06 May 2020

General Motors May Not Remain on a Downhill Ride

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What’s happening: General Motors Company is all set to disclose its first-quarter results before the opening bell on Wednesday, May 6.

What happened: The coronavirus pandemic has jammed on the breaks for automakers in the US. Most auto companies have been forced to halt production and witnessed a steep decline in auto sales in April.

Some automakers have reported a sales decline of as much as 50% last month. It is still uncertain how General Motors has performed, since the company does not report monthly sales, making the upcoming release an important one for investors. While expectations are not high, investor sentiment has turned positive on a bunch of good news, including the company getting back on a growth track in one of its major markets.

Expectations for the quarter: General Motors is expected to report a decline in both revenues and earnings for the first quarter.

  • The consensus estimate for revenues stands at $31.12 billion, representing a 10.8% decline from the same quarter last year.
  • The company is expected to report adjusted earnings of 33 cents per share, down from $1.41 per share in the year-ago quarter.

Why it matters: The company’s customer deliveries in the US fell 7% to 618,335 vehicles in the quarter. Vehicle demand is expected to have contracted significantly in March, when the coronavirus began spreading in the US. Lower demand and weak economic conditions are likely to have hurt revenues at General Motors in the first quarter.

GM's China sales also suffered a major setback, with deliveries in the country dropping 43% in the first quarter due to factory closures till late February. However, things are looking up now, with the automaker reopening all factories in China and getting back on track with its production schedule for new vehicles. Auto sales in the country have also recovered, and the company's Chinese joint venture reported double-digit sales growth in April.

Although the company is likely to report a decline in sales in the first quarter, its crossover and SUVs vehicles, which contribute a major part of overall sales, have gained popularity due to the steep decline in gas prices and interest rates.

In an attempt to preserve liquidity and strengthen its balance sheet to face the COVID-19 challenge, General Motors announced plans to suspend its quarterly dividend and share buyback program. Management is also in talks with banks to raise a new $2 billion loan.

How the shares have performed so far: With some good news coming from the company, investor sentiment turned positive heading into the quarterly release. Shares of General Motors jumped 2.5% in yesterday’s session. Although the stock has lost more than 31% over the past three months, it has recently found favour among investors and climbed 18% in the past month.

What to watch: With the US planning to reopen its economy gradually, investors are hoping the company can resume its operations soon in the country. Investors also look forward to a ramp up in GM’s China sales. Markets will also be keen for management’s comments on the company’s performance and outlook for 2020, as the guidance has recently been withdrawn.

The Markets Today

     

Oil prices may be in focus today, ahead of the EIA’s (Energy Information Administration) report in crude inventories.

Context: Crude oil closed sharply higher on Tuesday after rising for four consecutive sessions, following production cuts and rising hopes for the commodity as lockdowns are eased in most parts of the world.

Details: The agreement between the OPEC (Organisation of the Petroleum Exporting Countries) and its allies to cut production by 9.7 million bpd (barrels per day) came into effect on May 1. Some major oil firms in the US, including ConocoPhillips, have also announced a reduction in their outputs in view of the decline in global demand.

Reports of economies easing restrictions helped lift oil prices yesterday. California Governor Gavin Newsom announced plans to reopen some retail businesses. Retailers, including sporting-goods stores, clothing shops, and florists, will resume some operations starting Friday.

Energy data provider Genscape repoted a rise of just 1.8 million barrels in crude inventories last week at Cushing, Oklahoma, after weeks of huge inventory additions.

The API (American Petroleum Institute) disclosed late Tuesday that there had been a rise of 8.4 million barrels in US crude supplies in the week ended May 1.

After rising 3.1% on Monday, WTI (West Texas Intermediate) crude for June delivery climbed 20.5% to settle at $24.56 per barrel on the NYMEX (New York Mercantile Exchange). Global benchmark Brent crude for July gained 13.9% to end at $30.97 per barrel, following a rise of 2.9% in the prior session.

In other news, natural-gas futures surged 7.1% to $2.134 per million British thermal units following reports of a natural-gas pipeline explosion in Fleming Country, Kentucky late Monday. June gasoline surged 9.7% to 90.13 cents a gallon, while heating oil for June rose 11.6% to 89.60 cents a gallon.

What to watch: Investors will be keeping an eye on EIA’s report on crude inventories. Crude inventories in the US, which increased by 8.991 million barrels in the week ended April 24, are expected to rise 8.125 million barrels in the latest week. Gasoline inventories are likely to rise 0.325 million barrels in the recent week, while distillate inventories are projected to increase 2.95 million barrels.

Other Markets: US indices closed higher on Tuesday, with the Dow, S&P 500 and Nasdaq 100 up by 0.56%, 0.90% and 1.13%, respectively.

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Futures at 0400 (GMT)

News shaping
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What else to watch today

     

Germany's industrial orders, services and composite PMI, Spain’s tourist arrivals and services PMI, Italy’s services PMI, France’s services and composite PMI and retail sales, Eurozone’s services and composite PMI and retail trade, UK’s construction PMI, South Africa’s PMI, Brazil’s services and composite PMI, Argentina’s industrial production as well as the US MBA mortgage applications and ADP employment change.

 

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