Yahoo Finance General Motors Company (NYSE:GM) Q1 2024 Earnings Call Transcript
General Motors Company (NYSE:GM) Q1 2024 Earnings Call Transcript April 23, 2024
General Motors Company beats earnings expectations. Reported EPS is $2.62, expectations were $2.15. General Motors Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning and welcome to the General Motors Company First Quarter 2024 Earnings Conference Call. During the opening remarks, all participants will be in a listen-only mode. After the opening remarks, we will conduct a question-and-answer session. We are asking analysts to limit their questions to one and a brief follow-up. [Operator Instructions] As a reminder, this conference call is being recorded Tuesday, April 23rd, 2024. I would now like to turn the conference over to Ashish Kohli, GM's Vice President of Investor Relations.
Ashish Kohli: Thanks, and good morning, everyone. We appreciate you joining us as we review GM's financial results for the first quarter of 2024. Our conference call materials were issued this morning and are available on GM's Investor Relations website. We are also broadcasting this call via webcast. Joining us today are Mary Barra, GM's Chair and CEO; and Paul Jacobson, GM's Executive Vice President and CFO. Dan Berce, President and CEO of GM Financial will also be joining us for the Q&A portion of the call. On today's call, management will make forward-looking statements about our expectations. These statements are subject to risks and uncertainties that could cause our actual results to differ materially. These risks and uncertainties include the factors identified in our filings with the SEC.
Please review the Safe Harbor statement on the first page of our presentation as the content of our call will be governed by this language. And with that I'm delighted to turn the call over to Mary.
Mary Barra: Thanks, Ashish, and good morning, everyone. In January, we outlined clear priorities for 2024 that are designed to build on our strength and learn from the challenges we faced in 2023. I'm very pleased to share that the team is executing well against all of them. Around the world, we are very focused on growth and profitability, which means taking full advantage of our winning product portfolio to grow share without chasing unprofitable business. In North America, the fundamental strengths of Chevrolet, Buick, GMC and Cadillac truly stand out. The team delivered a 10.6% EBIT margin in the quarter, thanks to our industry-leading full-size pickups, the momentum we're building in midsized pickups, the growth we are seeing in our SUV business, profit improvement in our EV portfolio and our overall operating discipline.
We again grew retail shares and market share in the US during the quarter with incentives that remained well below the industry average, especially in our truck business. We grew our combined Chevrolet and GMC full-size pickup sales by 3% year-over-year and grew our retail market share 1.8 points to 43.8% with much lower incentives than our closest competitors whose sales were down. In March, we doubled sales of the GMC Canyon year-over-year. And the Chevrolet Colorado was the fastest-growing truck in the midsize pickup segment, thanks to its purity of function, simple elegance in execution and value. Those are MotorTrend's words, not mine. We also continue to gain market share and grow EBIT with our new small SUVs, including the Chevrolet Trax and the Buick Envista.
These vehicles are helping us win new customers, and we will continue to excel at customer retention. During the quarter, S&P Global Mobility announced that GM has now had the highest loyalty of any OEM for nine consecutive years. That's a powerful competitive advantage. In our EV business, we are building momentum in production and profitability. For example, we have increased battery module production by 300% over the last six months. Quality is very good and continuing to improve. And the installation and validation of our new high-speed module assembly lines is on track. We are projecting to double our current capacity by the end of the summer. EV production rose sharply during the quarter, and our dealers translated that into a 21% year-over-year increase in EV retail customer deliveries.
For example, the Cadillac LYRIQ outsold all of the EVs from European luxury brands in the first quarter. And since mid-March, we are now delivering Chevrolet Blazer EVs with updated and improved software. All of our product programs are benefiting from the end-to-end improvements we've made in software, including the increased rigor we have instilled in our quality and validation processes. More importantly, the talented executives and engineers we've hired from the tech industry are raising the bar for software design and execution, which will help us truly differentiate our customer experience and the suite of software-driven products and services we offer. We're also making progress at Cruise. The team is back on the road in Phoenix updating mapping, gathering more road information.
