GM expects strong first half of year despite production interruptions due to chip shortage

GM expects strong first half of year despite production interruptions due to chip shortage

DETROIT — General Motors on Wednesday reported first-quarter results that blew away Wall Street earnings expectations, saying it expects a strong first half of the year despite the global semiconductor chip shortage that has caused factory closures.

Here’s how GM did compared with what Wall Street expected based on average estimates compiled by Refinitiv.

Adjusted EPS: $2.25 vs. $1.04 expected based on average analysts’ estimates compiled by Refinitiv.

Revenue: $32.47 billion, vs. $32.67 billion expected.

GM reaffirmed its earnings expectations for the year, guiding toward the high-end of its range. The company forecast $10 billion to $11 billion, or $4.50 to $5.25 per share, in adjusted pretax profits, and adjusted automotive free cash flow of $1 billion to $2 billion for 2021.

The forecasts factored in the potential impact of the chip shortage, including a hit of $1.5 billion to $2 billion to earnings and a decrease of $1.5 billion to $2.5 billion to its free cash flow.

CEO Mary Barra said while the company will have production downtime in the second quarter, it expects “to have a strong first half” of about $5.5 billion in pretax and adjusted earnings.

“The speed and agility of our team are front and center as we move from managing through a pandemic to managing the global semiconductor shortage,” she said in a letter to shareholders. “This remains a challenging period for the company as we emerge from 2020, but the team continues to demonstrate its ability to manage complex situations.”

On a call with reporters Wednesday, Barra said the second quarter is expected to be GM’s weakest of the year followed by a recovery in semiconductor supply during the second half of the year.

Morgan Stanley analyst Adam Jonas called the full-year guidance a “relief” to investors, however, said “the bigger picture opportunity and risk profile remains,” specifically regarding GM expanding its multiple.

“While GM has shown good progress to date in this regard, we believe the best has yet to come,” he told investors in a note. “We sincerely hope (and expect) that GM management to not let their guard down during this relatively ‘heady’ time for the industry.”

Shares of GM were up by more than 3% during trading Wednesday morning. They are up by about 160% during the past 12 months and have risen 33% in 2021. GM’s market cap is $80 billion.

On an unadjusted basis, net income was $3 billion for the first quarter compared with $294 million a year earlier as automakers began shuttering factories to help control early outbreaks in the pandemic. The automaker reported pretax adjusted earnings of $4.4 billion for the first quarter, up from $1.3 billion a year earlier.

The chip shortage has led automakers to shutter factories for varying periods of time across the globe, leading to tight vehicle inventories on dealer lots. However, the lower supplies have led to higher profits per vehicle, allowing automakers to continue to perform well despite the shortage.

GM’s first-quarter earnings came a week after Ford Motor beat Wall Street’s expectations for the quarter but warned it would lose about 50% of its planned second-quarter production due to the chip shortage.

Barra declined to disclose how much production the company expects to lose.