General Motors Returned to Profitability in the Third Quarter

November 6, 2020
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America’s largest automaker released earnings this week, and there was plenty of good news for investors and the wider auto industry. General Motors Co. (NYSE: GM) returned to profitability with strong earnings that beat analyst expectations, and revenue that came right in line with the estimates.

Here’s what investors need to know from the latest earnings report.

General Motors Profitability Jumps While Revenue Remains In Line

Despite lower overall global demand for new vehicles, GM kept its revenue flat year over year, with $35.5 billion generated in the third quarter. This was in line with analyst estimates heading into the earnings season.

Coronavirus restrictions and lower consumer confidence were contributing factors in the lack of top-line growth. However, the company was able to leverage the demand that existed by raising the average price of vehicles. Global sales volume by unit was down by 4% in the third quarter.

Full-size pickups and SUVs performed well in the United States according to CFO John Stapleton, and Chinese sales were also higher than expected. While China was the first country to be hit by the Coronavirus Pandemic, it quickly recovered by limiting incoming travel and locking down virus hotspots. This allowed its economy to come back strongly in the second half of the year.

Profitability was the biggest factor in the blowout earnings report. Analysts had expected the company to report earnings of $2.1 billion excluding special items, compared to $2.5 billion a year ago. Instead, the company reported earnings of $4.1 billion. Making it one of the best quarters in recent memory.

The profit margin increased to 14.9%, compared to 8.4% in the same quarter last year.

GM increased borrowing in the early days of the Coronavirus Pandemic but it announced that it was able to pay $5.2 billion during the third quarter. It expects to pay the balance of its 2020 loans by December.

A Strong Growth Option for Investors

GM said this week that its profitability will help it to self-fund growth in its electric vehicle development. It suspended its dividend earlier this year and expects to restore it by the third quarter of 2021. The stock trades for a discount today relative to its average target price of $41.19.

Any investor interested in the auto market or electric vehicles specifically can consider GM as a long term holding.

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