11 February 2021

General Motors Stock Decelerates Despite Upbeat Q4

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News shaping
the markets today

     

What’s happening: Shares of General Motors fell on Wednesday, despite the automaker reporting upbeat fourth-quarter results.

What happened: GM’s latest results represented significant growth from the previous year’s fourth-quarter print, backed by a strong performance in North America.

There were concerns, however, around the global shortage of semiconductor chips impacting the production of GM’s highly profitable pickup trucks and SUVs in 2021.

How were the results: The leading US automaker swung to a profit in the fourth quarter, with both top- and bottom-line results exceeding market views.

  • Sales grew 21.71% to $37.52 billion, beating market expectations of $36.12 billion.
  • Earnings came in at $2.8 billion, or $1.93 per share, versus a loss of $194 million, or 16 cents per share, in the same quarter a year earlier. The figure also exceeded the consensus estimate of a profit of $1.63 per share.

Why it matters: Chipmakers around the world have not been able to keep up with the massive spike in demand for PCs and laptops amid the pandemic.

Investors grew concerned about the industry-wide shortage of semiconductor chips, which could not only impact the production of GM’s pickups and SUVs, but also affect the company’s development of EVs (electric vehicles) and self-driving cars.

Rival Ford Motor Company had earlier warned of the chip shortage impacting the production of its top-seller F-150 pickup truck. GM followed Ford’s footsteps on Tuesday, extending production cuts at three of its plants in North America due to the unavailability of chips.

GM said the shortage could shave off between $1.5 billion and $2 billion from its operating profits in 2021, which is up to 90 cents per share. Management guided to a profit range of $4.50-$5.25 per share, including the hit from chip shortages. This was disappointing, with analysts projecting earnings of $5.89 share for 2021.

GM’s CEO Mary Barra tried to reassure stakeholders during the earnings call on Wednesday that the semiconductor chip shortage would not impact its full-size pickup trucks this year and not derail its plans in the EV and autonomous vehicle spaces.

Barra said, “Rest assured the semiconductor shortage won’t slow our growth plan. We anticipate a strong year ahead.”

“While some may focus on a guidance, which is optically soft versus consensus due to semi shortage impact, we ultimately believe investors should look through it,” Credit Suisse analyst Dan Levy wrote in a research note.

GM’s North America unit posted adjusted EBIT (earnings before interest and tax) of $2.6 billion for the fourth quarter, while the company’s joint ventures in China recorded $248 million in equity income.

General Motors is gearing up for a crucial test this quarter, as it plays catchup with major peers, including Tesla, Ford, and other EV makers. The company’s first steady stream of EVs might arrive late this year, starting with its Hummer truck and followed by the launch of a luxury Cadillac SUV by mid 2022.

How shares responded: GM’s shares plummeted 2.1% to close at $54.88 on Wednesday, following the release of quarterly results. The company’s stock fell another 1.2% in after-hours trading. Shares of the US automaker have gained a whopping 34% over the last three months.

What to watch: Markets will keep an eye on the company’s developments in the EV segment, which is expected to drive overall growth in the near term. Investors will also monitor news related to the global chip shortage.

The Markets Today

     

US stocks will be in focus today, ahead of the jobless claims report scheduled for release during the day.

Context: Wall Street closed mixed on Wednesday, with markets assessing the latest round of corporate earnings and data on inflation.

Details: So far, it has been a strong month on Wall Street, with the S&P 500 adding more than 5% with investors looking forward to the approval of fresh stimulus measures.

The US consumer price index rose 0.3% in January, in-line with market expectations. Sentiment was also boosted by several companies posting upbeat earnings for the latest quarter, with Under Armour reporting an unexpected profit and Twitter exceeding market expectations.

Over 60% of firms in the S&P 500 index already reported their quarterly earnings, of which more than 80% surpassed market expectations.

The Dow Jones index gained 61.97 points to reach a record closing high of 31,437.80 on Wednesday, even after shedding around 150 points earlier in the session. The S&P 500 slipped 0.03% to 3,909.88, while the Nasdaq 100 declined 0.23% to 13,655.27, with profit-taking in the shares of Apple, Amazon and Microsoft.

What to watch: Markets await the initial jobless claims data from the US. The number of people filing for jobless benefits is expected to fall to 757,000 in the latest week, from 779,000 in the week ended January 30. Investors will also focus on the Fed’s monetary policy report and the country’s budget plan for fiscal 2022.

Rising covid-19 cases remain a top concern for investors, with total infections surpassing 27.2 million in the US.

Other Markets: European trading indices closed lower on Wednesday, with the FTSE 100, German DAX 30 and French 40 down by 0.11%, 0.56% and 0.36%, respectively.

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Futures at 0400 (GMT)

What else to watch today

     

Germany’s wholesale prices, South Africa’s mining production, gold production and industrial production, Turkey’s foreign exchange reserves, Mexico’s industrial production and interest rate decision, Russia's balance of trade, Argentina’s inflation rate as well as the EIA’s natural gas stockpiles.

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