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Automotive manufacturer General Motors (NYSE:GM) announced better-than-expected revenue in Q3 CY2024, with sales up 10.5% year on year to $48.76 billion. Its non-GAAP profit of $2.96 per share was also 23.1% above analysts’ consensus estimates.
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General Motors (GM) Q3 CY2024 Highlights:
- Revenue: $48.76 billion vs analyst estimates of $44.38 billion (9.9% beat)
- Adjusted EPS: $2.96 vs analyst estimates of $2.40 (23.1% beat)
- EBITDA: $3.43 billion vs analyst estimates of $6.34 billion (46% miss)
- Management raised its full-year Adjusted EPS guidance to $10.25 at the midpoint, a 2.5% increase
- Gross Margin (GAAP): 20%, up from 12.2% in the same quarter last year
- Free Cash Flow Margin: 16.1%, up from 9.1% in the same quarter last year
- Market Capitalization: $54.99 billion
Automobile Manufacturers
Much capital investment and technical know-how are needed to manufacture functional, safe, and aesthetically pleasing automobiles for the mass market. Barriers to entry are therefore high, and auto manufacturers with economies of scale can boast strong economic moats. However, this doesn’t insulate them from new entrants, as electric vehicles (EVs) have entered the market and are upending it. This has forced established manufacturers to not only contend with emerging EV-first competitors but also decide how much they want to invest in these disruptive technologies, which will likely cannibalize their legacy offerings.Sales Growth
Examining a company’s long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, General Motors grew its sales at a tepid 4.8% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. General Motors’s annualized revenue growth of 11.4% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
This quarter, General Motors reported year-on-year revenue growth of 10.5%, and its $48.76 billion of revenue exceeded Wall Street’s estimates by 9.9%.
Looking ahead, sell-side analysts expect revenue to decline 2.9% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and shows the market thinks its products and services will face some demand challenges.
Operating Margin
General Motors was profitable over the last five years but held back by its large cost base. Its average operating margin of 6.2% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.On the bright side, General Motors’s annual operating margin rose by 3.8 percentage points over the last five years.
This quarter, General Motors generated an operating profit margin of 7.5%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.
Earnings Per Share
Analyzing long-term revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.General Motors’s EPS grew at a solid 10.1% compounded annual growth rate over the last five years, higher than its 4.8% annualized revenue growth. This tells us the company became more profitable as it expanded.
Diving into the nuances of General Motors’s earnings can give us a better understanding of its performance. As we mentioned earlier, General Motors’s operating margin was flat this quarter but expanded by 3.8 percentage points over the last five years. On top of that, its share count shrank by 21.6%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business. For General Motors, its two-year annual EPS growth of 26.8% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q3, General Motors reported EPS at $2.96, up from $2.26 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects General Motors’s full-year EPS of $9.84 to stay about the same.