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.


Aramco shares to make debut as biggest IPO gets bigger

Updated 56 min 27 sec ago

Aramco shares to make debut as biggest IPO gets bigger

  • Samba Capital, NCB Capital and HSBC Saudi Arabia issued a statement late Monday
  • Saudi subscribers were allocated 96.6 percent of the retail offering

LONDON : Saudi Aramco shares make their stock market debut on Wednesday as it emerged that the oil giant could raise even more from its already record-breaking share sale.

Aramco will exercise its 15 percent “greenshoe option” either in part or in whole during the first 30 days of its trading period, its lead managers said.

A greenshoe option is financial jargon for a clause that allows an underwriter the right to sell investors more shares than planned if demand proves higher than anticipated.

Samba Capital, NCB Capital and HSBC Saudi Arabia issued a statement late Monday confirming an earlier report on the Al Arabiya news channel citing an NCB Capital executive.

It means the share sale could generate as much $29.4 billion if exercised fully. The main IPO raised $25.6 billion on Thursday.

Samba Capital said that the IPO was hugely oversubscribed, attracting aggregate subscriptions of SR446 billion, representing coverage of 465 percent.

The listing and trading of the company’s shares on Tadawul starts just four working days after the end of the subscription phase, Samba noted.

The number of individual subscribers was 5.056 million, who bought SR49.2 billion worth of shares.

Saudi subscribers were allocated 96.6 percent of the retail offering with non-Saudis (expatriates and GCC nationals) getting 3.4 percent. 

For the institutional tranche, the final value of subscriptions totaled SR397 billion.

The Saudi Aramco IPO is a key part of the Kingdom’s plan to transform its economy by reducing its reliance on oil, developing its financial markets and attracting increased levels of foreign direct investment.

Saudi Finance Minister Mohammed Al-Jadaan said that the proceeds from Aramco’s IPO would be reinvested, helping to create more revenue channels for the government.

The Aramco IPO is expected to pave the way for more privatizations in the Kingdom.

“Privatization is at the top of the government’s priorities,” Al-Jadaan told reporters on Monday.

“We will continue to support big projects and will continue to support promising projects,” he said. “Enabling the private sector is the top priority of Vision 2030. We have more to come and our journey toward Vision 2030 demands