As U.S. car sales drop and raw materials prices increase, investors are bracing for a substantial decline in General Motors profitability. The automaker is slated to repot its first quarter 2018 earnings before the bell Thursday, April 26th.
Argus Research analyst, Bill Selesky, states that “the earnings numbers are going to be down big time from the prior year.” “The basic reason is that sales are slowing,” with U.S. retail sales likely flat compared with prior-year sales, making it harder for GM to turn a profit, he said.
GM has built a significant amount of goodwill with analysts and investors over the past several years, and is counting on it to avoid a major sell-off of its shares. But things aren’t all bad. For instance, the automaker has avoided deep discounts to move vehicles from lots. It’s also been responsibly cutting production where needed in order to match supply with demand.
Expectations for GM Q1 2018 earnings are as follows.
Analysts polled by FactSet have a collective expectation for GM to report earnings of $1.24 a share in the first quarter, substantially down compared to earnings of $1.70 a share.
Estimize, a crowdsourcing platform that gathers estimates from Wall Street analysts as well as analysts, hedge-fund managers, company executives, academics and others, is expecting GM to post a first-quarter profit of $1.29 a share.
Analysts surveyed by FactSet expect GM to post first quarter revenue of $34.46 billion. By comparison, Q1 2017 revenue was $41.20 billion a year ago. Analysts surveyed at Estimize expect sales to reach $34.62 billion.
How the results will impact GM’s shares will be highly interesting to see. The automaker’s share price has recently been outperforming those of other U.S. automakers, gaining 12 percent in the past 12 months. By comparison, Tesla’s shares saw a 9 percent loss and Ford Motor Company saw a 3 percent loss. However, the S&P 500 index has gained 12.3 percent during the same period.
GM shares are compare favorably to rivals year-to-date: as GM shares have fallen 7.3 percent, Tesla stock fell 10 percent and Ford saw an 11 percent drop. All three stocks, however, lag behind the S&P (down 0.3 percent) and the Dow Jones Industrial Average (down 1.2 percent).
GM’s first quarter weakness shouldn’t come as a surprise to analysts, investors or those following the company, since the firm has previously identified those weaknesses. Some analysts are also expecting notable improvements to the automaker’s operating performance for the second quarter.
“We expect GM to show notable improvements in Q2,” giving investors’ confidence over the summer that GM is “well on track to meet its guidance,” said analysts and Evercore in a note.
Out of the three American automaker, GM has forecast the smallest amount of concern related to commodities – and some analysts are looking for the company to affirm that it wasn’t “overly conservative with its assumptions and that this number has not crept up materially,” said the Evercore analysts.
Other topics that will be important during the call on Thursday include:
South Korea: the GM South Korea business unit has been a loss-making entity for quite some time now. The automaker has taken action to restructure the division, including shuttering the GM Gunsan plant, but the efforts are facing headwinds. The unit narrowly avoided a bankruptcy filing after reaching a last-minute agreement with the country’s unions last week, and concerns about the future of GM South Korea persist.
Switch to quarterly sales reporting: in the beginning of April, GM announced plans to no longer report sales results on a monthly basis. Instead, it will do so on a quarterly basis. Analysts have questioned the move, and will likely poke and prod executives on the subject during the earnings report.
Cadillac management: another major development is the departure of Johan de Nysschen, who headed GM’s luxury Cadillac division until he resigned last week. His replacement is GM veteran Steve Carlisle, who previously headed GM Canada.
“We are encouraged by this move, as we see it as a sign that GM senior management is not satisfied that Cadillac is living up to its full potential in the market, particularly outside of China,” analysts at Morgan Stanley wrote in a note Tuesday.
In fact, the investment firm has posited GM spinning off Cadillac as an individual entity in order to unlock hidden value.
“We continue to see Cadillac as a distinct and highly valuable business that can increasingly justify an independent existence potentially outside of the GM parent/group structure,” said the analysts.
Passenger cars: passenger car sales and associated strategy for the future of the product category will likely be another topic of interest for analysts. Car sales (as opposed to sales of SUVs and trucks) have been declining at General Motors and at other automakers. Ford, for instance, has just announced plans to eliminate all sedans from its North American lineup – including the Fiesta, Focus, Fusion and Taurus. Whether GM plans to take an equally-drastic measures or a different approach remains to be seen.