Trump tariffs bite into GM 2018 profit forecast, stock falls

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DETROIT (July 25): General Motors Co on Wednesday lowered its full-year 2018 earnings forecast, citing higher steel and aluminum costs as a result of tariffs imposed by US President Donald Trump's administration, sending its shares down more than 5% in pre-market trading.

The No. 1 US automaker said it would be able to partially offset higher commodity costs and the unfavorable effect of currency fluctuations in Brazil and Argentina, but they would have a net impact of around US$1 billion on the company's full-year results. Previously GM had expected those costs would total around US$500 million.

GM Chief Financial officer Chuck Stevens told reporters that the automaker had put in a "solid performance" in the second quarter "despite some fairly significant headwinds that have built throughout the year." Most of the additional costs have been incurred in North America, he said.

"We have some work to do there," Stevens said.

The automaker buys most of its steel from US producers, who have raised prices in reaction to tariffs on imported steel imposed by the Donald Trump administration earlier this year.

GM's US sales performed well in the second quarter, with deliveries to dealers up 4.6% versus the same period in 2017. The automaker said its full-size pickup truck plants are still running at more than 100% capacity as they try to keep up with demand.

Despite the tariffs, CFO Stevens said the recent US tax overhaul and low unemployment should help keep industry wide US new vehicle sales at a robust level either slightly below or on par with sales in 2017.

"We’re not expecting (tariffs) to impact the US industry in 2018," he said. "What happens beyond 2018, there’s a lot of uncertainty in this space at this point in time."

GM also said the higher costs would reduce its adjusted automotive free cash flow by around US$1 billion to US$4 billion versus its previous expectation of US$5 billion.

GM said that it now expects to earn around US$6 per share, down from its previous earnings-per-share forecast of US$6.30 to US$6.60.

The profit forecast change came as GM posted a better-than-expected second-quarter net profit, despite falling versus the same quarter in 2017.

The Detroit automaker reported quarterly net income of US$2.39 billion, or US$1.81 a share, compared with US$2.43 billion, or US$1.89 a share, last year. Analysts, on average, had expected earnings of US$1.78 a share.

Revenue in the quarter was down slightly at US$36.76 billion from US$36.98 billon. Analysts had expected US$36.73 billion.

In pre-market trading, GM shares were down more than 5% at US$37.42.