Categories Analysis, Earnings

Earnings preview: Flattening sales may keep General Motors in slow lane in Q3

The market’s verdict on General Motors’ (GM) third-quarter performance will depend largely on how effectively the management tackled the impact of the tariff-induced cost escalation. The majority of the analysts are pessimistic about the company’s bottom line, and predict a 4.6% dip in adjusted earnings to $1.26 per share. Meanwhile, revenues are seen gaining 1.7% year-over-year to $34.21 billion and that could make Halloween a less scary experience for the investors.

The Detroit, Michigan-based automaker is slated to release its third-quarter results Wednesday before the opening bell. While falling sales in the US market remains a cause for concern, the upbeat crossover and SUV segments could help offset the impact, more so when margins are boosted by the favorable pricing.

However, it will be too optimistic to expect a recovery in China where the market conditions remain gloomy amidst the trade tensions. Now, the question is whether the management would maintain the guidance or not. Another downward revision will come as a big dampener for the market.

GM stock falls after guidance cut; Q2 earnings beat estimates

In a sign that high commodity costs have started eating into the company’s profitability, GM’s earnings dropped 4% to $1.81 per share in the second quarter but stayed above the consensus forecast. During the June quarter, sales came under pressure from an unfavorable product mix, resulting in a modest decline in revenues.

Reporting a 37% fall in earnings – though to a lesser extent than predicted by analysts – Ford Motor (F) last week blamed the continuing softness in the overseas markets, mainly Europe and China, for its dismal performance in the third quarter. Ford’s revenues rose 3% to $37.6 billion.

Also see: General Motors Q2 2018 Earnings Conference Call Transcript

The long-term prospects of GM’s stock look bright, considering the company’s recent foray into the promising autonomous transport segment. If the trade-related issues get resolved soon, the new ventures including the autonomous unit could push up the company’s market value in the near future.

Over the past one year, GM slipped around 19%. The shares, which reached a peak in June, continue to underperform the S&P 500 index. However, the stock had a good start to the week ahead of the earnings report, gaining about 4% in early trading.

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