Earnings Preview: GM Set to Report 'Impressive' Second-Quarter Profit
General Motors, which just a year ago had emerged fresh from bankruptcy, is today on much firmer footing. Having shed half its brands in the past year, the once-bloated behemoth became profitable once again during the first three months of the year, reporting in May it earned $865 million. Three months later, GM is expected to report it made even bigger profits -- perhaps in excess of $1 billion -- during the second quarter, when it releases its latest results on Thursday.
Though hinting at a larger quarterly profit, GM isn't making statements speculating about its pending report. But Chief Executive Ed Whitacre (pictured), who assumed the position on a temporary basis late last year and settled in permanently in January, said last week he expected the Detroit automaker's second-quarter results will be viewed positively by both potential investors and creditors, according to Reuters.
"It will be good. It will be impressive," said Whitacre, who is eager to end the government's support of once-ailing carmaker. Last year's federal bailout of GM -- and Chrysler -- left U.S. taxpayers holding 61% of the company, leading some critics to deridingly refer to GM as "Government Motors." It's a moniker Whitacre would like to send to the scrapheap.
Not as Strong as Ford
Though noncommittal on the timing of an initial public offering of stock in the new company, Whitacre, speaking last week, did express urgency in getting the deal done. Analysts have for months ventured that the stock sale would occur in advance of U.S. midterm elections, eliminating GM, at least, as a possible campaign issue, while also handing the Obama administration a win. The White House credits the bailouts at both companies for creating 55,000 jobs and saving thousands more.
Though likely healthy, GM earnings aren't expected to surpass those posted by Ford Motor (F), which hauled in $2.6 billion in the quarter ending June. Ford's bottom line was bolstered by greater demand for its cars and trucks around the world and by profits at its finance arm, Ford Credit. GM sold off its credit unit, GMAC, in 2006. In a bid to get back into the lucrative enterprise, GM last month agreed to buy subprime auto-lender AmeriCredit (ACF) in a $3.5 billion deal aimed at increasing availability of vehicle loans and leases. The purchase is expected to be completed by year's end.
GM, as well as Chrysler, has also reported improved sales, especially after factoring out comparisons that include sales from its orphaned brands. Among its four remaining "core" divisions -- Chevrolet, Buick, Cadillac and GMC -- sales surged 25% in July compared to year ago, and newer models, such as the Chevrolet Equinox small SUV and Buick LaCrosse sedan, remain in strong demand.
Whether the stalled economic recovery will hand GM a setback in the form of reduced sales remains to be seen. Come Thursday, however, fans of the iconic automaker can revel in an impressive comeback -- at least for the day.
