$2.6 Billion Charge for Strike Can't Hold Down GM Stock

Cars and Drivers

Published: February 5, 2020 9:45 am

General Motors Co. (NYSE: GM) reported fourth-quarter and full-year 2019 results before markets opened Wednesday. For the quarter, the automaker posted adjusted diluted earnings per share (EPS) of $0.05 on revenues of $30.8 billion. In the same period a year ago, the company reported EPS of $1.43 on revenues of $38.4 billion. Fourth-quarter results also compare to the consensus estimates for EPS of $0.01 and $31.04 billion in revenues.

For the full year, GM reported EPS of $4.82 and revenues of $137.24 billion, compared to 2018 annual EPS of $6.54 and revenues of $147.05 billion. Analysts were looking for EPS of $4.79 and revenues of $136.7 billion.

GM’s net loss for the quarter totaled $200 million, down from a profit of $2.04 billion in the year-ago quarter. Adjusted pretax (EBIT) earnings totaled $105 million, down by 96.3% from $2.83 billion in the year-ago quarter.

GM said that the UAW strike reduced its North American adjusted EBIT for the quarter by $2.6 billion ($1.39 per share). Added to the $1 billion in costs attributed in the third quarter, the six-week strike cost GM $3.6 billion in adjusted EBIT and reduced adjusted automotive free cash flow by $5.4 billion.

North American sales volume was seven percentage points lower than in the same quarter last year, falling from 917,000 units to 853,000. Worldwide sales fell from 2.24 million units in the fourth quarter of 2018 to 2.03 million. For the year, North American sales slipped by 3.5% and worldwide sales fell by 8.0%.

CEO Mary Barra commented:

We continue to transform this company for the future. GM is positioned for strong, long-term business results with a focus on sustainability, and we are confdent [sic] that our EV and AV strategies will drive shareholder value while improving the environment.

In its initial guidance for 2020, GM forecast adjusted diluted EPS for the year in a range of $5.75 to $6.25 and automotive operating and free cash flow in ranges of $13.0 billion to $14.5 billion and $6.0 billion to $7.5 billion, respectively. GM also forecast a total U.S. market for light vehicles in the mid-16 million unit range, while the total Chinese market should fall in the mid-24 million unit range.

The company also said it will benefit from new vehicle launches, ongoing cost savings, and lean U.S. inventory to begin the year, partially offset by macro factors.

Consensus estimates call for first-quarter EPS of $1.44 and revenues of $36.29 billion. For the full year, analysts are looking for EPS of $6.23 and revenues of $144.96 billion.

Though the impact of the UAW strike on third-quarter results was much less than analysts had expected, the tab for the fourth quarter was higher. Buyer incentives averaged $5,405 per vehicle in the fourth quarter, about $600 more than in the same period a year ago and about $220 more sequentially.

All things considered, GM did well, excluding the effects of the strike. For 2020, GM sees the total U.S. market shrinking from around 17.1 million units sold in 2019 to somewhere around 16.5 million units, ending a streak of five consecutive years when new car sales topped 17 million. Can GM and the rest of the industry keep raising prices to offset lower unit sales? We’re about to find out.

GM shares traded up more than 2% at $35.29 early Wednesday, within a 52-week range of $32.97 to $41.90. The 12-month consensus price target on the stock is $47.65 and the dividend yield is 4.51%.