GM sees flat 2018 earnings, with pickups picking up in 2019
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General Motors Co shares rose on Tuesday after the company said 2018 earnings will be largely flat compared with 2017 and forecast higher profits in 2019 when its revamped line of high-margin pickup trucks hits the U.S. market.
The 2018 earnings outlook was above market expectations, sending GM shares up about 2 percent in midday trading.
GM forecast 2017 earnings per share at the high end of its previously forecast range of $6 to $6.50. The company expects earnings for 2018 to be roughly the same as in 2017. Analysts have predicted full-year 2017 earnings per share of $6.30, and $5.98 a share in 2018.
“If the guidance is as positive as we interpret it, this could be the positive catalyst that we expected, and sets up a solid ’18,” Barclays analyst Brian Johnson wrote in a client note.
The company and its Detroit rivals, Ford Motor Co and Fiat Chrysler Automobiles NV, are bringing on new trucks at a time when overall U.S. new vehicle sales have been falling, but truck sales continue to grow as consumers abandon passenger cars in favor of pickups, SUVs and crossovers.
President Dan Ammann said GM’s new line of pickups should generate improved profit from increased production of higher-priced, four-door crew cab trucks, and expanded sales of luxury truck models.
GM said in a presentation on Tuesday its Denali line of luxury pickups has average transaction prices of about $55,600, higher than the average for Daimler AG’s (DAIGn.DE) Mercedes-Benz brand, or GM’s own Cadillac luxury brand.
Chief Executive Mary Barra said during a meeting with reporters the automaker will boost investment in electric vehicles, but declined to say by how much. Rival automakers have used the Detroit auto show to tout multi-billion dollar investments in electrification.
GM said it expects capital expenditure in 2018 of around $8.5 billion, about $1 billion of which will go toward self-driving car technology. In future years, Chief Financial Officer Chuck Stevens said total capital spending should decrease.
Last week, the company said it was seeking U.S. government approval for a fully autonomous car – one without a steering wheel, brake pedal or accelerator pedal – to join GM’s first commercial ride-sharing fleet in 2019.
Barra also said GM will not follow other companies that have given employees special bonuses tied to tax cuts by the administration of U.S. President Donald Trump, which slashed the top U.S. corporate tax rate.
“If the guidance is as positive as we interpret it, this could be the positive catalyst that we expected, and sets up a solid ’18,”
Instead, Barra said if GM has higher profits because of lower U.S. taxes, GM employees, including union-represented U.S. factory workers, should see larger bonuses or profit-sharing checks based on existing pay formulas.
In a client note, Buckingham Research Group analyst Joseph Amaturo wrote that GM’s 2018 earnings outlook includes a “lower statutory corporate tax rate, so on an apples-to-apples basis, this appears to be an effective EPS guide down.”
“We believe the stock will fade after investors understand that the implied EPS guide is for a year-on-year decline, as we and consensus are forecasting,” Amaturo wrote.
GM faces challenges in 2018 from the costs of launching the new large pickup trucks, rising interest rates in the United States and a likely decline in overall U.S. vehicle sales, Stevens said.
However, Stevens said wage growth could offset the impact of higher interest rates for consumers buying vehicles.
Barra, Ammann and Stevens declined to say when investments in self-driving vehicle services and electrification will return profits. They pointed to the potential for new trucks and SUVs, a new, low-cost car for international markets, and the Cadillac luxury brand, to improve future earnings.
Cadillac profits should double from current levels by 2021, GM said, riding growing sales in China and new products planned for the United States to replace a current crop of slow-selling sedans. Stevens did not disclose current profit figures for Cadillac.
GM said on Tuesday that while it retools a factory in Ft. Wayne, Indiana, to make the new pickup trucks, it will shift some production to an Oshawa, Ontario, plant in order to build up to 60,000 vehicles and avoid missing sales.
The No. 1 U.S. automaker said it will record a $7 billion non-cash charge for its fourth-quarter 2017 earnings related to deferred tax assets that will lose their value because of the lower U.S. corporate tax rate.
GM shares rose 2.2 percent to $45.04 in noon trading.reu
Questions & Answers
Q.Why does GM expect largely flat earnings for 2018 despite market expectations of a decline?
Why does GM expect largely flat earnings for 2018 despite market expectations of a decline?
GM expects earnings to remain flat, aligning with 2017's high end, which is above analysts' predictions of a decrease. The 2018 outlook includes a lower statutory corporate tax rate, which some analysts suggest makes it effectively a guide down on an 'apples-to-apples' basis.
Q.What is GM’s strategy for increasing profits from their new line of pickup trucks?
What is GM’s strategy for increasing profits from their new line of pickup trucks?
GM plans to generate improved profit by increasing production of higher-priced, four-door crew cab trucks. They also aim for expanded sales of luxury truck models, such as their Denali line, which command high average transaction prices compared to other luxury brands.
Q.How much capital expenditure is GM allocating to electric vehicles and self-driving technology in 2018?
How much capital expenditure is GM allocating to electric vehicles and self-driving technology in 2018?
GM expects total capital expenditure in 2018 to be around $8.5 billion. Of this amount, approximately $1 billion is earmarked specifically for self-driving car technology. The company intends to boost investment in electric vehicles, but the precise figure was not disclosed.
Q.Will GM follow other companies in offering special employee bonuses related to U.S. Tax cuts?
Will GM follow other companies in offering special employee bonuses related to U.S. Tax cuts?
No, GM will not offer special bonuses tied to tax cuts. Instead, if lower U.S. Taxes result in higher company profits, GM employees, including union-represented factory workers, are expected to receive larger bonuses or profit-sharing checks via existing pay formulas.
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