GM earnings beat lifts shares but US strike weighs on outlook

The Detroit-based automaker reported a 6% increase in third-quarter US sales. (AFP)
Updated 29 October 2019

GM earnings beat lifts shares but US strike weighs on outlook

  • Shares in GM were up 4.3% in midday trading

DETROIT: General Motors Co. on Tuesday posted a stronger-than-expected quarterly profit on robust US demand for its lucrative pickup trucks and SUVs, offsetting the $3-billion hit from a US labor strike that led it to slash its earnings forecast.
Wall Street analysts have viewed the strike costs as a tradeoff for three US plant closures agreed to with the union that will boost GM’s profitability. Shares in GM were up 4.3% in midday trading.
“The underlying business was strong this quarter,” Chief Financial Officer Dhivya Suryadevara told reporters at GM’s headquarters, describing the strike as a “one-time impact.”
Last Friday, the 48,000 United Auto Workers union members at GM ratified a new four-year labor deal with the Detroit company, ending a 40-day strike. RBC Capital Markets analyst Joseph Spak in a research note called the deal’s financial impact “manageable.”
The Detroit-based automaker reported a 6% increase in third-quarter US sales, led by its highly-profitable full-size pickup trucks, SUVs and crossovers that helped it race to a strong profit margin of almost 11% in North America. It’s that underlying business that has investors excited.
“Frankly, I’m as emboldened as ever,” said Chris Susanin, co-portfolio manager at Levin Easterly Partners, which owned more than 4 million GM shares at the end of June. “I don’t see why this stock isn’t north of $100 (a share) in a couple years.”
Virtually all of the pre-tax profits came from its North American business and its captive finance arm.
In China, where GM reported a 17.5% drop in third-quarter sales, the company’s equity income fell 40% to $300 million.
It was the fifth straight quarterly sales decline for GM in China, the world’s largest auto market, where the industry is expecting a second consecutive annual sales drop.
The China Association of Automobile Manufacturers expects a 5% decline in industry sales in 2019, then contracting or growing slowly over the next three years.
“It (China) remains volatile,” GM CFO Suryadevara said. Last week, GM’s smaller US rival, Ford Motor Co, cut its forecast for operating profit for the year after a disappointing quarter hurt by higher warranty costs, bigger discounts and weaker-than-expected performance in China.
GM said the strike by the UAW had cost it $1 billion in pre-tax profits in the quarter, or 52 cents per share. CFO Suryadevara said the automaker lost around 300,000 units of vehicle production during the strike. GM will not recover most of that loss in 2019 and any recovery next year will be dependent on US market demand.
The union wrung higher pay and other benefits from GM as part of the deal to end the strike.
Under the deal, GM will invest $9 billion in the United States, including $7.7 billion directly in its plants, with the rest going to joint ventures.
The No. 1 US automaker said the full-year impact of the strike would be around $2 per share, or around $3 billion.
GM said it now expected full-year adjusted earnings per share between $4.50 to $4.80, down from its previous forecast of $6.50 to $7 per share.
The company said it now expected full-year adjusted automotive free cash flow in a range from zero to $1 billion, down from its previous forecast of $4.5 billion to $6 billion. GM’s adjusted automotive free cash flow stood at $2.4 billion at the end of the third quarter. The strike reduced cash flow for the year by about $5.5 billion.
GM also cut its projected 2019 capital expenditures to around $7.5 billion from its previous outlook of $8 billion to $9 billion. Suryadevara said no plans were cut and the lower spend was due to operating efficiencies.
GM will provide more detailed forecasts for 2020 early next year, but Suryadevara said one expected 2020 challenge will likely be lower US industry sales.
The automaker posted third-quarter net income of $2.3 billion, or $1.60 a share, down from $2.5 billion, or $1.75 a share, a year earlier. Excluding one-time items, GM earned $1.72 a share. Analysts had expected $1.31, on average, according to IBES data from Refinitiv. Revenue fell slightly to $35.47 billion from $35.79 billion, above analysts’ estimates of $33.82 billion.


$8bn blow to Erdogan as investors flee Turkey

Updated 31 min 56 sec ago

$8bn blow to Erdogan as investors flee Turkey

  • Overseas holdings in Istanbul stock exchange are at lowest in 16 years

ANKARA: Foreign capital is flooding out of Turkey in a massive vote of no confidence in President Recep Tayyip Erdogan’s economic competence.
Overseas investors have withdrawn nearly $8 billion from Turkish stocks since January, according to Central Bank statistics, reducing foreign investment in the Istanbul stock exchange from $32.3 billion to $24.4 billion.
As recently as 2013, the figure was $82 billion, and foreign investors now own less than 50 percent of stocks for the first time in 16 years.
“Foreign investment has left Turkey for several reasons, both internal and external,” Win Thin, global head of currency strategy at Brown Brothers Harriman, told Arab News.
“Externally, investors fled riskier assets like emerging markets during the height of the coronavirus pandemic. Some of those flows are returning, but investors are being much more discerning and Turkey does not seem so attractive.”
In terms of internal factors, Thin said that Turkish policymakers had made it hard for foreign investors to transact in Turkey. “This includes real money clients, not just speculative.
“By implementing ad hoc measures to try and limit speculative activity, Turkey has made it hard for real money as well. Besides these problems, Turkey’s fundamentals remain poor compared to much of the emerging markets.”
Erdogan allies claim international players are manipulating the Istanbul stock exchange through automated trading, and have demanded action to make it difficult for them to trade in Turkish assets.
Goldman Sachs, JPMorgan, Merrill Lynch, Barclays and Credit Suisse were banned this month from short-selling stocks for up to three months, and this year local lenders were briefly banned by the banking regulator from trading in Turkish lira with Citigroup, BNP Paribas and UBS
JPMorgan was investigated by Turkish authorities last year after the bank published a report that advised its clients to short sell the Turkish lira.
MSCI, the provider of research-based indexes and analytics, warned last month that it may relegate Turkey from emerging market status to frontier-market status because of bans on short selling and stock lending.
With the market becoming less transparent, overseas fund managers, especially with short-term portfolios, are unenthusiastic about the Turkish market and are becoming more concerned about any forthcoming introduction of other liquidity restrictions.
The exodus of foreign capital is likely to undermine Turkey’s drive for economic growth, especially during the coronavirus pandemic when employment and investment levels have gone down, with the Turkish lira facing serious volatility.