Please ensure Javascript is enabled for purposes of website accessibility

General Motors Earnings: What to Watch

By John Rosevear – Apr 25, 2019 at 2:05PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

GM reports next Tuesday. Sales are down, but operating margin may get a boost.

Start your engines! General Motors (GM 0.41%) 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. 

Barra is shown on stage during GM's 2018 shareholders' meeting.

CEO Mary Barra has GM on course for profit-margin improvements in 2019 -- but the gains may not show up until later in the year. Image source: General Motors.

U.S. sales were down, but pricing was strong

GM's U.S. sales were down 7% in the first quarter versus the same period in 2018, while the overall U.S. market was down just 3.2%. Key things to know: 

  • 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 (F -0.22%) 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 (VWAGY -1.29%), 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. 

John Rosevear owns shares of Ford and General Motors. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.