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GM Is in Solid Shape After Q1 Results But Investors Aren’t Impressed

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General Motors (NYSE:GM)  is in good shape after solid Q1 results show that earnings declined last quarter but profitability remained rock solid despite some strong short-term impacts. Let’s not forget that the company announced last year that it is set to ‘reinvent itself’.

Last year, GM announced that it has to cut 15% of its salaried workers and shut down 4 U.S. plants along with one in Canada in order to gain funds for the development of electric and self-driving vehicles. As part of its restructuring strategy, the company spent $1.3 billion in the fourth quarter, primarily on employee separation charges and accelerated depreciation. According to CFO Dhivya Suryadevara, GM expects to spend roughly $2 billion in cash overall for such actions.

In Ohio, GM is in early discussions to sell its Lordstown Assembly Plant to Workhorse Group Inc. (NASDAQ:WKHS), a struggling EV setup, while in Ontario, Oshawa Assembly will turn into an aftermarket parts hub under an agreement reached last week with Canada’s auto union. While plans for Oshawa have been agreed upon, the potential Lordstown deal is still not set. GM, as part of its national contract with the union, must negotiate any plant closure or sale with the UAW. Those conversations are expected to wrap up in July. One day before President Trump announced on his Twitter account the potential sale and “great news for Ohio!” as a few hundred jobs out of the 4,500 would at least be saved, publicly held Workhorse told regulators that it was in danger of becoming insolvent by midyear. This little struggling EV maker with fewer than 100 employees, has been unprofitable since its founding in 2007 and ended the first quarter with mostly borrowed funds. And there is no information of how much GM is asking for the plant, so we’ll just need to wait for more details.

GM is very likely to face otential setbacks from the UAW in the second half of the year along with a pressure of a flat to flopping demand in China. But its figures do show that it is in solid shape.

FY2018

GM has managed to remain “strong,” despite outside commodity pressures, foreign exchange challenges and a volatile trade and conflicting political environment. GM was negatively impacted more than $1 billion due to negative changes in trade in 2018 and the U.S. Tax Reform, however the company was primarily able to offset those costs and deliver on its promise as net income for the year jumped to about $8 billion, quite far from a loss of $3.9 billion in 2017. GM Financial reported earnings of $416 million, up 38 percent from $301 million a year earlier. Moreover, 56% percent of GM’s sales in the fourth quarter were financed through GM Financial. Strong North American results have managed to offset restructuring costs and losses in its international operations and autonomous-vehicle unit.

FY2019

For 2019, GM previously forecasted earnings of $6.50 to $7 per share and adjusted free cash flow between $4.5 billion and $6 billion. Well, at first glance, the first quarter results that were published last week don’t look that impressive. Adjusted earnings per share dropped to $1.41 from $1.43 a year earlier and investors reacted negatively to the earnings report, sending GM shares down 2.6% on Tuesday. This was a sharp contrast to how investors reacted to Ford Motor‘s (NYSE:F) a week earlier whose stock jumped 10.7% after its Q1 earnings release.

Adjusted operating profit fell to $2.3 billion from $2.6 billion a year ago. Operating profit is definitely declining in General Motors’ three main sources of profit: North America, China, and the GM Financial business. Some timing factors related to debt issuances also caused GM Financial’s operating income to fall to $359 million from $443 million a year earlier. Regardless, GM Financial’s earnings are expected to be roughly flat for 2019 as a whole.

Overall, GM has high hopes for the rest of 2019 as they expected their first quarter to be the weakest in terms of profitability, unlike Ford whose first quarter is estimated to be the peek of the year. The performance in the second quarter is also expected to be below average due to 3-week downtime at GM’s heavy-duty truck plant, but the damage to earnings is expected to be less severe than of the Q1 downtime. In addition, GM is temporarily slowing production in China in order to reduce dealer inventories to deal with the collapsing demand.

By contrast, GM will have less downtime in North America during the second half of 2019 than it did in the same period a year ago. Meanwhile, it will be able to reap the benefit of having fresh products in high-volume and high-profit segments. The key seems to be in trucks sales as weak sales in this segment could be the biggest threat to GM’s 2019 outlook. Q1 showed a 12.5% decline in domestic full-size truck deliveries. This is what allowed Ford and Fiat Chrysler’s Ram brand to get a hold of substantial market-share gains. But, inventory of the cheaper double cab and regular cab models are expected to reach optimal levels later this quarter, triggering better sales trends as the year progresses. So there’s a good chance that GM can recover the truck market share that it lost, without having to resort to discounting its brand-new launches.

