Is GM Too Optimistic on Its Own Forecasts for 2017?

Print Email

General Motors Co. (NYSE: GM) on Tuesday announced that it expects to report fiscal 2016 earnings at the high end of its expected range and that the company is boosting its share buyback program by another $5 billion. The U.S.market-share leader has estimated adjusted diluted 2016 earnings per share (EPS) in a range of $5.50 to $6.00 and now forecasts 2017 EPS at $6.00 to $6.50.

Analysts have forecast 2016 EPS at $6.01. In the first three quarters of the fiscal year GM has posted EPS of $3.97, which seems to indicate that the company would need to post fourth-quarter EPS of around $2.00. That’s nearly a third higher than the company’s best quarter so far in 2016.

Analysts are only estimating $1.17 in EPS for the fourth quarter, far short of what is needed to meet the consensus annual earnings estimate. For fiscal year 2017 the consensus EPS estimate is $5.72.

Someone is way off. GM says it expects to maintain or improve its adjusted ETIT and adjusted EBIT margins. Unit sales were up in two of three months during the fourth quarter of 2016, but so were incentives which reached 11.7% of the company’s October transaction price, 13.7% of the November sales price, and 13% of December’s average transaction price.

Unit sales fell year over year in October and the boost in November incentives surely helped the top line. But end-of-November inventory, particularly in the company’s passenger cars, totaled 87 days of supply. Car makers would like to see something more like 60 to 70 days of sales in inventory. December’s closing inventory totaled 71 days of supply, or nearly 845,000 vehicles, down from 874,000 at the end of November.

According to CEO Mary Barra, the company is generating “consistently strong results the last few years by delivering great vehicles, growing the topline and driving efficiencies.” The efficiencies she’s talking about were part of GM’s plan to cut expenses by a revised total of $6.5 billion by the end of 2018.

GM lifted its expected savings total by $1 billion this morning and claimed that it has already achieved about $4 billion of the planned $6.5 billion in cost savings. The company attributes the savings to reduced material, logistics, manufacturing, and administrative costs.

There are some headwinds, however, not the least of which are already announced layoffs of some 3,300 autoworkers and a rebuke from President-elect Donald Trump over the company’s plans to expand its Mexico-based manufacturing.

Investors liked the report though, pushing the stock up to a new 52-week high of $38.16 at one point this afternoon. Shares recently changed hands at $37.32, and the 52-week low is $26.69. The consensus 12-month price target on the stock is $36.95.