General Motors (NYSE:GM) will report its fourth-quarter and full-year 2018 earnings before markets open on Wednesday, Feb. 6. Will it be good news or bad news?

What Wall Street expects

Analysts polled by Thomson Reuters expect GM to report adjusted earnings per share of $1.22 for the fourth quarter, down from $1.65 per share in the year-ago period. They expect GM to report revenue of $36.48 billion, down from $37.7 billion a year ago. 

How GM's sales fared in the fourth quarter

GM's U.S. sales fell 2.7% in the fourth quarter of 2018, but that number doesn't tell the whole story. While sales of many of GM's sedans fell sharply year-over-year, sales of its big-selling Chevrolet Equinox and Traverse crossovers rose 26.4% and 14.1%, respectively. Those increases suggest that GM may be successfully moving many of its former sedan customers to (more profitable) crossovers. 

A dark red 2019 Chevrolet Traverse, a 7 passenger crossover SUV.

Nearly all of GM's crossovers were new in the last couple of years, and most are selling very well. Chevrolet Traverse sales rose 14% in the fourth quarter. Image source: General Motors.

GM's full-size pickup sales fell 1% in the fourth quarter, but note that GM was selling a mix of highly profitable all-new 2019 Chevrolet Silverado and GMC Sierra pickups along with deeply discounted outgoing 2018 models. The proportion of 2019 to 2018 pickups grew as the quarter unfolded, meaning that while GM's pickup sales may have been down slightly, its pickup profits may well have risen significantly year over year. 

The story was different in China, where the overall market for new vehicles came under intense pressure toward the end of 2018. GM's sales in China fell 25.4% in the fourth quarter -- and while that's a disturbing drop, several of GM's mass-market rivals fared much worse. 

Check out the latest GM earnings call transcript. 

The good news, such as it is, is that the market for luxury vehicles in China held up somewhat better than the mainstream market in the fourth quarter. Sales at GM's luxury Cadillac brand were up 17.2%, beating out market leader Audi's 0.4% gain. 

What to expect from GM's earnings report

At an investor briefing in January, CFO Dhivya Suryadevara said that GM's full-year adjusted earnings per share and adjusted automotive free cash flow will both be above the guidance she gave in October, when she said that GM expected:

  • Adjusted earnings per share between $5.80 and $6.20. 2018 result: $6.62.
  • Adjusted automotive free cash flow of "around $4 billion." 2018 result: $5.2 billion.

GM's "adjusted" figures exclude the effects of one-time items, and its "automotive" figures exclude results related to subsidiaries GM Financial and Cruise Automation.

Through the first three quarters of 2018, GM generated:

  • Adjusted earnings per share of $5.11.
  • Adjusted automotive free cash flow of negative-$310 million.

If we subtract those from the full-year guidance, assuming that we should be at least a bit above the ranges given, we learn that we should expect adjusted earnings per share of at least $1.10, to get a full-year total of $6.21, a penny above the guidance range, and adjusted automotive free cash flow of more than $4.31 billion, for a full-year total of over $4 billion.

Suryadevara said the result was driven by "strength across every operating segment," that North America finished the year particularly strong, that China performed well despite difficult market conditions, and that GM's financial-services subsidiary also delivered a good result. 

The upshot? If GM can deliver that cash flow -- and it's not at all implausible, given that GM delivered $4.2 billion in adjusted automotive free cash flow in the year-ago quarter -- then Wall Street's consensus estimate for adjusted earnings per share of $1.30 probably isn't far off. It might even be a bit low.