Week 9: Results of the Strike: You’re Out (nearly 3 billion dollars!)

After a 40-day strike at its U.S. factories, the company “lowered its full-year profit outlook,” as reported by Mike Colias of the Wall Street Journal. The company reported that the strike, “wiped out nearly all its free cash flow for the year and will cost the Detroit auto maker close to $3 billion in lost earnings,” (WSJ). Earlier in the strike, I wrote about analyst estimates that said the strike was costing GM, “$50 million to $100 million a day in lost profits,” as originally reported by Nora Naughton and Mike Colias (WSJ). Over the period of a 40-day strike, that translates to $2-4 billion. While $3 billion falls neatly in this range, Mike Colias now reports that the, “third quarter results … easily surpassed analysts’ forecasts,” (WSJ). On Tuesday, after the results were published, “GM shares rose 4.3%,” a sign of confidence for next years earnings, “underpinned by a refreshed line of pickup trucks, the company’s biggest moneymakers,” (WSJ). Despite the strike, “the share-price gains made up nearly all the ground the stock had lost since the strike began in mid-September,” (WSJ). Although the stock price was largely unaffected by the strike, earnings per share fell by $0.52, to $1.72 (GM). Although the EPS fell by $.52, the, average Wall Street analyst estimate was $1.31 (WSJ). All of this combines to show that while General Motors was hurt by the strike, they did not suffer as much as expected.

            However, do not take this to mean that General Motors is on cruise control. The company’s Chief Financial Officer, Dhivya Suryadevara noted that, “the company lost output of about 300,000 vehicles from the strike,” (WSJ). This lost production, “derailed the company’s plans for a big second half of 2019 … after profit slipped in the first half of the year,” (WSJ). GM also has a large presence in China, whose car market is experiencing a downturn; “GM’s third-quarter income from China fell 42% to $282 million,” (WSJ). While the firm was able to, “boost its pretax profit margin in North America … to 10.8% from 10.2 %,” its free cash flow, “is expected to be less than $1 billion,” (WSJ). In closing, General Motors was definitely injured by the 40 day UAW strike, but they performed admirably, managing to outperform most analyst estimates.

Sources:
https://www.wsj.com/articles/general-motors-earnings-top-estimates-11572350727

https://investor.gm.com/news-releases/news-release-details/gm-reports-income-23b-and-ebit-adj-30

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