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General Motors Earnings: What to Expect

By John Rosevear - Oct 28, 2019 at 2:41PM

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GM reports on Tuesday morning. Here's a preview.

General Motors (GM -2.50%) is set to report its third-quarter earnings before the market opens on Tuesday, Oct. 29. Here's a look at what to expect.

What Wall Street expects

Analysts polled by Thomson Reuters expect GM to report adjusted earnings of $1.31 per share on $33.82 billion in revenue. Both of those figures would be down from the third quarter of 2018, when GM posted adjusted earnings of $1.87 per share on $35.8 billion in revenue. (Adjusted earnings exclude the effects of one-time items.)

The big question: How much did the strike cost GM?

GM's U.S. factories went idle at midnight on Monday, Sept. 16, when workers represented by the United Auto Workers union began a nationwide strike against the company. Estimates of the cost of the strike to GM have varied widely. My own thinking is that it probably cost GM somewhere between $3 billion and $4 billion in revenue in the third quarter and between $250 million and $450 million in operating profit.

The total cost will be much higher, of course, given that the strike lasted until Oct. 25.

A black 2019 GMC Sierra, an upscale full-size pickup truck.

Sales of the upscale GMC Sierra pickup rose 38% in the third quarter. But that probably won't be enough to offset the effects of a nationwide labor strike. Image source: General Motors.

Other than the strike, Mrs. Lincoln, how was GM's quarter?

  • GM's U.S. sales rose 6.3% in the third quarter.
  • After a complicated production ramp-up, GM's new full-size pickups appear to have hit their stride. Sales of the light-duty versions of the all-new Chevrolet Silverado and GMC Sierra rose 18% and 38%, respectively.
  • The effect on GM's margin should be quite good, given that the new trucks are thought to be more profitable than the models they replaced.
  • GM's recently revamped lineup of crossover SUVs also did well across the board, notably powering a 7.2% sales gain for the Cadillac luxury brand in the U.S.
  • Cadillac also did well in China, with sales up 10.9% in the third quarter.
  • But the rest of GM's China lineup suffered from the country's ongoing auto-sales slump: GM's overall sales in China were down 15.8% from a year ago.

Will GM lower its full-year guidance?

Back in January, CFO Dhivya Suryadevara gave GM investors upbeat guidance for 2019. For the full year, she said, GM expects its adjusted earnings per share to fall between $6.50 and $7.00 and adjusted automotive free cash flow between $4.5 billion and $6 billion.

Suryadevara reiterated that guidance in August, when GM reported its second-quarter results. Through the first half of 2019, GM generated adjusted earnings per share of $3.04 and adjusted automotive free cash flow of negative $1.3 billion.

Suryadevara had said that GM expects its results to improve quarter by quarter as 2019 unfolds. That was true from the first quarter to the second -- but of course, that guidance didn't anticipate a national strike by the UAW.

Will GM need to cut its full-year guidance for earnings and cash flow, given that it lost about six weeks' worth of production in the United States? It seems likely.

What to expect from GM's earnings

Let's review. On the one hand, GM's U.S. sales were up in the third quarter, and the gain was driven by some of its most profitable products. On the other hand, sales in China were down, and the effects of the strike are likely to be expensive.

I think it's likely that GM's results will be roughly in line with Wall Street's estimates, and the market is likely to take it in stride. But a change to guidance for the full year could move the stock, and not necessarily in a good way.

We'll find out when GM reports on Tuesday morning.

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

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