It’s earnings week for America’s biggest automaker, and on Wednesday before the opening bell we’ll find out how General Motors Company (NYSE:GM) fared during the fourth quarter, and for the full year.
The results for the final quarter of what’s been basically a good, yet recall-tarnished, year for General Motors earnings will go a long way toward determining whether GM stock can extricate itself from its year-long-plus slide.
General Motors Earnings Expectations
For investors who are long GM stock, the key metrics on Wednesday from CEO Mary Barra and company will be extremely important. According to my colleague Louis Navellier of Blue Chip Growth, to impress, General Motors earnings will have to come in above 84 cents per share, and revenues will have to top $40.22 billion. The company also must beat full-year EPS estimates of $2.64 per share.
Navellier’s numbers here represent a slightly higher hurdle than most on the Street. According to Bloomberg, current consensus analysts’ estimates for General Motors earnings in Q4 are for $39.29 billion in revenue, and EPS of 83 cents.
Now, based on GM sales data in Q4 and for the full year, the current consensus estimates (as well as Navellier’s) do seem attainable. After all, the company sold a record 9.92 million vehicles worldwide last year, or about 2% more cars than the company sold in 2013, which also was hitherto a record year. Strong sales in North America, and particularly in China, were the key to this year’s outstanding sales showing.
For General Motors earnings to shine in Q4, I want to see strong revenue from the China segment. I also want to see solid metrics from North America. Now, given the slowdown in GM sales in markets such as Europe, which saw 2014 sales down 9.9%, I am not expecting a high-RPM revenue surge from the region.
The Other Thing to Watch For
Of course, the real issue for General Motors earnings is something that rivals Ford Motor Company (NYSE:F) and Fiat Chrysler Automobiles NV (NYSE:FCAU) haven’t had to grapple with in any comparable way, and that is those massive recalls.
Consider that in 2014, GM was forced to issue 84 separate recalls that included some 30 million vehicles. The estimated cost for these recalls was in the neighborhood of $2.3 billion. And the pain of those recalls isn’t over yet. Last year, General Motors absorbed an additional charge of $400 million that it set aside to help fund settlement costs for payment of those defective ignition-switches.
The cost of the recalls on GM’s bottom line for 2014 have, of course, weighed down GM stock this year. Yet if Wall Street can see past this situation, and provided the recalls calm down to a normal industry recall rate, then 2015 could turn out to be a turnaround year for the auto giant.
Bottom Line
Finally, about three months back I wrote that if General Motors earnings could at least meet what was then downward-revised EPS estimates, then we might see GM stock stabilize going into Q4. Well, that’s exactly what happened, as the company came in with a bottom line showing of 97 cents per share, in-line with expectations.
Since then, GM stock is up about 4% while the S&P 500 is up only about 3.3%, and that’s despite a January that saw GM stock sink approximately 6.5% due to global growth concerns.
For the stock to get back to its post Q3 uptrend, it will have to tell Wall Street that’s things are on the right path. And the only way I think it can do that is if we wake up Wednesday morning to results that handily top consensus forecasts.
As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.
