General Motors Income drops by 87% but manages Profit in Q1 2020

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General Motors Income drops by 87% but manages Profit in Q1 2020

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What Happened

General Motors Company (NYSE: GM) Q1 2020 result was declared on 6th May 2020. Income of the company drops by 87%. However, the company still reports profit in Q1 2020.

So What

Financial Highlights of the company are:

  1. Company managed to earn profit of $ 294 million compared to $ 2.1 billion earned in previous year in first Quarter. Although profit has declined by 87%.
  2. Net revenue reported by the company is $ 32.7 billion, down by 6.2 % compared to Q1 2019 which was $ 34.9 billion.
  3. Adjusted EBIT reported by the company is $ 1.2 billion, down by 45.9% compared to same quarter of 2019.
  4. Operating income reported by the company is $657 million, decreased by 47% compared to $ 1.24 billion earned in same quarter of previous year.
  5. Adjusted per share earning is $ 0.62, down by 56% from $ 1.41 earned in same period of previous year.

Sales of General Motors declined by 7% compared to previous year. Demand for vehicle have declined in most of the places as selling of vehicle was put on stay to avoid spread of coronavirus. Strong sales of SUV and tracks in North America has helped company to reduce losses but company suffered heavy losses in China where plant was closed for more than 1 month.

In China, to protect the employees from coronavirus, company has extended the shutdown of its plants in the month of January. Production was suspended in North America and South America from March 2020. Manufacturing facility was suspended in India for supporting the government to prevent COVID-19 impact. Company was able to continue the production in Korea during first quarter of this year under rigorous safely protocol.

General Motor has cut its workforce pay by 20% and has promised to payback the amount in future with interest. Company did not layoff any employee but has asked  6,500 employees to participate in absence program and will get 75% of their pay with benefits. Salaries of senior executives has been deferred by 10% and compensation of directors have been cut by 20%.

Due to decline in sales and suspension of production across the globe, company did not pay the quarterly dividend and stock buyback for preserving the cash.

General Motor has started manufacturing medical equipment for treating affected coronavirus patients. Company has received the order from U.S. Department of Health and Human Services (HHS) for manufacturing 30,000 ventilators worth $ 489.4 million. General Motors has collaborated with Ventec Life Systems at GM’s Kokomo facility for production and shipping of critical ventilators. Temporarily Warren plant is being used for making personal equipment and company in its press release claims that it has donated 1 million face masks. SAIC-GM-Wuling in China and plant in Mexico have started manufacturing face mask and General Motors is also planning to start this facility in Canada.

 Now What

At the end Q1 2020, General Motor has $ 33.4 billion as automotive liquidity. Company has also extended three years revolving credit agreement of $ 3.6 billion till April 2022 for boosting the liquidity. Earlier GM and GM Financial had extended $ 2 billion, 365 days resolving till April 2021.

On 7th May 2020, automaker announced the pricing of senior notes worth $ 4 billion. The notes include $1 billion of 5.40% notes due in 2023, $2 billion of 6.125% notes due in 2025 and $1 billion of 6.80% notes due in 2027. General Motors claims to use the money from these notes for general corporate purpose.

Sales in April have taken hit as production in US remained closed for entire month. By the end of March total inventory available with General Motors was 668,443 units. Plant in china started functioning from Mid-February. In USA company is planning to restart its production from 18th May 2020. Plant at Brazil will start functioning after 30th June 2020.

Before the outbreak of coronavirus, General Motor said, it is planning to invest $ 7 billion in manufacturing of Electric Vehicle. In the month of march, electric vehicle strategy such sales, future profitability and technical details were shared with investors, dealers, analyst, and policy maker. Also General Motors and Honda have agreed to work together for developing the electric vehicle for Honda using General Motors new electric vehicle platform having ultium battery system.

In February, General Motors announced that, it will close its engineering vehicle sales except for GM specialty vehicles and design operations in Australia and New Zealand and retire the Holden brand by 2021. Company has also decided to sell its Rayong plant situated in Thailand to Great Wall Motors.

Looking at the fundamentals of the company and its future business outlook, investors may find General motors a fair deal to invest.

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