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General Motors warns of $2.9bn blow from US factory strike

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Via Financial Times

General Motors on Tuesday warned it will take a nearly $3bn blow from the 40-day strike at its US factories, prompting the automaker to slash its 2019 profit forecast.

The Detroit-based company lowered its full-year adjusted earnings outlook to between $4.50 and $4.80 a share, down from its previous projection of $6.50 to $7.00 a share. GM said the strike would result in a hit of roughly $2.00 a share, or $2.9bn.

In the third quarter, the labour action reduced profits by $1bn, the company said.

The earnings were announced days after workers at GM’s US plants voted to approve a new labour contract, ending the strike. The walkout halted production starting in mid-September and affected about two weeks of production in the quarter.

GM’s shares, up nearly 10 per cent year-to-date as of Monday’s close, advanced more than 5 per cent to $38.54 on Tuesday as the company’s quarterly results widely beat Wall Street’s expectations for the third quarter.

Michelle Krebs, executive analyst at Autotrader, said it was “no surprise” that GM cut its outlook for the year, given the lengthy work stoppage. “Wall Street analysts got their wish — that there was an upside surprise in GM earnings beyond their forecasts, despite the strike.”

Garrett Nelson, analyst at CFRA Research, said: “We believe analysts overestimated the negative impact the strike would have on Q3 results.”

GM’s operating profit in North America grew to $3bn in the third quarter, as US sales rose 6 per cent over last year on the back of demand for high-margin trucks and sport utility vehicles.

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Rising consumer demand for trucks and SUVs, two of the more profitable segments for automakers, has helped GM offset declining demand overall in the US and weakness in China, where the industry has struggled against an economic slowdown amid trade tensions with the US.

“Despite the strike, GM had a lot working to the company’s advantage in the third quarter,” said Jeremy Acevedo, senior manager of insights at Edmunds, ahead of the results. “The company is finally reaping the benefits of shedding many of the cars from its line-up and getting Silverado production fully online.”

Rival Ford cut its full-year profit outlook last week, saying headwinds for the fourth quarter had picked up due in part to lower sales in China and higher discounts in North America. The company, which is in the middle of an $11bn restructuring, saw its global revenue fall 2 per cent during the September quarter.

GM, America’s largest automaker, said its joint ventures in China registered a $300m decline in equity income, down $200m as expected, with sales down 17.5 per cent year over year.

Overall the company reported net income of $2.3bn, or $1.60 a share, down from $2.5bn, or $1.75 a share, a year ago. The strike reduced earnings by 52 cents a share, while revaluation of its stake in Lyft and French automaker Peugeot reduced earnings by another 15 cents.

Excluding one-time items, adjusted earnings per share fell 8 per cent from a year ago to $1.72, but topped expectations of $1.31 per share.

Revenue dipped 0.9 per cent from a year ago to $35.5bn, compared with analysts’ forecasts of $33.8bn.

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