What investors should know before GM reports second-quarter results on Wednesday

Published Tue, Aug 3 20214:12 PM EDTUpdated Tue, Aug 3 20214:44 PM EDT

Key Points

Investors will be watching GM’s earnings, but they’ll be more interested in any change to its guidance for 2021 and any updates on the the parts problem.
Shares of GM are up by about 125% during the past 12 months. They’ve risen nearly 40% in 2021.

General Motors is expected to report record earnings for the second quarter despite production cuts and tight vehicle inventories caused by an ongoing semiconductor chip shortage. GM is projected to report a second-quarter adjusted profit of $2.23 a share and $30.9 billion in revenue, according to Refinitiv estimates. That revenue would be an 84.1% increase compared with a year earlier, when Covid-19 caused shutdowns of its North American plants. Those results would set a second-quarter operating profit record for the company, topping its adjusted earnings before interest and taxes of $3.9 billion, or $1.86 a share, in 2016. They'd also add to GM's earnings streak of records for the past three quarters. That includes an all-time operating profit record of $5.3 billion, or $2.83 a share, in the third quarter of last year. Shares of GM are up by about 125% during the past 12 months. They’ve risen nearly 40% to $57.88 a share in 2021 as of Tuesday's close. Given the solid profit expectations over subdued results a year ago, investors will be focusing on other aspects of the automaker. They include a new full-year forecast and any updates to the semiconductor chip shortage, vehicle inventories and its electric and autonomous vehicles. Here are additional details on those topics and more. Earnings GM said in June it expected to deliver better-than-anticipated results for the second quarter despite the industrywide impact of the semiconductor shortage , which also is causing record vehicle pricing and profits. The company said it expected its first-half EBIT-adjusted to be between $8.5 billion and $9.5 billion due to continued strong demand, better-than-expected results at GM Financial, and improved near-term production from the pull forward of semiconductors from the third quarter. That's up from a forecast earlier this year of $5.5 billion. GM reported an operating profit of $4.4 billion for the first quarter, meaning the second quarter should be in-line or exceed those results and blow away its $536 million loss from a year earlier. The company's net income was a loss of $758 million during the second quarter of 2020. 'Complex and fluid' While the company's first half of the year surpassed its own expectations, GM in June said the second half of the year remains "complex and fluid." That includes between $2 billion and $3 billion of headwinds in the second half of the year, GM CFO Paul Jacobson told investors in June. Outside of those costs, he described the end of the year as "what hopefully will be pretty robust performance" for GM. Investors will be interested in any additional details on the second half of the year and the global shortage of semiconductor chips. Jacobson said the company would release a new guidance for the year when it reports its second-quarter results. GM previously guided adjusted pretax earnings of between $10 billion and $11 billion, or $4.50 and $5.25 a share. Net income for the year was forecasted between $6.8 billion and $7.6 billion. GM earlier this year said it expected the semiconductor chip shortage to cut $1.5 billion to $2 billion to earnings and a decrease of $1.5 billion to $2.5 billion to its free cash flow. It declined to update this guidance when announcing "better-than-expected" earnings for the second quarter. "I think a lot of the perspective was that this was the first half of 2021 issue and it would be over," Jacobson said. "It's clearly longer than that." He said the problem is expected to continue into 2022, but it's unclear how material the impacts will be next year. He said the third quarter will likely be affected more than the company expected a few months ago. GM on Tuesday confirmed its three North American full-size pickup truck assembly plants would be shut down next week due to the global semiconductor chip shortage. GM Financial GM Financial has been a driving force for the automaker during the coronavirus pandemic, as new and used prices and financing reach record levels. That's due to the low supply of vehicles stemming from the chip shortage. Jacobson cited GM Financial as "an integral part" of the company's record earnings. It's something investors and analysts are keeping an eye on. The financial arm earned $1.2 billion in the first quarter before interest and taxes, and provided GM with a $600 million dividend. In May, Jacobson said anticipated dividends this year from GM Financial would "significantly exceed the 2020 dividend of $800 million." EVs/AVs During the second quarter, GM upped its spending on electric and autonomous vehicles to $35 billion through 2025, a 30% increase from plans announced late last year. Jacobson in June said the increase was a result of the company's strong earnings. He said GM was "finding more ways to deploy more money faster" into the two emerging segments. The additional money will be used to expand its rollout of EVs and accelerate production of its battery and fuel cell technologies, including two new U.S. battery plants in addition to two under construction, by 2025. America's largest automaker is racing to catch up to EV leader Tesla and compete for a leadership position against other well-established automakers such as Volkswagen. GM plans to sell more than 1 million EVs annually by 2025. Any updates to its EVs, including a Hummer pickup truck due out later this year, or Cruise, its majority-owned autonomous vehicle subsidiary, will be newsworthy for investors. Jacobson described the next "big milestone for Cruise" as carrying non-employees in its self-driving vehicles. Cruise in June secured a new $5 billion line of credit as it prepares for commercialization of its autonomous ride-hailing business. Dividend GM and Ford Motor have not restated their dividends since suspending the payments early last year to shore up cash as the coronavirus pandemic caused rolling shutdowns of auto plants globally. Ford CFO John Lawler said Monday the automaker could reinstate its dividend "as early as the end of this year" depending on how the semiconductor chip shortage impacts the remainder of the year. Some investors will be interested in whether GM will give an update on a potential timeline for its dividend reinstatement.