GM reports gross earnings of USD2.1 bil., revenue of USD35.7 bil. in Q1

General Motors (GM) has started 2015 with stronger results than in the same period last year, after not being plagued with an expensive and expanding recall, as it was in the first quarter of 2014. GM CEO Mary Barra described the first quarter of 2015 as providing a "firm foundation" for the future, with expenses related to product launches and turnover, as well as the decision to pull out of Russia.

In the first quarter, GM's adjusted earnings before interest and taxation (EBIT) reached USD2,082 million, compared with only USD466 million in the same period last year. Net income also increased dramatically, from USD280 million in the first quarter of 2014 to USD908 million this year. GM has shifted to reporting return on invested capital (ROIC) as a figure covering the past four quarters. For the first quarter of 2015, the number reached 19.5%, up from 16.9% for the first quarter of 2014. Special items reported in the first quarter included the costs of an exit from the Russian market of USD400 million. Another item of USD100 million was related to the ignition switch victims' compensation fund, which has accrued USD550 million in claims to be paid. GM attributes lower wholesale deliveries in the first quarter this year to sales declines in Russia and Brazil.

In the analysts' call on the quarterly results, Barra said that GM is performing well in Brazil, within the context of a declining market. Russia is also a market in which all automakers suffered in the first quarter. GM's free cash flow declined USD1.7 billion in the first quarter, compared with the first quarter of 2014, which the automaker attributed to working capital being impacted by one additional weekly supplier payment of USD1.9 billion.

GM's global revenue in the first quarter was USD35.7 billion, down 4.5% from USD37.4 billion in the same period of last year. However, the dramatic increase in GM's adjusted EBIT in the first quarter, compared with the first quarter of 2014, was largely because the first quarter of 2014 included USD1.3 billion in recall-related expenses. In the first quarter this year, a USD600-million improvement in mix and USD1.4-billion improvement in costs counteracted the USD300-million impact of currency fluctuations. GM's volumes rose in North America in the first quarter, offset by lower volumes in South America and Russia. Pricing was flat compared with the same period last year, with favourable pricing in North America offset by unfavourable pricing in Europe and South America. Adjusted EBIT in the first quarter were 5.8% of revenue, compared with 1.2% in the same period of 2014.

In the first quarter, GM's global wholesale deliveries fell by 77,000 units to 1,391,000 units, a decline of 5.2% year on year (y/y). However, GM's retail sales declined by only 0.7% y/y. GM reports the declines were accrued in South America, Europe, and GM International Operations (GMIO). In the first quarter, GM's worldwide retail sales dropped 0.7% y/y, from 2.416 million to 2.399 million units. Global market share in the first quarter was 11.0%, compared with 11.1% in the first quarter of 2014; over the past 12 months, share peaked at 11.6% in the third quarter of 2014.

In a company statement, CEO Mary Barra said, "Our results in the first quarter provide a solid foundation to achieve our financial commitments for the year. Continued execution of our plan, including our capital allocation framework, will drive profitable growth, return on invested capital and shareholder value."

GM's North America's (GMNA) wholesale deliveries increased 22,000 units during the first quarter of 2015. GM claims the seventh consecutive year-on-year improvement in operating margin for North America. The region returned an EBIT margin of 8.8% over the first three months of 2015; while a dramatic increase over the result in the recall-impacted first quarter of 2014, it that was down from a 2014 high in EBIT margin of 9.5% in the third quarter of last year. GM reported a positive effect on volume and mix, as well as USD1.4 billion improvement in costs largely on the reduction in recall costs. GMNA saw better volume, cost and mix, and high rental-car disposal loss in the first quarter, and the company expects continuing negative results in this measure in 2015, until the fourth quarter. GMIO accounted for USD3.1 billion in revenue in the first quarter, on a par with the same period of 2014, and USD400 million of the company's adjusted EBIT in the first quarter of 2015, up from USD300 million in the corresponding period a year earlier. The automaker reported a positive impact from mix and price, with a negative impact largely from currency fluctuation issues. GMIO's net adjusted EBIT increased USD300 million to USD400 million. The division's mix and price improved, though currency fluctuations led to a decline of USD100million. GM's South American division reported EBIT down USD60 million compared with the same period last year. Price was improved despite inflationary and foreign-exchange pressures, according to GM. The region's adjusted EBIT as a percentage of revenue increased from 5.2% to 10.2%, according to GM. Wholesale deliveries fell by 58,000 units, largely on falls in overall Brazilian market sales.

In the first quarter of 2015, GM's revenue in Europe was down to USD4.4 billion, compared with USD5.6 billion in first quarter 2014. Wholesale deliveries in Europe declined 23,000 units, from 291,000 in the first quarter of 2014 to 268,000 over the first three months of 2015, which GM attributes to Russian market declines. Adjusted-EBIT losses were USD200 million, compared with USD300 million a year earlier. Volume declines and currency exchange each had an impact, while price improved along with costs. GM says its European business is stronger on improved Opel sales and better cost controls. Market share fell to 6.1%, though Opel is seeing improved performance in the region.

Outlook and implications

GM's first-quarter 2015 results were notably stronger than in the first quarter of 2014, when the company was severely impacted by costs related to the ignition switch recall. Impacting GM's first-quarter 2015 results were, however, the decision to pull out of Europe, as well as automotive market declines in South America.

The recall issue continues into 2015, with the company increasing the impact of the victims' compensation fund by USD100 million. In April 2015, GM did benefit from a court ruling that lawsuits regarding vehicles prior to the 2009 bankruptcy could not advance against the current form of GM (see United States: 16 April 2015: Judge rules GM can keep bankruptcy shield – reports). This does not impact on lawsuits regarding vehicles produced after 2009, but GM remains at risk for costs related to the issue going forward and that could impact earnings in future quarters. Additionally, the company is a target for lawsuits regarding the Russian departure (see Russia: 15 April 2015: Russian dealers look to file USD1.1-bil. lawsuit against GM).

The company reported stronger financial results in the first quarter of 2015 compared with the same period in 2014; media reports surrounding the results indicate its results fell short of financial analyst expectations, though. GM's profits were stronger without the impact of recalls.

GM's increased sales of trucks and SUVs in North America and the Middle East again helped offset the impact of declining deliveries. Including GM Financial, global revenues in the first quarter of 2015 were 35.71 billion. North American results were impacted by increased transaction prices, up 10.2% compared with the first quarter of 2014. GMNA's USD24.6 billion revenues contributed 69% to the first-quarter results. Wholesale deliveries increased in GMNA, but slipped in GMIO, GME, and GMSA. Retail sales increased in North America, declined in Europe, and improved in Asia-Pacific, the Middle East and Africa, as well as South America.

GM's fundamentals remain sound and profitable. Its cash position is favourable and its debt is manageable. During the analyst call discussion of the results, Barra indicated the company is on track to achieve its 2015 and 2016 financial targets, including 10% margins in North America by 2016, sustaining strong margins in China, and profitability for Europe in 2016.