GM Beats but Profit Falls

General Motors Company (GM - Analyst Report) posted a 9.7% fall in earnings to 93 cents per share (excluding special items) in the third quarter of the year from $1.03 in the corresponding quarter a year ago. However, earnings per share in the quarter far exceeded the Zacks Consensus Estimate of 61 cents.

Total profit ebbed 5.9% to $1.6 billion from $1.7 billion a year ago. The decline in profit was attributable to lower profits from North America and increased loss in Europe.

Revenues in the quarter grew 2.5% to $37.6 billion, surpassing the Zacks Consensus Estimate of $36.3 billion. Worldwide sales volume inched up 1.6% to 2.3 million units from 2.2 million units a year ago. However, total market share declined to 11.6% from 12.1% in the third quarter of 2011.

Operating income fell 11.2% to $1.6 billion from $1.8 billion a year ago. However, adjusted earnings before interest and tax (EBIT) rose 4.5% to $2.3 billion from $2.2 billion a year ago.

Segment Results

GM North America (GMNA) reported a 6.7% rise in revenues to $23.3 billion during the quarter. Adjusted EBIT decreased 17.0% to $1.8 billion from $2.2 billion in the third quarter of 2011.

GM Europe (GME) saw a 17.7% fall in revenues to $5.1 billion. The segment reported a broader adjusted loss before interest and tax of $478 million compared with $292 million in the year-ago quarter.

For the full year 2012, the company expects adjusted loss in the region between $1.5 billion and $1.8 billion, depending on the extent of restructuring activity in the fourth quarter. In addition, the company aims to achieve 2013 adjusted EBIT in the region that is slightly higher than 2012.

GM International Operations (GMIO) reported a 10.3% rise in revenues to $6.7 billion. Adjusted EBIT shot up 88.8% to $689 million compared with $365 million in the comparable quarter of 2011.

GM South America (GMSA) witnessed a 1.7% decline in revenues to $4.3 billion. The segment had adjusted EBIT of $114 million in the quarter compared with a loss of $44 million in the third quarter of 2011.

GM Financial reported a 31.5% rise in revenues to $514 million during the quarter. EBIT in the segment improved 12.4% to $200 million from $178 million in the year-ago quarter.

Financial Position

GM had cash and cash equivalents of $23.3 billion as of September 30, 2012, up from $16.1 billion at the end of 2011. Total debt increased to $16.7 billion as of the above date from $13.8 billion as of December 31, 2011. Consequently, debt-to-capitalization ratio rose to 28.6% from 26.6% in the year-ago period.

In the first nine months of 2012, the company had a cash flow of $9.1 billion from operating activities, up from $6.2 billion in the same period a year ago. Meanwhile, capital expenditures rose to $6.0 billion from $4.1 billion in the 2011-period. This translated into free cash flow of $3.2 billion during the period, up from $2.1 billion in the first nine months of 2011.

Our Take

GM is a leading global automotive company. The company has presence in almost 120 countries and has facilities located in 31 countries. It had to seek bankruptcy protection in 2009 due to unfavorable economic conditions and a rapid decline in sales. However, the automaker recouped its sales and earnings by banking on the emerging markets and improved cost structure.

However, due to its significant exposure to troubled Europe and the global economic weakness, the company currently retains a Zacks #3 Rank on its stock, which translates to a short-term rating of Hold.

GM’s hometown rival Ford Motor Co. (F - Analyst Report) fared well compared with the company during the quarter under review. Ford posted a 17.6% rise in earnings per share to 40 cents in the third quarter of the year from 34 cents a year ago driven by impressive results in its North American operation and, to some extent, its Asian operation. With this, the company has also beaten the Zacks Consensus Estimate by 10 cents per share. Total profit rose 15.6% to $1.6 billion from $1.4 billion a year ago.