Overall, GM’s management says that investors shouldn’t be worried. The company is still early in the launch cycle for its next-generation truck platform. GM simply decided to focus on the output of its priciest and most profitable models first. As a result, sales of crew-cab models rose 20% last quarter, providing further support for management’s leadership.

But if the expected sales rebound doesn’t come, General Motors may have to drop production of one of its most profitable products. But as long as full-size truck deliveries do meet expectations, GM is likely to post full-year adjusted EPS exceeding $6.50 for a third straight year. Since its direct competitor Ford did announce that their first quarter is expected to be the peak of its year due to the timing of new vehicle launches, it seems that GM will have plenty of time for a rebound during these remaining three quarters.

 

 

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Earnings

Toyota’s News: Redesigned Corolla, New Investments and Partnerships

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Toyota Stock Market News

Toyota Motor Corporation (NYSE: TM) is managing something other automakers only dream of. The company is honouring its values while achieving sustainable growth for over a decade. The dependable Japanese giant continues to deliver on its promises as it prepares for an electric future.

A new sturdy yet sporty Corolla

On September 17th, the company announced a completely redesigned Corolla that now goes beyond just being a practical buying decision. The newly evolved Corolla has a sporty design, offering pleasurable driving and advanced safety equipment. Being built on Toyota New Global Architecture (TNGA), Corolla is ready to evolve to meet customers’ needs, according to Yasushi Ueda, chief engineer in charge of development.

Since its debut in 1966, this car is nothing less than adored by consumers all over the world and now, it will have its first hybrid version available to U.S. customers.

Hybrid strategy is actually paying off

Just like Honda Motor Co. (NYSE:HMC) with its 2020 CR-V Hybrid, Toyota is using its hybrid technology to position itself for future growth and transition to an all-electric future, despite the fact these energy saving vehicles do not qualify for government subsidies. But, this strategy is paying off as hybrid demand skyrocketed and the company proudly revealed in February that Lexus reached its 10 millionth vehicle sales milestone since its launch, with its 2018 sales performance achieving several ‘best-ever records’. And it is thanks to these figures that the Chinese government is also starting to see the potential of such vehicles so things can only get even better for Toyota. As the saying goes, persistence is the key to success and these two companies have been quite brave in sticking to HEVs.

New Investment – $391 Million Goes to Texas’ San Antonio Plant

This will be Toyota’s first expansion in nine years at the plant that produces its Tundra and Tacoma pickup trucks. It is the part of the company’s strategy to invest $13 billion in its U.S. operations over the period of five years, ending in 2021.

Future Investment – $243.29 million to Produce New Vehicle in Sao Paulo

Toyota is also about to get an even stronger presence in Brazil as it will hire 300 new employees at the Sorocaba Plant to start the production of a new vehicle.

Partnership

And let’s not forget the ground-breaking partnership of Japan’s leading automakers that was revealed in August as Toyota and Suzuki Motor Co. (OTC: SZKMF) announced they will collaborate on developing autonomous car technology. This deal is cementing the bond that the two automakers kicked-off in 2016. They might seem like an odd couple as Suzuki is a everything but a big player, yet its strong presence in India is only one of the things that will greatly benefit Toyota. Although Suzuki admitted defeat on the world’s biggest playgrounds, China and the U.S., it cracked the code for emerging markets. And this is exactly where future global sales growth is expected to come from.

Inventing a car that will run forever?

According to Bloomberg, Toyota aims to go far further than electric by teaming up with Sharp Corporation (OTC:SHCAY) and Japanese governmental organization NEDO that encourages the development of innovative technologies. Considering that Toyota is a company that has even used the economic crisis and recession to only come out stronger, it’s not unlikely that it is set to out do the impossible by mixing the most efficient batteries with solar panels. The company’s strong financial performance and track record show that if anyone can do it, it’s Toyota Motor Co.

 

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Nike Exceeds Wall Street Expectations With Q1 Earnings for FY2020

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Direct-to-consumer sales and digital momentum strategies did the trick for Nike

When Nike (NYSE:NKE) released its better-than-expected first quarter of the fiscal 2020 results late Tuesday. Naturally shares jumped more than 5% to reach $91.80. The reported revenue increased 7.2% year comparing to last year, achieving $10.7 billion, greater than the expected $10.44 billion. Net income soared more than 28%, making adjusted earnings per share $0.86, also smashing expectations of $0.70 per share.

