General Motors Reports Earnings Beat, Full-Year Profitability Likely Hit By Tariffs

by Trefis Team
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General Motors (NYSE: GM) reported its second-quarter results on July 25th and conducted a conference call with analysts the same day. Although the company reported both an earnings and revenue beat, the stock price of GM was heavily weighed down due to its downgraded outlook. The company reported an EPS (Non-GAAP) of $1.81, 4% lower than the reported figure a year ago. Revenue was reported at $36.8 billion, relatively flat to its Q2 2017 figure. Stronger volume sales in North America and China enabled the company to display strong performance through the second quarter, however, anticipated cost headwinds due to the recent trade tariffs are expected to weigh on the company’s full-year results.

General Motors reported stronger sales volume across its North American region, primarily being driven by increased sales of trucks, SUVs, and crossovers. During the second quarter, GM’s deliveries in the North American region increased by around 4.6%, much ahead of the increase of 2.2% experienced by the industry. A strong U.S. economy coupled with a higher take-home individual pay with the implementation of the latest tax reform has led to an increase in the consumer demand for automobiles in the U.S. market.

Additionally, equity income from China remained strong during the quarter driven by record volume sales of its Baojun and Cadillac brands. GM has an optimistic outlook on its performance in China with 10 new product launches scheduled through the second half of the year.

GM has, however, lowered its full-year earnings guidance on the backdrop of increasing commodity costs in the U.S, negative currency impact in its South American operations, and increased launch costs in China. Consequently, the company has cut its full-year EPS outlook to $6 from its initial guidance of $6.30 to $6.60. GM expects an additional cost headwind of approximately $1 billion in 2018 as a result of these unanticipated expenses.

Therefore, based on the aforementioned revised outlook, we have updated our base case estimates to reflect these changes. You can modify our assumptions to arrive at your own fair price estimate for the company by using our interactive dashboard: GM’s Q2 2018 Results Imply A Downward Price Adjustment For The Company.

 

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