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Why GM’s Earnings Trend Might Remain Weak in the Near Term

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General Motors stock

In the previous article, we looked at the recent stock price movements of General Motors (GM) and its peers. While GM is still in the positive territory YTD (year-to-date), it has underperformed many of its peers (IVV), including Ford Motor Company (F), Fiat Chrysler Automobiles (FCAU), Toyota Motor (TM), and Honda Motor Company (HMC), in March so far.

As of March 20, GM has fallen 6.3% compared to the 3.0%, 1.1%, and 2.9% month-to-date falls of F, TM, and HMC, respectively. In contrast, FCAU has risen marginally by 0.8% in March so far.

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The trend in GM’s earnings

In the fourth quarter of 2018, General Motors reported a 13.3% YoY (year-over-year) decline in its adjusted EPS to $1.43. This was the third quarter in 2018 during which the company’s adjusted EPS saw a YoY fall. It rose 41.7% YoY in the third quarter.

Higher commodity prices, foreign exchange headwinds, and a sharp decline in GM’s equity income from China were some of the key factors that hurt its fourth-quarter earnings.

Could earnings improve?

In the first quarter of 2019, General Motors could continue to face troubles due to declining Chinese vehicle sales. Chinese new vehicle sales fell 14% YoY in February 2019, marking the eighth straight month of YoY weakness.

No major relief in raw materials prices is also likely to negatively influence the company’s profits in the near term. However, the company’s earnings trend could improve in the long term. We’ll take a look at that possibility later in this series.

Now let’s see how the trend in GM’s revenue looks.

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