06 May 2021

GM Reports Strong Q1 Despite Chip Speed Bump

Tags

News shaping
the markets today

     

What’s happening: Shares of General Motors Company spiked on Wednesday, after the automaker reported its first-quarter earnings significantly ahead of expectations.

What happened: General Motors benefited during the first quarter from strong consumer demand in the US as well as higher prices for its vehicles.

Management’s earnings call raised concerns, however, around the global chip shortage hurting the company’s profits this year.

How were the results: The Detroit-based automaker reported robust growth in profits, while sales contracted in the first quarter.

  • Revenues slipped slightly to $32.47 billion in the quarter, just shy of the consensus estimate of $32.67 billion.
  • Net profits stood at $3 billion, or $2.03 per share, significantly higher than the $294 million, or 17 cents per share, recorded in the same quarter last year.
  • Excluding onetime items, earnings came in at $2.25 per share, well past market views of $1.04 per share.

Why it matters: GM's sales grew 4% year-over-year in the first quarter in the US, its most profitable market. Its average sales price climbed 9% to hit a record high of $44,685.

Investors have been concerned as several automakers lowered their profit projections for the year due to the global chip supply crisis, which is now expected to continue next year.

Ford Motor Company had said last week that the chip shortage could impact its production by about 1.1 million vehicles in 2021. GM has also been forced to reduce the production of its lower-priced vehicles, shifting the limited supply of chips to models that contribute the most to its bottom-line.

CEO Mary Barra tried to reassure shareholders saying, “A lot of really good work is being done across our company to source semiconductors, allocate them across our most in-demand and capacity-constrained products.”

The automaker reiterated its previous guidance of the chip shortage shaving off profits between $1.5 billion and $2 billion this year. However, management did not provide details of the impact on production.

Despite the chip shortage, GM reiterated its pre-tax earnings forecast of $10 billion to $11 billion for the full year. Net income for the year is projected between $6.8 billion and $7.6 billion.

Management announced plans to roll out 30 electric vehicles over the next four years and is looking to electrify its entire vehicle line-up by 2035.

“Even as we manage these short-term challenges, we continue to accelerate our investment in electric vehicles, self-driving technology and other growth opportunities," Barra added.

How shares responded: GM’s shares rose 4.1% to close at $57.58 on Wednesday, following the release of quarterly results. The stock has climbed around 6% in the past three months.

What to watch: Investors will monitor news of chip production and supply to the auto sector. Markets will also keep an eye on new EV models launched by GM.

The Markets Today

     

UK stocks will be in focus today, ahead of the Bank of England’s interest rate decision.

Context: British stocks closed higher on Wednesday, with the FTSE 100 notching its best session in more than two months.

Details: London’s FTSE 100 has climbed more than 8% so far this year, with the reopening of businesses from the coronavirus-led lockdown. An improvement in economic data and a pickup in the pace of vaccinations boosted investor sentiment and fuelled hopes of a sharp rebound in the economy.

The domestically focused FTSE 250 index rose 0.3% on Wednesday. London’s FTSE 100 surged 1.7% to settle at 7,039.30, as the wider banking index climbed close to 3%.

Miners also provided a significant boost to the index, with rising metal prices. Mining stocks, such as Rio Tinto, Anglo America and BHP Group, recorded gains on Wednesday. Shares of Croda added more than 3% after the specialist chemicals maker announced a strategic review of its business.

On the economic data front, new car registrations in the country grew a whopping 30-fold to 141,583 units in April, with the reopening of showrooms.

What to watch: Investors await the Bank of England’s interest rate decision. The central bank is expected to hold its benchmark interest rate at a record low of 0.1% during its latest meeting. However, the bank is also expected to slow its bond purchases.

The country’s services and composite PMIs will also be in focus today. The IHS Markit/CIPS services PMI is projected to surge to 60.1 in April, from 56.3 in the earlier month, while the composite PMI is expected to rise to 60.0. Markets will also keep an eye on results from the UK local elections.

Rising covid-19 cases remain one of the top concerns for markets, with total global infections surpassing 154.7 million.

Other Markets: US indices closed mostly higher on Wednesday, with the Dow Jones index and S&P 500 up by 0.29% and 0.07%, respectively. However, the Nasdaq 100 traded lower by 0.3%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s factory orders and construction PMI, Russia’s composite PMI, services PMI and foreign exchange reserves, Spain’s tourist arrivals, Eurozone’s construction PMI and retail trade, France’s construction PMI and retail sales, Italy’s construction PMI, Turkey’s foreign exchange reserves and Central Bank of Turkey’s interest rate decision, America’s Challenger job cuts, unit labour costs, nonfarm labour productivity, initial jobless claims, ISM New York index, EIA’s natural gas stocks, as well as Argentina’s industrial production.

 

ADS Securities London Limited “ADSS” is an execution-only service provider. This material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or investment objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by ADSS that any particular investment, security, transaction or investment strategy is suitable for any specific person. To the extent that any content in this material is construed as investment research, you must note and accept that the content was not prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.  This material may contain links to third party websites, and any content, or use of your personal data by any third party websites is not the responsibility of ADSS or any member of the ADSS Group.