Analysts Doubt GM Optimism Despite Upbeat Q4 2018 Results

Surprising Q4 numbers
The new 2019 GMC Sierra Denali pickup (Photo: Reuters)

Strong sales of its pick-ups propelled General Motors Company to a better-than-expected, and surprising, fourth quarter 2018 results. GM shares were up more than 1 percent Wednesday afternoon after improving nearly 4.8 percent in premarket trading.

"GM delivered another strong year of earnings in a highly volatile environment in 2018," said CEO Mary Barra. "We will continue to make bold decisions to lead the transformation of this industry and drive significant shareholder value."

Results were helped by higher pickup truck sales, which remain a profitable share of GM's product lineup, said CNBC. Sales of the Chevrolet Silverado and GMC Sierra full-size pickups, and the midsize Chevrolet Colorado and GMC Canyon pickups, rose 3 percent quarter-on-quarter. GM said average pickup transaction prices reached a record $36,000.

Analysts, however, remained skeptical about the announced results are given GM is in the middle of a painful restructuring that will see it fire more than 14,000 employees and close five car assembly plants in Canada and the United States. GM said the cuts will save about $6 billion in cash -- but by 2020.

GM began laying off more than 4,000 white-collar workers on Monday as part of this restructuring.

Nevertheless, GM's Q4 earnings released yesterday handily beat Wall Street expectations. GM attributed the uptick to tighter cost controls and higher truck sales. The results:

* Revenue: $38.4 billion vs. an estimated $36.48 billion

* Net income: $2.1 billion ($1.40 a share) compared with a loss of $5.1 billion ($3.46 a share) year-on-year.

* Adjusted fourth-quarter earnings: $1.43 per share vs. the expected $1.22 per share.

GM said it spent $1.3 billion during the quarter on "transformation activities," that included employee separation costs. This cost was excluded from its adjusted earnings results.

The downside to GM's rosy report card is the company's degrading vehicle sales trends, which fell 13.5% in Q4. Then, there's China whose slowing economy is proving bad for GM sales. Because of these headwinds, analysts doubt GM can hit its full-year earnings guidance introduced in January.

CFO Dhivya Suryadevara said Q4 was a more volatile one for GM in China. GM felt pressure on both volume and pricing, said Suryadevara, but there were signs in January the Chinese market is stabilizing.

Suryadevara said Cadillac was particularly successful in China. She said Cadillac sales were 20% higher year-on-year in a declining market environment.

Analysts said Wall Street will focus on GM's 2019 guidance for any hints about what the company expects in terms of profit margins taking the ongoing layoffs into account.

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