If you’re CEO Mary Barra, or if you’ve owned General Motors (GM) stock anytime this year, then you’re hoping for a welcome bit of good news when the company reports third-quarter earnings before the opening bell on Thursday.
After a 2014 that has seen some 30 million vehicle recalls (primarily due to those faulty ignition switches), dozens of customer deaths and the related product liability lawsuits that have slammed General Motors’ reputation, you’re in dire need of something positive to build on.
Oh, and don’t forget about the near-25% plunge in GM stock so far in 2014 — another nightmare that could use a soothing wake up call.
For that wake-up call to come Thursday morning, the Q3 numbers — as well as some tenuous unanswered questions — will have to be satisfactorily answered. If not, GM stock will have little chance to rev up shareholder value in the remainder of the year.
So, what will we need to see in GM earnings for Wall Street to cast a bullish eye on GM stock?
At the very least, Barra & Co. will have to deliver a bottom line of at least 97 cents per share (preferably 98 cents). That would be slightly better than the 96 cents per share the company earned in the same quarter a year ago, and also better than the average estimate of 95 cents — a penny lower year-over-year. I also think the top line will have to beat expectations, which call for approximately $39 billion — also a slight increase from the $38.98 billion one year ago.
If GM can at least meet these already downward-revised EPS estimates, then we might see GM stock stabilize going into Q4. If, however, the numbers on either EPS or revenue fail to meet estimates, then I wouldn’t want to be long GM stock when the opening bell sounds Thursday.
Of course, GM earnings aren’t just about the top and bottom lines this time around.
The Street also wants to see if Barra can avoid Ford’s (F) recent fate, which included slashing its earnings outlook going forward amid sluggish emerging-market and international sales. One market that’s key for General Motors is Europe, so I would like to see the company have a decent showing here.
I also would like to see if GM can reaffirm its already tamped-down full-year earnings guidance.
Another critical bit of information for GM stock will be margins. If margins can come in north of 10%, which represents the company’s own estimates, then I suspect traders and investors will regain a little confidence in the stock. The flip side here is that if margins fail to impress, and/or if they come in much weaker than anticipated, that could cause GM stock to stall, too.
Bottom Line
In short, Q3 numbers don’t have to be spectacular — they just need to not crater. If the numbers can at least meet or slightly exceed expectations, investors can focus on the spate of recent positive news for General Motors.
That good news includes GM’s announcement that it sold a record 2.45 million vehicles worldwide in Q3. That’s the company’s most-impressive July-September quarter in more than three decades.
GM also discussed robust expansion plans for its very profitable Cadillac luxury brand in China, a move that I think will pay off for GM in the years to come.
So, will Barra and company deliver what Wall Street wants to hear? We’ll find out Thursday morning.
As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.
