Morningstar

GM Fights Off Coronavirus Impact to Stay Profitable

Despite a major hit in the first quarter, we are not changing our fair value estimate for the no-moat firm.

Securities In This Article
General Motors Co
(GM)

GM GM stayed profitable in first quarter despite a $1.4 billion EBIT hit from the coronavirus shutting down China in January and North America production in late March. Adjusted diluted EPS fell 56% year over year, but the $0.62 reported beat the Refinitiv consensus of $0.30. The figure would have been $0.90 if not for an unrealized mark-to-market loss of GM’s holdings in Lyft and Peugeot. Adjusted consolidated EBIT margin fell by 280 basis points to 3.8%. We don’t see a reason to change our fair value estimate and we are glad to hear GM North America plans to restart in the U.S. and Canada the week of May 18. There will be one shift a day initially and GM will have a very high priority on light truck models, as we expected. China operations restarted in mid-February and consumer demand there continues to improve.

GM’s adjusted automotive free cash burn was $903 million versus a $3.9 billion outflow in first-quarter 2019, mostly due to improved working capital. Management gave detailed free cash flow expectations for the second quarter and the working capital unwind of reducing payables will result in a net working capital burn of $3 billion-$4 billion. This drain, along with other items such as a $1 billion-$2 billion sales incentive payout from prior sales, leads to a forecast second-quarter burn of $7 billion-$9 billion. March 31 liquidity is $33.4 billion, which is almost all cash as credit line availability was $1.4 billion. The $1.4 billion reduces by $1 billion in July. Management said even if GM cannot sell any vehicles, it has liquidity to get into fourth quarter based on GM burning about $2 billion a month, better than we estimated.

Earlier-announced cost savings in North America helped drive a cost reduction in GMNA of $600 million. These savings, along with a $300 million mix tailwind, enabled GMNA to offset $600 million lost volume headwinds and increase segment income 15.7% to $2.2 billion. GMNA operating margin rose by 160 basis points to 8.5%.

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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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