This is a critical step for validating our improved self-driving system and building upon the more than 5 million driverless miles we've logged before the pause. We are engaging frequently with regulators and stakeholders and building trust as we regain momentum. Safety will remain front and center and will guide our progress. I am pleased with our ICE performance, our progress in EV execution and growth, our new software organization's performance and the steps we're taking to regain momentum at Cruise. In addition, I'm very proud of the GM team and all of our stakeholders for really leaning in to keep our momentum going. Their commitment and tenacity helped give us the confidence to raise our full year 2024 EBIT, EPS and automotive adjusted free cash flow guidance.
In our ICE business, the redesigned Chevrolet Traverse, GMC Acadia and Chevrolet Equinox are all launching in high-volume segments starting this quarter. So are the Chevrolet Spin and the S10 in South America, and they have higher margins than the outgoing models. Then this summer, the stunning new Buick Enclave will arrive. It's the first Enclave to offer Super Cruise. Later in the year, we will make important design and technology upgrades to our best-selling GMC Yukon, Chevrolet Tahoe and Chevrolet Suburban full-size SUVs. They include redesigned, tech-focused interiors, safety and security features that include a suite of connected cameras, riding handling improvements, styling enhancements and more. Mark and our performance team also have the unbelievable Corvette ZR1 coming and we can't wait to put customers behind the wheel.
And we've already begun installing equipment at our Fort Wayne assembly plant to produce our next-generation full-size ICE pickups. In our EV business, the Ultium Cell plant in Spring Hill is shipping sales and scaling production through the year. The Chevrolet Equinox EV will arrive in showrooms this quarter, and we're very excited because it will be the most affordable long-range EV in the market. It will also offer Super Cruise like all of our Chevrolet GMC and Cadillac EVs on the Ultium platform. We will then introduce more affordable trim series for the Chevrolet Equinox EV, the Blazer EV and the Silverado EV in the second half of the year, which will help grow volume and share. Also in the second half of the year, Cadillac will expand its EV lineup to include the OPTIQ and the Escalade IQ.
This is important because EV adoption in luxury segments is higher and more resilient than in the broader market. Two of our most highly anticipated launches are the GMC Sierra EV Denali and the Chevrolet Silverado EV RST. They are best-in-class in ways that truly matter to truck customers. By optimizing the battery, aerodynamics and other systems, we were able to increase the range of the RST and the Denali by 10% to an estimated 440 miles, which is about 40 miles better than the median range of ICE vehicles on the road today. No EV pickup on the road today even comes close and it's possible to go even further. A few weeks ago, two road testers took the RST on a drive from Las Vegas to Phoenix. And they drove it like customers do on paved and gravel roads at freeway speeds at different temperatures and different elevations.
At the end, they managed to travel 460 miles on a single charge. It's the same story for towing. One journalist drove a Silverado EV work truck and three competing battery electric trucks on a 500-mile trip over the Rocky Mountains while towing trailers. It wasn't even a competition. The Silverado EV stopped once to charge, while every other truck had to stop four to five times. Chevrolet and GMC are also the only pickup brands that allow drivers to tow while using Super Cruise, our hands-free driving technology. That's just one of the several features that uniquely differentiates our products. This is exactly the kind of design and engineering functionality that excites people, motivates them and turns them into customers. It's the same formula for Chevrolet and GMC have filed with ICE trucks, and those results speak for themselves.
Based on the feedback we're hearing from customers and dealers, the early sales momentum we are seeing, we're confident that continuing to scale EV production is the right move. We know that transparency matters in every transformation. So Paul and I will give you regular updates throughout the year, including at our Investor Day we're planning for this fall as we achieve our EV production, sales and profitability milestones. All of these great ICE and EV products were made possible by the investments we made to drive transformation and growth. As a result, our spending was above historic levels for several years. Now that the foundation is largely built and we're starting to see results, our focus has turned back to driving free cash flow through enhanced profitability and capital discipline, finding ways to spend less for the same results and with an unwavering focus on the customer.
