General Motors (NYSE:GM) will report its second-quarter earnings result before the market opens on Wednesday, July 25. Here's a look at what to expect.
What Wall Street expects
Wall Street analysts polled by Thomson Reuters expect GM to report adjusted earnings of $1.81 per share, on average, down a bit from the $1.89 it earned on the same basis in the second quarter of 2017.
The analysts also expect GM to report revenue of $36.86 billion, also down a bit from its year-ago result of $36.98 billion.
Strong SUV and truck demand in the U.S. should help earnings
GM's U.S. sales rose 4.6% in the second quarter. The revamped lineup of crossover SUVs continued to do well, with sales of the group up 5.8%. The company also sold a lot of profitable pickups (up 21.2%) as it began the sell-down of Chevrolet Silverados and GMC Sierras, ahead of the arrival of all-new models at the end of 2018.
Despite the truck sell-down, GM was able to get strong pricing in the U.S. in the second quarter. Edmunds estimates that GM's average transaction price rose 3.7% from a year ago, to $40.569. Its incentive spending was also up from a year ago (by 8.1%, to $4,125 per vehicle), according to Edmunds' estimate.
The increased incentive spending is no surprise given the truck sell-down, and I don't think it's a worry for investors. The strong average transaction price, which takes incentives into account, suggests that GM was probably able to maintain good profit margins.
An overall gain in China, despite a drop in Buick sales
In China, GM weathered a surprising slump in Buick sales to eke out a 0.7% sales gain in the second quarter. Strong sales at its Chevrolet, Cadillac, and low-cost Baojun brand were just enough to offset a 16% decline in sales of its historically best-selling Buick brand.
GM is likely to tell us that it expects its China sales to pick up as the year goes on. It released a revamped version of its Buick Excelle (a compact sedan that has long been one of its China best-sellers) at the end of June, and it has 10 more new or revamped models coming to China between now and year-end. Several are SUVs, including the compact luxury Cadillac XT4 -- a model that could hit a sales sweet spot in China.
What to watch for: News about Cruise
Is GM planning to spin off Cruise Automation, its self-driving subsidiary -- and if so, will that be announced during the second-quarter earnings call? Some recent moves offer tantalizing hints at the possibility:
- In May, SoftBank Group's (NASDAQOTH:SFTBF) Vision Fund agreed to invest $2.25 billion in Cruise in exchange for a 19.6% stake.
- Last month, GM shuffled the responsibilities of its top executives to give its president, Dan Ammann, more time to focus on Cruise. Ammann led the effort to acquire Cruise in 2016; Cruise CEO Kyle Vogt reports to Ammann.
- Cruise just hired its own communications director, John Taylor, away from SpaceX.
Cruise is almost certainly significantly undervalued as part of GM. On its own -- or with its own tracking stock, at least -- its value might be more fully recognized by the market. Such a spinoff would be big news for GM investors: It's a safe bet that GM shareholders would receive shares in Cruise, a potential windfall.
It's also a safe bet that it'll be big news if and when it's announced.
The upshot: GM should have a good day on Wednesday
Regardless of whether my guess about a Cruise spinoff turns out to be right (or whether it gets announced this week), GM looks likely to have a good day on Wednesday. Assuming that GM's cost-management efforts continued to be as effective in the second quarter as they have been in the recent past, I suspect the good crossover and truck sales will have given the company enough to beat Wall Street's estimates by a bit. We'll find out on Wednesday morning.