Will General Motors (GM) Stock Disappoint In Q2 Earnings?

General Motors Company (NYSE:GM) is set to report second-quarter 2017 results before the opening bell on Jul 25. In the last quarter, the company delivered a positive earnings surprise of 17.24%.

In fact, in each of the trailing four quarters, the company delivered a positive earnings surprise, with an annual average beat of 17.83%. Also, the long-term expected earnings growth for the company (three to five years) is currently pegged at 9.23%.

General Motors’ shares have returned 4.6% year to date, underperforming the 13.4% rally of the industry it belongs to.

Let’s see how things are shaping up for this announcement.

General Motors Company Price and EPS Surprise

General Motors Company Price and EPS Surprise | General Motors Company Quote

Factors Influencing this Quarter

In 2017, General Motors expects weak used-car pricing, a tough pricing environment in the U.S. and China as well as more pressure on commodity costs. Additionally, the automaker has been experiencing a high inventory level of passenger cars. It is working toward bringing the inventory down by cutting down on production.

In fact, General Motors has lowered the U.S. sales outlook for new vehicle sales in 2017. This indicates that the industry might be heading toward an average downslide in 2017. A decline in new vehicle volume will also lead to a dip in company’s total sales.

Also, the company has been forced to scale down or shut its manufacturing operations in a few regions due to production constraints such as high costs and unfavorable currency translation effects.

Moreover, General Motors’ decision to undertake a wide range of restructuring initiatives globally, such as stopping sale of cars in India, sale of its South African business and streamlining its Singapore office, are likely to result into charges of $500 million in second-quarter 2017. Of this, $200 million is likely to be a cash charge.

Earnings Whispers

Our proven model does not conclusively show that General Motors is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: The Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. General Motors’ Earnings ESP is -1.16% because the Most Accurate estimate of $1.71 is pegged below the Zacks Consensus Estimate of $1.73.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: General Motors currently carries a Zacks Rank #3 which when combined with a negative ESP lowers the predictive power of ESP.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are a few auto companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter.

Cummins Inc. (NYSE:CMI) has an Earnings ESP of +3.1% and sports a Zacks Rank #2. The company is expected to report second-quarter 2017 results on Aug 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

CNH Industrial N.V. (NYSE:CNHI) has an Earnings ESP of +12.5% and carries a Zacks Rank #2. The company’s second-quarter 2017 financial results are expected to release on Jul 26.

BorgWarner Inc. (NYSE:BWA) has an Earnings ESP of +1.12% and carries a Zacks Rank #3. The company’s second-quarter 2017 financial results are expected to release on Jul 27.

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