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GM Beats Wall Street Estimates Despite Strike Hit

IAM Newswire

The 40-day UAW strike that ended on Friday almost wiped out the General Motors Company (NYSE: GM) free cash flow for the year and will end up costing the company $3.8 billion in full year earnings. But, the company's third quarter results easily beat up estimates despite the $1 billion strike cost for the quarter. This national strike was the longest in almost 50 years. As a consequence, the company has lowered its guidance for the year as the strike's cost was significantly higher than expected.

Third Quarter Results

Revenue of $35.47 billion exceeded the forecasts of $33.82 billion resulting in adjusted earnings per share of $1.72 versus the expected $1.31. The strike has taken 52% per share of the company's earnings whereas the revaluation of its investment in Lyft Inc (NASDAQ: LYFT) and warrants from PSA Group deducted an additional 15 cents per share.

Competition – Trump Administration's Side

The pressure posed by toughening emission standards has brought competitors together as GM unites with Toyota Motor Co (NYSE: TM) and Fiat Chrysler Automobiles (NYSE: FCAU) to back up Trump's administration in the battle with California's officials. The idea is to help themselves remain competitive as it would greatly ease their costs. Toyota just announced on Monday that it will boost its hybrid presence with its plant in Poland by 2022 due to increased interest in Europe.

Toyota and Fiat Chrysler are among the 3 automakers that constitute almost 30% of America's total vehicle sales but Fiat admitted it needs more electric cars and Toyota has doesn't yet have a serious electric car in the making, so the clock is ticking as the electric era is upon the industry. And this move has only led to critic of their leadership as siding with the government that allows the country to burn due to irresponsible environmental policies.

Competition: The Sustainable Side

On the other side of the emission argument, there are many automakers, such as Honda Motor Corp Ltd (NYSE: HMC), Volkswagen (OTC: VWAGY) and Ford Motor Co (NYSE: F) who just issued safety recalls on 320,000 vehicles in North America, potentially resulting in $250 million in costs. The number 2. Detroit automaker reported strong third quarter results last Wednesday yet its stock plunged the next day due to reduced full-year guidelines as the company expects stronger headwinds in its last quarter of the fiscal year.

Besides increased warranty costs, the company has to increase its spending in order to remain competitive and the Chinese market is taking much longer than expected to recover with total vehicle sales dropping 11.7% during the first nine months of the year. Ford has already started reducing its losses there which could improve its profitability and possibly even withdraw, considering the company lost $1 billion there last year. But, the latest decision of GM, Toyota and Fiat can only boost demand for these ‘sustainability-oriented' companies, including the all-electric pioneer Tesla Inc (NASDAQ: TSLA) who finally just reported its first profitable quarter.

Outlook

The strike ended with pay rises and bonuses along with other benefits for most workers so it is an overall ‘draw' for the Detroit giant. But the good news is that GM shares have almost completely recovered from double digit declines during strike and they did beat estimates. The company is far from its pre-strike targets that were set in August when they reset their full-year guidance of $6.50 to $7 earnings per share. But perhaps the most shocking fact about this strike is that how little it mattered to U.S. citizens that almost 50,000 workers walked out of their jobs due to all the impeachment drama, so many Americans were unaware of GM's negative publicity.

It will probably trim the US' total GDP, and not just in the company's lost output, but through ripple effects in other industries such as auto-parts suppliers, airlines to communities where GM operates. But, the reputational damage of the company's leadership is what can do most harm, benefiting sustainable companies who are actually building an all-electric infrastructure to meet the near future.

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© 2019 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.