General Motors (GM +3.35%) is set to report its second-quarter 2019 earnings before the market opens on Thursday, Aug. 1. Here's what to look for.
What Wall Street expects
Analysts polled by Thomson Reuters expect GM to report adjusted earnings of $1.43 per share, on average, down from $1.81 per share in the second quarter of 2018. (Adjusted earnings exclude one-time items.)
The analysts expect GM to report $36.11 billion in revenue, on average, down from $36.76 billion in the year-ago period.
An elaborate factory shuffle will help GM produce more high-profit crew cab pickups as the year goes on. But it may have hurt sales in the second quarter. Image source: General Motors.
U.S. sales were down, but pricing was up
- GM's U.S. sales fell 1.5% in the second quarter, but pricing improved from a year ago.
- On the one hand, it was still working its way through a complex launch of all-new pickups in the second quarter, and sales of the light-duty versions of the Chevrolet Silverado and GMC Sierra were down 6.9% and 4.7%, respectively. But GM said that sales of crew cab (four-door) versions of its all-new trucks were up 12% from a year ago. (Part of the complexity of the truck launch is related to GM's effort to boost production of profitable crew-cab variants.)
- On the other hand, GM's well-regarded crossover SUVs continued to impress. U.S. sales of the group were up 17% year over year, with good results for the popular Chevrolet Equinox (up 16% from a year ago), Buick Envision (up 28%), and Cadillac XT4 (new).
- The upshot: GM's average transaction price (ATP) in the U.S., which is net of incentives, rose by about $1,575 from a year ago to just over $37,000. Incentives weren't outrageous, either: Incentive spending as a percentage of ATP fell to 12.6% from 13.4% in the second quarter of 2018.
China remains challenging, but GM may surprise
- GM's sales in China fell 12.2% in the second quarter of 2019.
- Sales at Baojun, a high-volume, low-cost brand created for the Chinese market, fell 32% in a weak overall market. But the Baojun 510, the brand's hot-selling small crossover SUV, continued to lead its market segment.
- Sales declined at the bread-and-butter Buick and Chevrolet brands, which were down 14% and 18.5%, respectively.
- But GM is having success with luxury in China. Cadillac sales rose 36.6% from a year ago, on strong demand for the XT4 and just-refreshed XT5 crossover SUVs.
- The upshot: While sales were down, mix clearly improved.
What GM's prior guidance tells us
Back in April, CFO Dhivya Suryadevara said that GM was on track to deliver on its full-year guidance, with full-year adjusted EPS between $6.50 and $7. She also said that the first quarter was likely to be the worst of the year from an earnings perspective, and that results would likely improve as the year went on, as production of GM's new vehicles (including the pickups) got up to full speed.
Suryadevara specifically said that GM's second-quarter earnings will probably be better than the first, despite the ongoing pickup manufacturing ramp-up. On balance, GM's second-quarter results in the U.S. and China -- specifically, the mix and pricing improvements -- suggest that the company will deliver on her forecast.
The upshot: A surprise is possible
Given that GM reported adjusted earnings of $1.41 per share in the first quarter, and that Wall Street is expecting an improvement of only $0.02, the stage may be set for an upside surprise. We'll find out on Thursday morning.
