General Motors (GM -5.96%) will report its fourth-quarter and full-year 2020 earnings before the market opens tomorrow, Feb. 10. What should we expect?
What Wall Street expects
Wall Street analysts polled by Thomson Reuters expect GM to report adjusted earnings per share of $1.63 on revenue of $36.12 billion, on average. ("Adjusted" earnings exclude one-time items.)
Both would be substantial improvements over GM's results in the fourth quarter of 2019, which began amid a strike that idled its plants in the United States. GM earned just $0.05 per share on revenue of $30.8 billion in that year-ago period.
How GM performed in the fourth quarter of 2020
- GM's U.S. sales were very strong in the fourth quarter, up 5% from a year ago despite weak commercial fleet sales. Put another way, GM's higher-margin retail sales were very strong. A key factor: Sales of GM's new full-size pickups were up 11%, as GM's dealers took advantage of rival Ford Motor Company's tight pickup inventories amid a changeover to an all-new 2021 F-150.
- Also helping: U.S. sales of GM's brand-new big SUVs -- the Chevrolet Tahoe, Chevrolet Suburban, and GMC Yukon -- were up a combined 28% year over year.
- GM also did well in China: Sales rose 14.1% in the fourth quarter from a year ago, driven by strong sales of new SUVs at Cadillac (up 56%) and Buick (up 28%).
The takeaway for investors: This was a very good quarter for GM in its two most important markets.
What GM told us to expect
GM didn't give us explicit guidance for the fourth quarter. But during GM's third-quarter earnings call, acting CFO John Stapleton said investors should expect the company's second-half adjusted earnings before interest and taxes ("EBIT-adjusted," in GM-speak) to fall between $8.5 billion and $9.5 billion, with adjusted automotive free cash flow between $11.5 billion and $12.5 billion. Stapleton also warned investors to expect GM's fourth-quarter result to come in below its third-quarter result, as additional costs related to new-product launches would weigh.
We know that GM reported EBIT-adjusted of $5.3 billion in the third quarter, with adjusted automotive free cash flow of $9.1 billion. Translation: GM guided investors to expect EBIT-adjusted of between $3.2 billion and $4.2 billion in the fourth quarter, with adjusted automotive free cash flow between $2.4 and $3.4 billion. (More GM-speak: "Automotive" results exclude results from GM's financial-services subsidiary.)
We can't translate that EBIT-adjusted range to adjusted earnings per share with great precision. But we can apply a back-of-envelope estimate: Call it $1.60 to $2.10, give or take.
What to expect when GM reports earnings
I think there are some good reasons for auto investors to expect GM to beat Wall Street's earnings-per-share estimate of $1.63, which seems a bit conservative given GM's strong sales results (and particularly strong sales of higher-profit products) in the U.S. and China in the quarter.
Yes, some costs will weigh -- GM is preparing to launch a slew of new electric vehicles, after all. But I think the stage is set for a nice upside earnings surprise when GM reports on Wednesday morning.