Start your engines! General Motors (NYSE:GM) will report first-quarter 2019 earnings before the U.S. markets open on Tuesday, April 30. 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 $1.10 per share, on average, down from $1.43 per share in the first quarter of 2018. ("Adjusted" earnings exclude one-time items.)
The analysts expect GM to report $34.98 billion in revenue, on average, down from $36.1 billion in the year-ago period.
U.S. sales were down, but pricing was strong
- GM is in the midst of ramping up production of its all-new full-size pickups, the 2019 Chevrolet Silverado and GMC Sierra. Sales in the first quarter were a mix of the new trucks and prior-generation models, with deep discounts on the latter.
- Notwithstanding the deep discounts on leftover pickups, GM said that its average transaction prices were the highest of any first quarter in its history. The new pickups had a lot to do with that: Average transaction prices on those pickups were $8,040 higher than the average transaction prices on 2018 models in the year-ago period, a significant gain.
- GM's revamped crossovers continued to do well in the first quarter, with the Chevrolet Trax and Equinox and GMC Acadia all setting sales records.
- Sales of GM's car models were down a combined 21% from a year ago. That's not out of line with rivals: Ford Motor Company's (NYSE:F) car sales fell almost 24% in the first quarter from a year ago.
The takeaway: While GM sold fewer vehicles in the first quarter than it did a year ago, the improvements in product mix and transaction prices could give its adjusted operating margin in North America a modest boost over the 8% it reported in the first quarter of 2018.
China: In a slumping market, GM underperformed its biggest rival
GM's sales in China fell 17.5% in the first quarter from the same period a year ago. While China's new-car market has been in a slump for the last few quarters, GM's first-quarter decline was worse than that of its key rivals. Notably, Volkswagen (OTC:VWAGY), with which GM has battled for the title of China's largest-selling automaker, posted a relatively modest 6.9% decline in its first-quarter sales in China.
Is GM in trouble in China? Probably not: Executives argue that the decline is mostly about where the company is in its product-replacement cycle. The automaker has 20 new or refreshed models due to arrive at its Chinese dealerships by the end of 2019, including several new high-profit luxury and large crossover SUV models.
But that said, first-quarter equity income from GM's joint ventures with Chinese automakers is likely to come in below the $597 million it reported in the first quarter of 2018.
GM expects good things in 2019 -- but probably not yet
Despite market headwinds in China and some expected production disruptions related to new-model launches, the automaker's forecast for 2019 is bright. The company expects full-year adjusted EPS to fall between $6.50 and $7, versus $6.54 in 2018, as it begins to see benefits from the restructuring it announced in November of last year. CFO Dhivya Suryadevara said in January that GM expects to realize between $2 billion and $2.5 billion of an expected total $4.5 billion in annual cost savings by the end of 2019.
How much of that will show up in GM's first-quarter results? Probably not a lot: Both the cost savings and the expected benefits from GM's all-new pickups are likely to have larger impacts later in the year.
I expect GM's first-quarter results to come in a bit ahead of Wall Street's estimates, and I expect that the forecast for the remainder of 2019 will continue to please investors -- but I don't see much likelihood of a big upside surprise this time around. We'll know more when GM reports on Tuesday morning.