What Investors Can Expect in General Motors' Q1 Earnings Release


General Motors' Headquarters in Detroit. Source: General Motors Company

It seems like an eternity ago, but if you can think back to December of last year, General Motors (NYSE: GM  ) was on a roll. In the span of about two weeks the company had some hugely positive events occur, more than many companies have in a full year. GM's sales in China were surging, its luxury Cadillac lineup had a great year, it made a key decision to cut its losses and pull Chevrolet out of Europe, and perhaps the best of all the U.S. Treasury had finally sold off the last of its stake in GM. Things were good.

As soon as the book was closed on 2013, things went downhill at General Motors -- and quickly.

The first quarter of 2014 gave GM its newest black eye as it announced multiple, and very significant, recalls that covered over 6 million vehicles. That obviously includes the controversial recall of 2.6 million vehicles in the U.S. that is linked to at least 13 tragic deaths.

With GM's first quarter in the books, here are some highlights and what investors can expect in tomorrow's presentation.

Quick highlights
General Motors delivered more than 2.4 million vehicles globally in the first quarter, which was up 2% compared to last year's first quarter. That figure was aided by GM's surging sales in China, the world's largest automotive market, which set a record in the first quarter with sales increasing 13% to 919,000 units. Sales of GM's luxury Cadillac lineup, which commands higher transaction prices and margins, increased 9% globally. General Motors was also able to hold higher pricing on its newly designed full-size trucks, the Silverado and Sierra, for the first two months of the year, which will help bolster profits. 

While on paper General Motors had some highlights, the quarter was actually closer to a worst case scenario due to its massive recall announcements.

Massive charges
Investors can expect GM to struggle with profitability this quarter. As GM's recall debacle continued throughout the quarter, it became clear that the situation was going to cost the company dearly, both directly in terms of expenses and indirectly through a tarnished brand image and negative publicity.

The company's estimates for expenses related to the recall have nearly quadrupled from the original figure to $1.3 billion. Costs were driven higher as repairs took place and the company provided loaner vehicles to customers affected by the recall. In addition to the recall-related charges in the first quarter, GM will record a $400 million charge related to the devaluation of Venezuela's currency and the shutdown of two factories. 

GM could have spread the charges throughout the year but decided to record everything in full for the first quarter, so investors can expect little to no profitability. Currently the consensus of analysts polled by Thomson Reuters is for GM to post $0.11 earnings per share, which is significantly lower than last year's $0.67 per share.

Looking ahead
Investors would also be wise to listen for GM's progress on addressing safety and recall issues, whether in the presentation itself or perhaps the conference call Q&A session with analysts and media. General Motors is going to have to prove to investors, and the American public, that the General Motors that emerged from bankruptcy is a better and more ethically responsible company than its predecessor -- and it's not off to a good start.

Initially, GM was expecting modest profit growth this year driven by 15 new model launches in North America and 17 in China. But that growth will be in jeopardy if the company doesn't present a solid strategy to fix its safety issues and polish its brand image, both of which could hinder vehicle sales in the future.

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  • Report this Comment On April 23, 2014, at 6:25 PM, funfundvierzig wrote:

    This corrupt enterprise will be under a dark and increasingly darkening cloud as long as GM Management clings to its long ingrained culture of evasion and hyper-secrecy, denying and lying. A CHEAT-to-COMPETE culture, we might add, repulsive to millions of would-be buyers of cars and trucks. ...funfun..

  • Report this Comment On May 12, 2014, at 8:06 PM, Hansen wrote:

    Here is something you might be interested in, Barra the CEO of General Motors privately met with 22 family members of the victims of the accidents caused by the ignition switches and http://goo.gl/KGmiSM

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