GM outlook darkens as profits fall on steel costs

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UPDATED: 7/25/18 9:49 am ET – adds stock opening

DETROIT — General Motors lowered its earnings forecast for the year following a second-quarter profit decline due indirectly to the Trump administration’s tariffs on steel and aluminum.

Although GM sources around 90 percent of its steel and most of its aluminum domestically, the 25 percent tariff on steel and 10 percent tariff on aluminum are still expected to have a significant impact on the automaker’s costs.

GM expects the cost increases to have a $ 1 billion impact on its business operations this year, up from an earlier estimate of about $ 500 million.

The automaker on Wednesday said earnings before interest and taxes dropped 13 percent to $ 3.2 billion compared with a year earlier. Net income from continuing operations, which exclude the sale of its European operations last year, fell 2.8 percent to $ 2.39 billion.

Revenue for the second quarter fell less than 1 percent to $ 36.8 billion.

GM CFO Chuck Stevens said the automaker’s North American operations absorbed most of the cost increases for steel and aluminum.

“We’ve got some work to do the rest of the year there,” he said.

GM lowered its guidance on free cash flow for the year from the mid-$ 5 billion range to $ 4 billion and its earnings per share — a key estimate for Wall Street — to about $ 6 from the $ 6.30-$ 6.60 range. GM also lowered its North American profit margin expectations to 9-10 percent from 10 percent.

Other factors impacting the automaker’s earnings for the second quarter included foreign currency devaluation — particularly in South America — and lower production of its full-size pickups due to plant changeover for GM’s next-gen Chevrolet Silverado and GMC Sierra.

The 2019 full-size pickups, Stevens said, are being shipped to dealers with first deliveries to customers expected in August — on track with the company’s previously announced launch plans.

GM shares fell 6.6 percent to $ 36.92 in early trading in New York. 

Regions: North American earnings declined from $ 3.5 billion to $ 2.7 billion in the second quarter. Earnings for the company’s international operations also declined, to $ 143 million from $ 317 million a year earlier.

Finance: GM Financial reported earnings of $ 536 million, up from $ 357 million a year earlier. Forty-five percent of GM’s U.S. sales in the quarter were financed through GM Financial.

Operating profit margin: Profit margin for the quarter was 8.7 percent, including a 9.4 percent margin for North America.

Expectations: GM beat Wall Street’s expectations for a 13th consecutive quarter. The company reported earnings per share of $ 1.81, above analysts’ forecasts of $ 1.78 — a key metric for how Wall Street judges the company.

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