General Motors (GM) Misses on Profit Estimates as Bolt EV Recall Weighs on Earnings, Challenging Chip Situation and 'Cautious' Profit Outlook Pulling Shares Lower Says Analyst

August 4, 2021 11:33 AM EDT
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Shares of General Motors (NYSE: GM) are down more than 8% in today’s trading session after the company joined other major automakers in saying the chip shortage will continue weighing on the production output.

Adjusted earnings per share came in at $1.97 to miss on the analyst estimates of $2.23. On the other hand, revenue was reported at $34.17 billion to easily top the $30.9 billion expected. The North America market generated $2.89 billion in adjusted earnings while profit in China jumped to $276 million in the quarter.

“GM had a very strong Q2 and first half of the year. We continue to find creative ways to manage the semiconductor shortage and are putting long-term solutions in place to enhance our supply chain,” Chief Executive Officer Mary Barra said.

The company blamed the profit miss on $1.3 billion spent on warranty recalls, including as much as $800 million related to Chevrolet Bolt EV recalls.

Despite this hit, the Q2 net income of $2.8 billion marked a new quarterly record. This helped the company raise its full-year outlook to a range between $5.40 to $6.40 a share, from the prior range of $4.50 to $5.25 a share.

Evercore ISI analyst Chris McNally believes shares are trading lower partially because investors were looking for a bigger hike in the profit guidance, which was described as “cautious” by GM CFO Paul Jacobson.

The ongoing chip shortage continues to impact the production output with the latest temporary factory closures in Michigan and Mexico expected to hurt Chevrolet Silverado and GMC Sierra full-size pickups.

“The chips really represent a little bit more of a lost opportunity of what could have been even better, but the year is actually progressing quite well and I think we’ve overcome all of those initial expectations to exceed what we what we thought we could do at the beginning of the year,” CFO Jacobson commented on a call with analysts.

Overall, GM expects to lose 100,000 cars in production over the chip shortage.

“There is still more variability than I’d like to see. I do think we’ll continue to see impact this year, and it will have a tail into next year,” Barra said.

In addition to the chip shortage, the company projects that higher commodity costs will slash between $1.5 billion to $2 billion of the bottom line in the second half of the year.

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