Nike managed to achieve a turnaround

The biggest contributor to total sales was Nike’s North American segment that increased 4% comparing to last year. But China sales also continue to grow and by double digit percentages: 22% to be exact, topping $1.68 billion. Overall, these are fantastic news for investors. Especially since the company’s rare earnings miss for the final quarter of the previous fiscal year. The company attributed this to increased marketing costs and a higher tax rate. But highly anticipated new product launches and solid results for continuing lines, along with efforts to draw new customers to the Nike SNKRS app, did their magic.

Digital momentum is key

Digital movement is transforming and amplifying everything Nike does and in Q1, Nike Digital grew 42% on a currency neutral basis. This growth is driven by enhanced digital services and the international expansion of its app ecosystem. Moreover, The Nike app and SNKRS app are now both live in over 20 countries, with more expansion coming throughout the year.

There are literally no weak spots for investors

Arguably, there are no weak spots for prudent investors to dig in as far as this quarter’s report is concerned. The company is literally firing on all cylinders. The company’s management attributes these results to “the depth and balance of the company’s complete offense, building on the strengths of its foundational business drivers and capitalizing on the untapped dimensions of its portfolio”. Management has also dismissed any concerns that US-China trade conflicts could harm its operations, disclosing no impact has been seen up to date.

Nike showed it can even handle the increased tariffs

Earlier this year Nike joined over 200 other footwear companies urging President Trump not to increase tariffs on footwear imported from China, calling the move “catastrophic for our consumers, our companies, and the American economy as a whole.” But while those tariffs are certainly catastrophic for small players, Nike seems more than capable of mitigating the consequences of this added expense.

Poor macroeconomic conditions are only masking Nike’s true power

The company made it clear that its figures would have been even stronger had it not been for macroeconomic challenges which are manifesting through tariffs and foreign-exchange rates. They implied that the weakening economic climate is essentially masking Nike’s true strength. And in addition to children, women are also a big opportunity for the company that Nike will continue exploiting. This is why Nike expects better-than-planned growth in its higher-margin NIKE Direct channels and international segments and consequently, its full-year gross margin. One thing is for sure: Nike has turned itself into so much more than a ‘sneaker-company’.

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Apple Will Be Making Its MacBook Pros in the US

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With a newly granted “federal product exclusion,” enabling it to import some Mac Pro parts without paying tariffs, Apple (NASDAQ: AAPL) will be able to save enough money to make US assembly worthwhile. The company announced on Monday that it will manufacture the new version of its Mac Pro desktop computer in Austin, Texas. It’s also a big political win for Apple, since President Trump has for years called on the company to make more products in the US. Tim Cook clearly made a compelling case during his meetings with President Trump. Apple described the decision to keep Mac Pro production in Austin as part of its “commitment to US economic growth.”

Macroeconomic climate is not favourable

The September figures around the world are simply awful. The uncertainty brought on by intensifying trade wars, the outlook for the car industry and Brexit are paralyzing investors, with September seeing some of the worst performance since the financial crisis in 2009, leading many to worry about whether yet another crisis is upon us. On a brighter note, Apple’s stock went up 0.2% after Bloomberg reported that ten of its 15 requests for an exemption from tariffs on imports from China had been approved.

New investments

Apple previously disclosed plans to spend $350 billion in the U.S. by 2023, a figure that includes new and existing investments. Its Apple TV+ is set to launch on November 1, with stars like Oprah Winfrey bringing her famed book club streaming show to the company’s subscription service. Among documentaries that will be released, there will even be a multi-series about mental health, featuring no other than Prince Harry himself. Apple’s subscription service will cost only $4.99 a month and will be available in 100 countries and regions at launch. Also, customers who buy a new Apple device will also get a free year of Apple TV+.

Competitors

Netflix (NASDAQ: NFLX) is still the leader when it comes to U.S. streaming, along with Amazon Prime (NASDAQ:AMZN), AT&T’s HBO (NYSE: T) and upcoming Disney+ (NYSE:DIS), it is certain that competition will be intense. Netflix’s stock has been dropping since July, which was the first time the number of subscribers fell. Moreover, Netflix’s stock price has now officially wiped out any gains it’s made over the year so far and both Disney and Apple have a shot at beating Netflix at its own game.

Apple is still facing impending import duties and innovation difficulties

Let’s not forget that the company still faces import duties scheduled for Dec. 15 that could affect nearly all of its major products including iPhones, iPads, MacBooks and Apple Watches. And more importantly, it is thought by many as facing an innovation problem so it heavily relies on customer loyalty that will continue driving its sales. We’ll just have to wait for November 1st launch of Apple TV+ to see the impact of Apple’s new streaming subscription service.

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