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General Motors: Lower Sales Didn’t Impact Its Stock

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  • Lower sales didn’t impact General Motors stock.
  • The company beat the second-quarter estimates and reaffirmed its guidance despite persisting weakness in China.
  • There were higher sales of profitable crossovers and pickup trucks.
  • The second half of 2019 will likely be stronger than the first half.
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General Motors stock

General Motors (GM) stock wasn’t impacted by lower sales in the second quarter. Investors were confident about General Motors stock. The company beat analysts’ estimates despite lower sales.

General Motors announced its second-quarter results on August 1. The revenues and EPS fell on a YoY basis. However, the revenues and earnings beat analysts’ expectations, which is encouraging. Management’s positive commentary for the second half of 2019 will likely support General Motors stock in the coming quarters.

The stock has fallen 1% since the company announced its second-quarter earnings. In contrast, Ford stock has fallen about 10% since it reported a lower-than-expected EPS in the second quarter. So far, General Motors stock has risen 18.9%, while Ford stock fell from recent highs and rose 21.3%.

General Motors topped estimates

General Motors posted revenues of $36.1 billion in the second quarter, which fell 1.9% on a YoY basis. The revenues fell about 1% in North America, while the revenues fell nearly 15% in the International segment. However, the revenues beat analysts’ expectation due to strong  Chevrolet Silverado and GMC Sierra light-duty crew cab sales.

General Motors’ adjusted EBIT was $3.0 billion—$0.2 billion lower compared to $3.2 billion in the second quarter of 2018. As a result, the adjusted EBIT margin fell by 30 basis points to 8.4%. Management blamed lower equity income from China and planned full-size SUV production downtime for the decline. However, strong demand for pickup trucks and crossovers in North America acted as a tailwind.

The company posted an adjusted EPS of $1.64, which fell 9.4% YoY. However, General Motors beat analysts’ consensus estimates of $1.44 by a wide margin.

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Analyzing the concerns

We’re impressed with General Motors’ financial performance and improved outlook. However, lower vehicle sales and market share loss are a concern. The company’s second-quarter market share fell to 10.7% compared to 11.1% a year ago. The automaker sold about 1.94 million vehicles globally—down 6.1% on a YoY basis. However, the company’s sales improved sequentially. General Motors sold about 1.88 million vehicles in the first quarter.

Chevrolet brands’ global sales fell 5.1% YoY. Buick, Holden, Baojun, and Wuling brand sales fell 10.5%, 22.9%, 31.8%, and 0.5%, respectively. However, GMC and Cadillac sales increased 5.6% and 18.3%, respectively.

The sales in North America fell 4.0%, while the sales in China fell 12.2%. Also, the equity income fell by $400 million. Management blamed the industry slowdown and significant pricing pressure for the decline.

In comparison, Ford (F) posted a 21.7% decline in vehicle sales in China. Ford’s sales fell 4.1% in the US. General Motors’ vehicle sales were 14.8% more than Ford’s second-quarter sales in the US.

Upbeat guidance 

Despite lower sales and market share loss, the automaker is optimistic about the second half of 2019. Dhivya Suryadevara, General Motors’ CFO, expects “second half of 2019 to be stronger than the first half.” The full-size truck rollout and a bunch of other new launches combined with cost-savings will likely drive the second-half performance.

Management reaffirmed its EPS guidance and expects the adjusted EPS to be $6.50–$7.0. While China will likely remain weak, new launches might offset some of the negatives. In North America, truck launches and benefits from crossovers will likely support the earnings. Meanwhile, cost-saving initiatives could drive the EPS.

Analysts expect the EPS to return to growth in the second half of 2019, which will likely support the stock.

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