General Motors Company (GM) posted an 11% decline in profit to $1.74 billion in the third quarter of the year from $1.96 billion in the same quarter of 2011. Nevertheless, on a per share basis, the profit of $1.03 was higher than the Zacks Consensus Estimate of 99 cents. It compared with $1.20 in the third quarter of 2010.
The decline in profit was attributable to lower interest income and other non operating income (net), loss on extinguishment of debt and income tax expense.
Revenues in the quarter escalated 8% to $36.72 billion (including $391 million from GM Financial) on global sales of 2.25 million units versus 2.06 million a year ago, thereby capturing a market share of 12.0%. It exceeded the Zacks Consensus Estimate of $35.66 billion.
Operating income rose to $1.81 billion from $1.73 billion a year ago. Earnings before interest and tax (EBIT) were $2.20 billion compared with $2.28 billion in the third quarter of 2010.
Segment Results
GM North America (GMNA) generated $21.88 billion in revenues, a marginal 2% rise from the year-ago level. EBIT increased slightly to $2.20 billion from $2.13 billion in the third quarter of 2010.
GM Europe (GME) had revenues $6.15 billion in revenues, a 9% increase from the previous year. The segment reported a narrower loss of $292 million compared with $559 million in the prior-year quarter.
GM International Operations (GMIO) generated revenues of $6.29 billion, a 23% growth from the prior year. EBIT dipped to $365 million from $516 million during the third quarter of 2010.
GM South America (GMSA) had revenues of $4.42 billion, an 11% rise from the prior-year quarter. The segment had a loss of $44 million compared with EBIT of $163 million in the third quarter of 2010.
Meanwhile, GM Financial reported an EBIT of $178 million during the quarter.
Financial Position
GM had cash and cash equivalents of $20.30 billion as of September 30, 2011 compared with $21.06 billion at the end of 2010. Total debt decreased to $4.21 billion as of the above date from $4.63 billion as of December 31, 2010. Consequently, debt-to-capitalization ratio decreased to 8.6% from 11.3% in the year-ago period.
In the first nine months of 2011, the company had a cash flow of $6.19 billion from operating activities, down from $8.32 billion in the same period a year ago. Meanwhile, capital expenditures rose to $4.07 billion from $3.11 billion in the 2010-period. This translated into free cash flow of $2.13 billion during the period, significantly down from $5.21 billion in the first nine months of 2010.
Peer Performance
GM’s hometown rival Ford Motor Co. (F) fared well compared with the company during the quarter under review. Ford posted a 3.5% fall in profit to $1.85 billion in the quarter from $1.91 billion in the same quarter of prior year.
However, on per share basis, earnings were 46 cents versus 48 cents a year ago, beating the Zacks Consensus Estimate of 44 cents. The decline in profit was attributable to fall in commodity prices and anticipated reductions in Financial Services results.
Our Take
GM, a Zacks #3 Rank (Hold) stock, 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, economic recovery and improved cost structure. The company completed its IPO at the end of 2010, through which it has repaid up to $23.1 billion to the U.S. government.
Based on the current industry outlook, the automaker expects adjusted EBIT in the fourth quarter of the year to be similar with the fourth quarter of 2010 due to seasonal trends in North America and ongoing weakness in Europe. However, the company expects adjusted EBIT for 2011 to show solid improvement over 2010.
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