GM Earnings & $20B Buyback Show Confidence, Guidance Pumps Brakes on Momentum

SPEAKER_1 (0:00)

We're back on Morning Trade Live. Let's focus on the one day chart for General Motors off the back of its earnings report. We are down 5.2 right now. It's one of the worst names, as we mentioned earlier today, on the border index off the back of narrowing the guide. It seems like the street not too impressed by that. Let's get up to the latest quarterly results for the focus of the morning trades for a closer look. As always, Marley Kayden, good morning, Marley. Just run us through the details of the report.

Marley Kayden (0:28)

Good morning, Sam. Yes, as you highlighted, GM is actually the worst performer in the S&P 500 so far this morning, following an earnings beat and this new buyback. But the guidance is really the issue here as you just flagged. But let's walk through the numbers here. For the quarter, their revenue came in at $50 billion even. That was up nearly 3 percent from a year ago. It was above the consensus. EPS also came in better than expected at $3.70. The estimate was looking for about $3.57. Adjusted EBIT was also better than expected, $4.1 billion. That was ahead of the roughly $4 billion expected. It was also up nearly 22 percent year over year. The big update though in the issue here is the guidance. For the full year, GM now expects it's adjusted EBIT between $14.5 and $15.5 billion. Prior range was $14 to $16 billion. And EPS, they expect between $12.75 and $13.75. Prior range was $12 to $14.

Adjusted automotive free cash flow between $11.5 and $12.5 billion. Prior range was $9.5 to $11.5 billion. Now, the real issue is that the ranges keep the same midpoint as before, meaning that GM trimmed the upside as much as they trimmed the downside. And that seems to be where we're seeing this selling action come from. The board did, however, approve a $20 million multi-year authorization with no expiration date here and to declare a quarterly dividend of $0.18 per share. That buyback, Mary Barra saying they think it's a proven strategy, the new $20 billion multi-year share repurchase authorization we announced today further demonstrates our board's commitment to creating even greater shareholder value. She also said they're working to continue momentum despite what she calls growing inflationary pressures. Those are certainly showing up. They saw their international profit down 87 percent. Commodity costs are hitting the top end of their ranges, clouding an otherwise strong North American quarter. They're saying that they expect commodity inflation to be about $2 billion. The prior range was about $1.5 to $2 billion, so they're right at the top there, including logistics and memory chip costs. They also cut their expected regulatory benefits to about $500 million from as much as $750 million.

Offsetting that, gross tariff costs are tracking towards the low end at 2.5 billion to 3.5 billion range. So there was a lot to like here, but that guidance range really seems to be what everybody's stuck on. Also, they're still dealing with this collapse in their EV sales and pivoting away from this EV strategy. Their EV sales fell about 62 percent, roughly about under 4 percent of their US volume in terms of total volume for EVs. It was more than 9 percent a year ago.

If you exclude EVs, GM sales were essentially flat. They were up about 3 tenths of a percent.

So, gas powered trucks helping to deflect some of those losses here, but they're still in the midst of this pivot and move away from some of these EVs, which are still weighing.

Light duty pickup sales were a big driver. They were up 9.3 percent driven by the Silverado. The GMC Sierra light duty was higher as well. Heavy duty models, these larger pickup trucks were a little softer. The Silverado HD was actually down 10 percent and the Sierra HD was down close to 7 percent. But it is on track, it says, to lead the full size pickup segment for a seventh straight year. So, gas powered trucks helping deflect some of those losses. But overall, strong numbers. It's just that guidance that everybody seems wedded to when they narrowed the range, but they didn't move the midpoint at all, Sam.

SPEAKER_1 (4:07)

Yeah, still a lot to like, as you say, but obviously still a lot of uncertainties with the outlook. Really appreciate it, Marley. We are trading down, as you say, over 5% lower. So, let's trade it now with option strategist, Tim Biggam. Good morning, Tim. How would you approach an example trade on GM?

Tim Biggam (4:23)

Yeah, good morning, Sam. And I actually think across the board, it was a good report, certainly beat on the top and bottom line pretty handily. And the fact that they narrowed the guidance to me gives a little more clarity going forward. I know the top end is lower, but as Marley alluded to, the bottom end is higher. So, getting a little bit tighter range, I think is a positive, not a negative overall, as you can kind of maybe hang your head a little bit more on the guidance for what it's worth. Also, the SOC approached that 76 key support level, actually it hit it again pretty much earlier today, bounced off it sharply. So, that looks like major long-term support, like the fact that because of the big drop in the shares, IV, we didn't get the normal huge IV crush post earnings, IV down, but not dramatically. So, I'm kind of liking the stock lower here, IV still hanging in there, going out to November, positioning below that 76 support by a fair margin, selling the 72.5, 70 put spread, getting about 40 cents. So, like that 19% return on risk, have about an 8% further downside cushion where the stock's trading at now. And I think at some point, shares will probably level off here and maybe even grind a little bit higher, but I'd be a willing buyer on a further leg down, certainly, on this stock. The fact that it was not exactly the up in guidance to match the up in earnings and revs. I think the analysts were maybe a little miffed, but as you know, analysts short-term get miffed all the time. It's usually a good time to jump in and take the other side.