Ford, GM Set to Kick Off Tough U.S. Automaker Earnings Season

(Bloomberg) -- The U.S. auto industry’s first-quarter earnings report season is setting up to be a drab show. Sales weakened in two of the first three months of 2019 on a year-over-year basis, while production also decelerated globally amid a slowdown in China.

“Similar to what we’ve seen over the past several quarters, the set up for first quarter appears to be challenging for autos,” UBS analyst Colin Langan wrote in a note to clients. While he lowered his earnings estimates for the group by 7 percent on average, the analyst predicted “small beats” for both Ford Motor Co. and General Motors Co. Automakers and suppliers with low exposure to China and Europe and have high exposure to North American heavy trucks are in the best position, he said.

First-quarter average profit estimate for Ford has been cut about 6 percent over the past three months, while GM’s are down 11 percent, according to data compiled by Bloomberg. Share prices for both the stocks, however, have gained over the same period.

“We see GM as having a much higher probability of making full-year figures than Ford as well as having broader valuation/free cash flow support,” Evercore ISI analyst Chris McNally said.

When Ford reports results after the close of trading Thursday, investors will be closely watching for updates on its challenges in Europe, as well as possible headwinds in the North American pickup truck segment, which Nomura’s Anindya Das said could see lower replacement demand in the years ahead.

The sales pace in the second half of the year is expected to pick up, analysts said, and some companies may guide accordingly when they report.

“Despite a slower start to the year, we generally don’t expect companies to revise full-year guidance at this juncture,” RBC analyst Joseph Spak wrote in a note. “There’s too much uncertainty, and it’s still fairly early,” “2019 was always to be second half weighted, but looks more so now.”

What Bloomberg Intelligence Says

“Ford is likely to report another quarter of uninspiring results in operations outside the U.S. in first quarter, as global auto demand remains in a downward trend and realignment of the European product portfolio and cost structure have yet flow to the operating-income line.”

“General Motors’ early work to limit exposure to underperforming regions and unprofitable vehicle segments could protect earnings, though the automaker’s 6.4 percent drop in first-quarter unit sales in North America is disconcerting. The company remains a half-step ahead of Ford and Fiat Chrysler in insulating against exposure to declining volume, low-margin countries as U.S. auto sales head lower.”
-- Kevin Tynan, BI autos analyst

Just the numbers

Ford estimates:

  • 1Q adjusted EPS estimate 26c (range 20c to 34c)
  • 1Q automotive revenue estimate $36.99 billion (range $35.24 billion to $38.99 billion)
  • FY adjusted EPS estimate $1.19 (range 95c to $1.40)

Ford data:

  • Ford has 6 buys, 15 holds, 3 sells; avg PT $9.39: Bloomberg data
  • Implied 1-day share move following earnings: 4.9%
  • Shares fell after 7 of prior 12 earnings announcements
  • Adjusted EPS beat or met estimates in 8 of past 12 quarters

Ford timing:

GM estimates:

  • 1Q adjusted EPS estimate $1.10 (range 95c to $1.35)
  • 1Q net sales and rev. estimate $35.48 billion (range $33.82 billion to $37.08 billion)
  • FY adjusted EPS estimate $6.50 (range $5.93 to $7); co. saw $6.50 to $7 (Feb. 6)

GM data:

  • GM has 16 buys, 7 holds, 1 sell; avg PT $47: Bloomberg data
  • Implied 1-day share move following earnings: 4.1%
  • Shares rose after 8 of prior 12 earnings announcements
  • Adjusted EPS beat estimates in 12 of past 12 quarters

GM timing:

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