In an indication that the ongoing restructuring program is progressing as planned, General Motors (GM) Friday released a bullish outlook for 2019. The transformation is expected to bring a big boost to sales and earnings this year and beyond, though it involves multiple factory shutdowns and job cuts. Shares of the automaker traded sharply higher following the announcement.
According to the company, full-year earnings are expected to be between $6.50 per share and $7 per share, while automotive free cash flow is seen rising to the range of $4.5 billion to $6 billion. The management sees benefits of $2-$2.5 billion in cost savings alone in 2019 when $17 million new vehicles are expected to be sold in the US.
The management expects benefits of $2 $2.5 billion in cost savings alone in 2019 when $17 million new vehicles are expected to be sold in the US.
As part of the restructuring initiative, the company took the decision to tweak the line-up of passenger vehicle models, in response to the growing demand for SUVs and pickup trucks. The highlights of the revised portfolio are the new Cadillac and Chevrolet SUVs, as well as the redesigned Chevrolet Silverado and GMC Sierra pickups.
It is expected that the change in customer preference in favor of bigger vehicles will boost sales this year, though the company is phasing out around five of its existing sedan models. The bad news is that once the downsizing is complete, it will result in a modest decline in market share and put more jobs at risk. As many as 8,000 white collar positions will be annihilated this month in the US, while the plants where the sedans are manufactured will be closed by year-end.
Addressing investors and Wall Street analysts at a special session, GM CEO Mary Barra said full-year 2018 earnings per share and cash flow, which is scheduled to be announced in February, will come in above the initial forecast of $5.80- $6.20 and $4 billion respectively. In an apparent reference to GM’s electric-car program, Barra said the priorities this year are to invest more in new technology and to focus on core operations.
On Friday, GM shares made their biggest intra-day gain in recent times, reflecting the spike in investor sentiment that followed the positive guidance. The stock, which had lost about 15% in the last twelve months, surged more than 8% in the afternoon and trade above $37.
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