U.S. Markets open in 3 hrs 6 mins

How General Motors Finished 2016 on a Positive Note

- By Mayank Marwah

The top Detroit automaker General Motors (GM) ended 2016 on a joyful note with stunning fourth quarter earnings that helped the company to register impressive full year adjusted earnings per share of $6.12. This compares with $5.02 reported in fiscal 2015. Not only that, the company managed to surpass its own earnings guidance of $5.25 to $5.75. During the earnings conference, company CEO Mary Barra was happy to report that "GM delivered a second straight year of record earnings in 2016, setting records for net revenue, EBIT-adjusted, EBIT-adjusted margins, EPS diluted-adjusted and automotive-adjusted free cash flow." Here's a lowdown on America's largest auto manufacturer's performance in the last year.


The quarter in a snapshot

General Motors earned net revenue of $166 billion for the whole year, up 9% year over year. Adjusted EBIT was $12.5 billion up 16% as compared with 2015.

Fourth quarter's net income stood at $1.8 billion that also included a net loss of $100 million from special items.

General Motors recorded stunning sales in crossovers, midsize pickups and large SUVs, making Chevrolet the fastest growing U.S. brand in 2016. This helped the brand acquire 0.5% gain in retail market share in the U.S.

The company's fourth quarter sales of $43.9 billion beat consensus estimates of $40.3 billion. This is an improvement of 10.8% from the same quarter in 2015. Steve Chucks, General Motors executive vice president and CFO said in a statement: "Solid results in the fourth quarter capped another record year of earnings and beat the commitments we outlined for 2016." He added, "We'll stay focused on delivering results that will enable us to return capital and create more shareholder value."

GM's deliveries in China spiked 7.1% selling 3.87 million vehicles for the year and in the U.S., the company sold 3.04 million units. The company's full-year average transaction prices in the U.S. were around $35,400, which is about $4,300 higher than the industry average. As compared with 2015, the average transaction price was up $750.

Area of concern

Despite the bright numbers, there still remain some weak spots in the company's earnings. Though the company's operations in the U.S. auto industry have improved, it has some issues concerning the rest of the world. In the North America region, General Motors' operating income plunged $200 million as compared with the fourth quarter of 2015. General Motors' GAAP earnings declined to $1.19 from $3.32 in the comparable period last year.

Moreover, the company has been compelled to offer larger sales incentives on grounds of severe competition. Again, there exists huge accumulation of stock of vehicles with the company after they had rebuilt its inventory the previous year.

Furthermore, General Motors' South America business, though profitable, yet lost money there in the previous year. Besides losing in Europe, the company faced pricing pressure in China on the back of stiff competition.

Last word

General Motors has given a full year adjusted earnings guidance of $6.00 to $6.50 per share. This is way ahead of the present consensus of $5.86 per share. As far as EBIT and adjusted EBIT margin is concerned, the carmaker expects to at least maintain the metric at the current level. The company expects its sales to move up in 2017 and anticipates the global volumes for new and refreshed models to improve to 38% in the next three years compared with 26% growth between 2011 and 2016.

Disclosure: I do not hold any position in the stock mentioned in this article.

This article first appeared on GuruFocus.