You're already seeing some examples of this. Our winning with simplicity discipline is a great example of how we're improving capital efficiency and lowering costs. The next-generation Ultium-based Chevrolet Bolt EV is another. It's a profitable and capital-efficient program that will deliver one of the most affordable electric vehicles around when it arrives in late 2025. There will be many more examples as we move forward. With that said, I'd now like to turn the call over to Paul to take you through our results and our new higher guidance for the calendar year.
Paul Jacobson: Thank you, Mary, and I appreciate you all joining us this morning. We're off to a good start to the year and I'd like to thank our team for all their hard work in helping deliver another strong set of financial results. We experienced consistent pricing trends during the quarter, below the 2% to 2.5% headwind we built into our full year guidance. For Q1, pricing was down only about $200 million year-over-year driven by demand for our products and a disciplined go-to-market strategy that prioritizes profitability and margins. And so far in April, we've seen pricing remain relatively consistent. That said, our comparisons get tougher as we lap price increases taken in Q2 of last year. The US retail industry experienced a slight mix shift away from the full-size truck segment during the quarter.
However, we increased our volume and share with lower incentives than our competitors, which speaks to our strong truck franchises and our customer loyalty. Retail sales were up 6%, while fleet sales decreased more than 20% driven by two main factors. First, we encountered some production constraints impacting the timing of fleet deliveries on our commercial van and midsize pickups. We expect to recover most of this volume in the second half of the year. Second, we made the strategic decision to produce more retail full-size SUVs compared to last year to satisfy our strong customer demand. Retail sales on our full-size SUVs have a higher trim mix that earned us more revenue per vehicle. We are committed to growing our strong and profitable fleet business, but we'll continue to balance fleet and retail customer demands with a focus on profitability.
We generated healthy cash flow during the quarter, helping support $600 million of year-to-date open market stock repurchases incremental to the ongoing ASR, retiring another 14 million shares since the beginning of the year. We now have approximately $800 million remaining in our existing share repurchase authorization. In addition, we completed the first tranche of the $10 billion ASR last fall, retiring 4 million shares in Q1. Our fully diluted share count at the end of the quarter was 1.16 billion, down 17% from where we were just one year ago. Given the strong momentum we've seen thus far and our confidence in the 2024 outlook, we are raising full year guidance to EBIT adjusted in the $12.5 billion to $14.5 billion range, EPS diluted adjusted to the $9 to $10 range and adjusted automotive free cash flow in the $8.5 billion to $10.5 billion range.
Now let's get into the Q1 results. We grew total company revenue by 8% to $43 billion driven by higher wholesale volumes in North America. Over the last 24 months, we've achieved consistent revenue growth, resulting in a CAGR of more than 15% over that period. We also achieved $3.9 billion in EBIT adjusted, 9.0% EBIT adjusted margins and $2.62 in EPS diluted adjusted. EBIT adjusted was up year-over-year and well above consensus driven by our continued strong ICE performance, improving EV profitability and our strategic cost actions, mitigating the effect of higher labor costs. We achieved adjusted automotive free cash flow of $1.1 billion, up materially versus being flat in Q1 of 2023 driven by improved working capital benefits through inventory management and production timing.
North America delivered Q1 EBIT adjusted margins of 10.6%, driving $3.8 billion of EBIT adjusted, up $300 million year-over-year primarily from higher wholesale volumes combined with steady pricing and ongoing cost containment. During the quarter, we continued to benefit from our fixed cost reduction program, realizing an incremental $300 million from lower marketing and engineering spend. Our fixed cost base is at its lowest since Q1 2022 and we are on track to achieve the full $2 billion net of depreciation and amortization by the end of 2024. Dealer inventory levels ended the quarter slightly above our 50 to 60 day end-of-year target at 63 days. However, we believe we are well positioned from an inventory standpoint as we head into a seasonally stronger part of the year and incur a few weeks of planned downtime in Q2 on our full-size pickups to prepare for future launches and to install new equipment.
