquidity, including undrawn facilities, was $34.4 billion; GM Financial available liquidity was $11.4 billion.
- Automotive debt was $10.952 billion; GM Financial debt was $79.949 billion. GM Financial debt primarily funds its receivables and leases. Total assets were $230.8 billion, total liabilities $184.6 billion, and equity $46.2 billion.
- GM Financial’s adjusted pretax earnings rose 15.6% to $260 million as its lease portfolio expanded; average debt outstanding increased 34.3% to $76.3 billion. The loan-loss provision was $217 million, up from $196 million.
Material changes and segment performance
- GM North America adjusted EBIT increased to $3.416 billion from $2.296 billion; margin rose to 11.7% from 8.7%. Higher volume and pricing helped, partly offset by mix and increased engineering and material costs.
- GM Europe reported an adjusted EBIT loss of $201 million, compared with a $6 million loss. The company cited unfavorable currency effects and anticipated pricing and product-launch cost pressures.
- GM International Operations adjusted EBIT was $319 million, down from $379 million, including $504 million of equity income from China joint ventures versus $518 million.
- GM South America’s adjusted EBIT loss widened to $115 million from $67 million despite higher revenue and wholesale volume.
- Worldwide wholesale vehicle sales increased to 1.484 million from 1.411 million. U.S. market share was 16.8%, up from 16.4%; Europe share fell to 5.9% from 6.2%.
- Consolidated operating cash flow improved year over year partly because the prior-year period included $1.5 billion of discretionary U.S. hourly pension contributions. Automotive capital expenditures were $2.0 billion.
Outlook, transactions and risks
- For 2017, GM expected revenue and adjusted EBIT to equal or exceed 2016 levels, adjusted ROIC above 25%, automotive operating cash flow of about $12 billion, and adjusted automotive free cash flow of about $6 billion. Guidance was diluted EPS of $3.06–$3.56 and adjusted diluted EPS of $6.00–$6.50. Adjusted EPS guidance includes a $2.94-per-share adjustment for the PSA transaction charge.
- GM expected GM North America adjusted EBIT margin above 10% for 2017. Management’s longer-term goal was adjusted EBIT margins of 9%–10% by early next decade; it reported approximately $4.5 billion of a targeted $6.5 billion in cumulative cost savings through 2018 had been realized by March 31, 2017.
- GM agreed to sell Opel and Vauxhall and European financing operations to PSA Group for estimated net consideration of approximately $2.2 billion, subject to adjustments and closing conditions. GM expected an approximately $4.5 billion charge at closing, including up to $2.7 billion of deferred tax assets, pension-related costs and other items. The Opel/Vauxhall transfer was expected by year-end 2017; the financing operations transfer could follow later. GM also expected to pay about $3.2 billion in connection with pension liabilities assumed by PSA.
- GM Financial expected used-car prices to decline approximately 7% in 2017 and noted weaker residual values, particularly for crossovers. A decline in resale values could affect lease economics and results.
- Recall and litigation exposures remain significant. Accrued litigation-related liabilities were $1.2 billion. GM said additional ignition-switch-related liabilities were probable but it could not estimate an overall loss range. Potential Takata-related repair costs were estimated at up to $880 million for 6.9 million vehicles; no provision was recorded because GM believed repairs would not ultimately be required, subject to testing and regulatory decisions.
- Other contingencies include reasonably possible losses above accruals of up to $552 million for GM Korea hourly wage matters, $170 million for salaried wage matters, and approximately $1.1 billion for indirect-tax matters. A possible Brazilian tax recovery of up to $1.4 billion was unrecognized and its outcome was uncertain.
- After quarter-end, Venezuelan authorities seized GM’s plant on April 18, 2017. GM said it was pursuing legal action and assessing whether the event would end its control of the subsidiary; a charge of up to $0.1 billion was possible.
- Management cited market and competitive pressures, foreign exchange and political uncertainty, emissions regulation, recalls and litigation, pension obligations, and transaction closing conditions as risks. GM said there were no material changes to the risk factors in its 2016 Form 10-K.
Important facts for investors to verify
- Progress and final terms of the PSA transaction, including approvals, timing, pension funding, and the eventual charge versus the $4.5 billion estimate.
- Actual 2017 results against guidance, especially automotive cash generation, adjusted free cash flow, and the distinction between GAAP and adjusted EPS.
- Developments in ignition-switch litigation and investigations, Takata testing and NHTSA decisions, and the adequacy of related accruals.
- GM Financial’s residual-value performance, used-vehicle prices, credit quality, loan-loss provisions, debt funding and liquidity.
- Effects of regional market conditions, currency movements, emissions scrutiny and the Venezuelan plant seizure on operations and asset values.