GM sideswiped by trade war; cuts outlook as prices rise
NEW YORK (AP) — General Motors, facing rising commodity costs in a trade showdown with Europe and elsewhere, cut its outlook for the year.
The diminished expectations overshadowed a strong second quarter and shares tumbled more than 7 percent in early trading. The rest of the auto sector was dragged down as well on Wednesday. Ford Motor Co., which reports quarterly earnings later Wednesday, slid 4 percent. The S&P 500 Automobile Manufacturers index plunged 6 percent.
Quarterly profit rose 44 percent to $2.39 billion, or $1.66 per share. A year ago, the company had a loss on the sale of its European Opel unit
Excluding charges, the Detroit company earned $1.81 per share, topping Wall Street expectations for $1.78, according to a poll by FactSet. Revenue was flat at $36.76 billion, falling short of Wall Street forecasts.
GM now expects 2018 per-share profits of $5.14, down from $6. It cited “recent and significant increases in commodity costs” along with unfavorable currency exchange rates. Wall Street had been projecting 2018 per-share earnings of $6.42.
“The pressure from commodity prices and foreign exchange rates has been more significant than our original expectations, said Chief Financial Officer Chuck Stevens. “While we’ve been able to offset some of the headwind, the challenges have been greater than anticipated, and we expect approximately a $1 billion net headwind versus our original guidance.”
President Donald Trump imposed steep tariffs on steel and aluminum coming out of Canada, Mexico and the European Union. The 25 percent tariff on steel and 10 percent tariff on aluminum, which took effect in June, have driven up costs sharply as domestic producer raise prices.
That, of course, is a major input cost for carmakers.
“Our biggest exposure, our biggest unmitigated exposure is really steel and aluminum when you look at all of the commodities,” Stevens said. “And frankly, the biggest driver of that is steel.”