US tariffs hit GM earnings forecast
General Motors (GM) lowered its full-year 2018 earnings forecast on Wednesday, citing higher steel and aluminium costs as a result of tariffs imposed by US President Donald Trump’s administration, sending its shares down more than 5% in premarket trading.
The number one US vehicle maker said it would be able to partially offset higher commodity costs and the unfavourable effect of currency fluctuations in Brazil and Argentina, but they would have a net impact of about $1bn on the company’s full-year results. Previously GM had expected those costs would total about $500m.
GM chief financial officer Chuck Stevens said the company had put in a “solid performance” in the second quarter “despite some fairly significant headwinds that have built throughout the year.” Most of the additional costs had been incurred in North America.
The vehicle maker buys most of its steel from US producers, who have raised prices in reaction to tariffs on imported steel imposed by the Trump administration earlier in 2018.
GM’s US sales performed well in the second quarter, with deliveries to dealers up 4.6% versus the same period in 2017. The firm said its pick-up truck plants were still running at more than 100% capacity as they try to keep up with demand.
Despite the tariffs, Stevens said the recent US tax overhaul and low unemployment should help keep industrywide US new vehicle sales at a robust level either slightly below or on par with sales in 2017. “We’re not expecting [tariffs] to impact the US industry in 2018,” he said.
“What happens beyond 2018, there’s a lot of uncertainty in this space at this point in time.”
GM also said the higher costs would reduce its adjusted automotive free cash flow by about $1bn to $4bn versus its previous expectation of $5bn. The firm now expects to earn about $6 per share, down from its previous earnings-per-share forecast of $6.30 to $6.60. It reported quarterly net income of $2.39bn compared with $2.43bn in 2017. Analysts, on average, expected earnings of $1.78 a share.
Revenue in the quarter was down slightly at $36.76bn from $36.98bn. Analysts had expected $36.73bn.