Morningstar

GM Beats Guidance on Full-Year EPS

We're not planning to change our fair value estimate for the no-moat firm.

Securities In This Article
General Motors Co
(GM)

General Motors management guided in January that fourth-quarter results would allow full-year 2018 adjusted diluted EPS to come above guidance of $5.80-$6.20. GM's fourth-quarter adjusted EPS of $1.43 easily beat consensus of $1.22, and full-year EPS of $6.54 handily beat guidance. GM also confirmed its 2019 EPS guidance of $6.50-$7.00. We see no reason to change our fair value estimate, but as always, we will update our model for the 10-K filing later this month.

Fourth-quarter total company adjusted EBIT fell 8.3% year over year to $2.8 billion. Growth in GM North America and GM Financial profits helped offset a $48 million loss in the GM International segment and a $194 million loss from GM's Cruise autonomous vehicle subsidiary. GMNA's adjusted EBIT margin of 10.2% grew 20 basis points year over year. The new-generation light-duty full-size pickups and incentives as a percentage of average transaction price about flat with the fourth quarter of 2017 enabled GM to offset commodity and material cost increases. Although the first quarter will be GM's weakest of 2019, we remain optimistic on GMNA's prospects for 10% EBIT margin, given a full year of the new light-duty trucks and full production of the new-generation heavy-duty trucks in the second half of 2019.

The GMI segment will have the full year of GM Korea's roughly $400 million in annualized cost savings, but China equity income, which was about $2 billion in 2018 and 2017, is expected to decline "moderately" in 2019. We assume moderately means at least 10% from 2018, but one positive in GM China is Cadillac. Cadillac was GM's only brand to increase global volume in 2018, and that happened because Cadillac China's volume rose 17% to 205,605 vehicles. This favorable mix shift helps GM offset some of the impact of its overall Chinese retail sales declining 9.8% to 3.6 million units. We expect Cadillac's momentum in China to continue in 2019 but likely not grow as much as 2018's 17%.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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