On my recent article "General Motors Risk Is Very High In The Short Term" I explained why General Motors (GM) had significant short term risk. The thesis was that the factors affecting Ford (F) were also affecting General Motors, namely the large car inventories which were building up and would hit margins through higher promotional activity.
At the time I explained that while Ford had already seen a significant move on its earnings estimates, General Motors had not yet seen the same. I further wrote that if General Motors was to see an effect of the same magnitude as Ford, then its 2014 EPS estimates could go from the then prevailing $4.65 per share implying 36% growth year-on-year to as low as $3.81 per share, implying 12% growth year on year.
Today, General Motors basically confirmed my thesis. First in a presentation at Deutsche Bank 2014 Global Auto Industry Conference in Detroit then through a press release (and the order here is legally odd), General Motors significantly lowered both its revenue and earnings expectations for 2014.
As for revenue, General Motors guided towards a 2% gain for the year, whereas the present consensus called for 6.4%.
As for earnings, this is what General Motors had to say (bold emphasis is mine):
DETROIT, Jan. 15, 2014 /PRNewswire/ -- General Motors Co. forecasts modest global industry growth in 2014 driven by the United States, China and Europe. Based on this outlook and the introduction of key vehicles globally, the company expects its total earnings before interest and tax (EBIT) adjusted to be modestly improved with improved underlying operating performance more than offsetting increased restructuring expense. Additionally, the company said it expects EBIT-adjusted margins will be similar to last year.
So basically General Motors is guiding towards slightly higher EPS, since it expects margins flat to slightly higher on 2% higher revenues. "Slightly higher" EPS would easily translate into 12% EPS gains just like I projected, instead of the 36% consensus prevailing then.
Over the next few days starting today we will see analysts revising their EPS estimates lower. At the end of that process, I expect the new EPS consensus to sit close to where I said it might fall to.
General Motors also announced the re-instatement of a dividend, starting at $0.30 per share per quarter. This dividend might provide some downside protection but overall we should see an ugly day due to the significant guide down on earnings.