GM Posts Solid Results
- By Stepan Lavrouk
On Wednesday, General Motors (GM) announced its results for the fourth quarter of the company's fiscal year 2018. This was the first quarterly report to come out of the Detroit-based automaker since CEO Mary Barra announced a sweeping restructuring effort, promising to lay off 15% of GM's workforce, close five manufacturing plants and discontinue the production of six sedan models.
Warning! GuruFocus has detected 5 Warning Signs with CMG. Click here to check it out.
The intrinsic value of GM
In a piece co-authored in the wake of that announcement, we interrogated the then-popular claim that GM was pivoting to green technology and autonomous driving and found that what the venerable carmaker was actually doing was focusing on its light trucks. Fast-forward several months into the future, and we have the first results of the restructuring effort.
The important numbers
GM reported total revenue of $38.4 billion for the quarter, an increase of 1.8% year-on-year. Earnings per share for the quarter came in at $1.43, down 13% year-on-year, but comfortably beating analyst expectations of $1.22. Barra credited strong sales in the North American and Chinese divisions, as well as GM Financial, the company's auto loan unit, which delivered record profits for the year. Management also reiterated January's earnings guidance:
"As I mentioned last month, we expect strong EPS diluted adjusted in the range of $6.50 to $7 and adjusted automotive free cash flow in the range of $4.5 to $6 billion. Catching on the headwinds, we will take downtime to the tune of 25,000 units as we prepare for the launch of our all new full-size SUV. We expect China equity income to be down moderately year-over-year. We expect to see headwinds year-over-year from commodities and tariffs to the tune of $1 billion."
The stock traded up moderately off the back of the report, although it has since given back its gains due to a sector-wide selloff precipitated by the weak results coming out of Fiat Chrysler (FCA) on Thursday.
Prospects ahead
The main problem for GM right now is slowing global sales. The ongoing trade war is hurting demand for American vehicles overseas. In particular, the slump in China, where sales were down 25%, is causing investors concern. Moreover, CFO Dhivya Suryadevara partly attributed the higher commodity costs borne by GM over the last year to the trade war and the tariffs erected by both sides. While equities in general will respond well to news of progress in trade talks, automakers in particular stand to benefit massively from any positive developments.
In good news, the restructuring plan already seems to be yielding good results for GM. The company expects savings directly attributable to the restructuring plan for 2019 to total between $2 billion and $2.5 billion.
Summary
Right now, GM looks to be in a better position than rivals like Ford (NYSE:F) and Fiat Chrysler -- it has rapidly implemented a bold cost-cutting strategy that is already showing results. Yes, there are industry-wide concerns around slowing global sales, but in relative terms, GM certainly seems to be in better shape than the competition.
Disclosure: The author owns no stocks mentioned.
This article first appeared on GuruFocus.
Warning! GuruFocus has detected 5 Warning Signs with CMG. Click here to check it out.
The intrinsic value of GM
