General Motors Earnings Preview: Another Quarter in the Black?

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Despite the overall economy's lackluster performance this year, 2010 has been upbeat for Detroit's beleaguered automakers. The biggest of those, General Motors, has made perhaps the most dramatic comeback. After reporting a $4.3 billion loss during the last half of 2009, the company saw two positive quarters during the first half of the the year and is expected to report a third profitable quarter Wednesday.

Earlier this month, GM said it anticipates earning $1.9 billion to $2.1 billion for the three months that ended in September. Combined with profits earned during the first half of the year, GM may have made much as $4.2 billion in the first nine months of 2010 on revenue of $99 billion, it said.

"We will deliver a solid and profitable first year post-bankruptcy, and we are continuing to improve our balance sheet and most importantly, the quality of our vehicles," Chief Financial Officer Chris Liddell said.

On the Road Again

The automaker said it expects positive operating earnings in the fourth quarter but "at a significantly lower run rate than each of the first three quarters." GM didn't say if net income for the quarter would be positive, noted analyst Michelle Krebs.

Though a stunning reversal of five years of losses, GM's anticipated profit is less than that of rival Ford Motor (F), which made $6.4 billion during during the first nine months of the year. Also, while GM, along with most other automakers, has routinely reported better sales than a year ago, its gains on a percentage basis lag behind those of Ford.

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Earlier this month, for example, Ford reported October sales rose 19%, while GM's climbed just 3.5%. Excluding its discontinued brands, GM said sales of Buick, Cadillac, GMC and Chevrolet models rose 13% for the month.

Still, improved sales and a record quarterly profit will do a lot to convince investors that the new GM is worthy of their investment. After months of anticipation, GM unveiled last week the details of its initial public offering, which is expected to hit Wall Street around Nov. 18.

Next Exit: GM's IPO

In its filing with the Securities and Exchange Commission, GM said the offering would reduce the government's stake in the carmaker to around 40%, down from 61% now. GM is eager to lose the "Government Motors" moniker that critics of the bailout plan -- begun during the last year of the Bush administration -- have used derisively to refer to the company.

GM seeks to raise $13 billion through the offering, which will consist of $7 billion in shares held by the U.S. Treasury; $2 billion held by the United Auto Workers retiree health-care trust; and $1 billion owned by the Canadian and Ontario governments. The IPO values GM at roughly $49 billion, assuming exercise of warrants, on par with Ford's market capitalization of $49 billion.

Whether investors will react with the same enthusiasm in snapping up GM shares as consumers have shown for the automaker's new cars and trucks will be known soon enough. Still unknown is whether the sales momentum GM has enjoyed this year will continue -- especially if the economy continues to sputter along.
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