GM International Q1 EBIT adjusted was breakeven, down $350 million year-over-year. China equity income was a loss of $100 million, down $200 million year-over-year as we lowered production to balance dealer inventory levels. This was slightly better-than-expected due to a continued focus on cost efficiencies. Having made progress reducing inventory levels, production is normalizing, and we expect to return to profitability in Q2. EBIT adjusted in GM International excluding China equity income was $100 million, down $150 million year-over-year driven by lower volume in South America and strategic decisions to protect margins. We anticipate new product launches and further cost efficiencies will help drive profitability improvements beginning in Q2.
GM Financial continues to perform well with Q1 EBT adjusted of $700 million, in line with last year and tracking well within the full year $2.5 billion to $3 billion guidance range. They continue to drive portfolio growth and paid a $450 million dividend to GM during the quarter. Cruise expenses were $400 million in the quarter, down from $800 million in Q4 '23, reflecting our cost reduction activities and a more focused operational plan. As Mary mentioned, Cruise is resuming operations in Phoenix, along with testing in simulated environments and on closed courses while they work to earn trust and build partnerships with regulators and customers. We expect full year Cruise expenses to be around $1.7 billion. Let's move now to one of the most important metrics we're focused on, EV profitability.
We continue to see sequential and year-over-year improvements in variable profit and EBIT margins as we benefit from scale, material cost and mix improvements. Since last year, we have significantly reduced cell costs with a large driver being lower battery raw material costs, especially for lithium. We ramped our first battery JV plant last year, and as they increased production and made other efficiencies, the cost of cells came down significantly. And cell plant number two in Tennessee is ramping even faster based on the learnings from plant one and is expected to reach full installed capacity by the end of the year. Collectively, these factors are helping improve vehicle profitability. For example, we have seen more than $12,000 of year-over-year cost savings in the LYRIQ alone.
As we continue to ramp, we expect to see the benefits from the production tax credit continue to grow and our fixed cost absorption to improve meaningfully. We wholesaled 22,000 Ultium-based EVs in Q1, up from less than 2,000 in the first quarter of last year and remain on track to achieve our 200,000 to 300,000 unit production and wholesale volume target for 2024. We will share more on EV profitability as we progress through the year. I would also like to touch on EV pricing, which we recently adjusted on the 2024 Blazer EV. This action has been well received by our dealers and customers. And as Mary mentioned, the vehicle is gaining momentum. We assumed some pricing pressure for both ICE and EVs in our business plan and guidance for 2024, but we continue to work on finding additional offsets through cost performance and other efficiencies.
Importantly, this pricing action doesn't change our expectation to achieve positive variable profit for our EV portfolio in the second half of the year or our mid-single-digit margin target in 2025. We remain confident that when consumers see our new EVs and get a chance to drive them, they will appreciate the unique combination of design, performance, range and value that we offer at multiple price points. And because of our supply chain efforts, customers are well positioned to leverage the $7,500 clean energy consumer purchase tax credit. In closing, I want to reiterate our capital allocation framework along with our intention to be much more consistent in how we deploy capital. We are generating strong cash flow, which is funding our EV transformation and growth opportunities.
These efforts include investing in future products, transitioning manufacturing capacity to EVs and deploying resources into cutting-edge battery technology. At the same time, you've seen us adapt to the dynamic market, particularly for EVs and made bold decisions to be more efficient with our capital spend, something we will continue to do moving forward. Our balance sheet remains strong. And on shareholder returns, we executed the ASR last November and the response has been overwhelmingly positive, with GM stock outperforming its peers and being up nearly 50% since the announcement. We have seen about a one turn improvement in our P/E multiple since the ASR, but we are still significantly undervalued relative to our historical average as well as our competitors and other industrial companies.
Obviously, we're not satisfied and know that we have a lot of work to do on our valuation and remain committed to improving it. As we move forward, we believe the strong cash generated by our ICE portfolio along with improved execution on our EV strategy as well as tangible progress on Cruise will help generate significant returns for all GM stakeholders. This concludes our opening comments and we'll now move to the Q&A portion of the call.
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