GM Shares Pop After Huge Earnings Beat
The largest vehicle manufacturer in the U.S., General Motors Co., announced today that it handily beat analysts third quarter profit estimates. Shares were up over 3% in the mid-morning hours, last exchanging hands at $37.02. GM shares have underperformed the broader S&P 500 index this year, down 36.9% versus the 19.4% decline in the benchmark. However, it has slightly outperformed main competitors Ford and Tesla on a year-to-date basis, which are down 38.1% and 37%, respectively.
The biggest boost to GM during the quarter was the improved availability of semiconductors and other components which allowed the car maker to manufacture and sell more cars. SUVs and trucks were especially profitable for GM during the quarter. Further, Chief Financial Officer Paul Jacobson said that the company has not observed any impact of the slow-down in economic growth affecting the demand for its products. The company also said its profitability and margins were higher in China.
Despite the beat on the bottom line, however, GM missed Wall Street’s revenue expectations. The top line grew by a strong 56.4% year over year to $41.89 billion but was below the $42.4 billion estimate. Automotive sales increased to $38.7 billion, shy of the $39.8 billion Wall Street had modelled. GM financial net sales were $3.19 billion, also below the $3.35 billion expectation. GM North America vehicle sales were 784 thousand units, meeting expectations, while GM International sales were 182 thousand units, well shy of the 190 thousand units that were expected.
Further, the company reported adjusted automotive free cash flow of $4.59 billion, and earnings before interest and taxes of $4.29 billion. Both metrics beat the average analyst forecast by almost a billion dollars. Despite the bottom-line beat, GM did not increase its full-year profitability guidance, to some investor’s disappointment. The company expects full-year net income of between $9.6 billion and $11.2 billion. Analysts were expecting net income of $9.6 billion.
The company additionally guided towards adjusted earnings per share of between $13 billion to $15 billion, or $6.50 and $7.50 per share, higher at the midpoint than the expected $6.75 per share. It expects wholesale volumes to increase by 25 to 30 percent. Operating automotive cash flow is expected to be between $16 billion and $19 billion, and automotive free cash flow, the net of operating cash flow and capital expenditures, to total between $7 billion and $9 billion.
Chief Executive Officer Mary Barra said in a letter to shareholders that the company was delivering on its commitments and that demand for GM’s products remained strong despite a challenging environment. The CEO expects supply chain challenges easing considerably as the year progresses and into 2023. Management also reported $330 million in profit from Chinese operations, up 22% from the third quarter of 2021. The company had been facing severe logistics and supply chain issues since the start of the pandemic, especially with a shortage of chips.
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