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GM Cruzes
General Motors (NYSE:GM) posted its fifth profitable quarter in a row in May, as it tripled its net income on the strong sale of its fuel-efficient vehicles. GM's sales were up markedly in the U.S., but analysts didn't like the automaker's vehicle pricing. In spite of the gaudy earnings and revenue numbers, the market sent the stock down by 3.2 percent on the news at the end of the following trading session. (For more on automotive stocks, check out Analyzing Auto Stocks.)
TUTORIAL: Earnings Quality
A Flashy Quarter
Smaller car models such as the Chevrolet Cruze led the way for GM's sales as gasoline prices spiked upward. GM's sales leaped 25 percent in the U.S. and 10 percent in China. Analysts suggest GM could now overtake Toyota (NYSE:TM) as the world's No.1 automaker. Supply shortages in Japan have seriously affected home country automakers such as Toyota and Nissan (OTCBB:NSANY).
GM's overall revenue increased to $36.2 billion in the quarter, up from $31.5 billion in the same quarter last year. Net income was $3.2 billion compared to $865 million in Q1 2010, with EPS at $1.77, a dramatic gain from the 55 cents of last year's Q1. (For more on earnings, see Assess Shareholder Wealth With EPS.)
Under the Hood
Without the one-time items, GM earned $1.7 billion, or 95 cents a share, and $1.6 billion from the sale of its Delphi Automotive auto parts unit. Still, the 95 cents per share beat analyst expectations of 91 cents. GM continued to offer buyer incentives to spur vehicle sales, something that rival Ford (NYSE:F) has drastically lowered. GM raised vehicle prices less than 1 percent this year and expects to cut back further on incentives such as rebates and low-interest loans. North American EBIT more than doubled to $2.9 billion, but the automaker took a $400 million accounting charge in its European operations.
Market Share
GM's North American share fell to 18.3 percent from 18.5 percent sequentially from the previous quarter, Q4 2010. Its global market share increased to 11.5 percent from 11.1 percent in the year-ago quarter, but it remained sequentially flat from the Q4 last year. The automaker's sales increases in China underscore the importance of that growing market, although sales growth fell from the 30 to 40 percent increases GM had been experiencing. (For more on market share, read Where Top Down Meets Bottoms Up.)
Analyst Reaction Muted
Analyst reaction was blasé, deeming the GM report only "okay". The investment community appreciated that GM appeared to be straightening out its pricing with fewer incentives, and the prospect that rising costs will be offset as the year goes on.
Not much was said about the still substantial GM shareholder, the U.S. Treasury, which originally sprung for $50 billion in IPO shares of the automaker after it emerged from bankruptcy. The Treasury still holds 500 million shares, which it would have to sell at approximately $53 to recover its investment. Shares have only recently climbed back to their IPO level of about $33. (For more on analysts, see Analyst Forecasts Spell Disaster For Some Stocks.)
GM's Prospects
GM has a strong financial position, with $30.6 billion in cash and marketable securities at the end of the quarter, an increase from the $27.6 billion a year ago. It faces headwinds, mostly along with other automakers. Gas prices loom large, more so than even automotive rivals, as this dent in the consumer would slow GM down. (To read more on gas price, check out What Determines Gas Prices?)
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TUTORIAL: Earnings Quality
A Flashy Quarter
Smaller car models such as the Chevrolet Cruze led the way for GM's sales as gasoline prices spiked upward. GM's sales leaped 25 percent in the U.S. and 10 percent in China. Analysts suggest GM could now overtake Toyota (NYSE:TM) as the world's No.1 automaker. Supply shortages in Japan have seriously affected home country automakers such as Toyota and Nissan (OTCBB:NSANY).
GM's overall revenue increased to $36.2 billion in the quarter, up from $31.5 billion in the same quarter last year. Net income was $3.2 billion compared to $865 million in Q1 2010, with EPS at $1.77, a dramatic gain from the 55 cents of last year's Q1. (For more on earnings, see Assess Shareholder Wealth With EPS.)
Under the Hood
Without the one-time items, GM earned $1.7 billion, or 95 cents a share, and $1.6 billion from the sale of its Delphi Automotive auto parts unit. Still, the 95 cents per share beat analyst expectations of 91 cents. GM continued to offer buyer incentives to spur vehicle sales, something that rival Ford (NYSE:F) has drastically lowered. GM raised vehicle prices less than 1 percent this year and expects to cut back further on incentives such as rebates and low-interest loans. North American EBIT more than doubled to $2.9 billion, but the automaker took a $400 million accounting charge in its European operations.
GM's North American share fell to 18.3 percent from 18.5 percent sequentially from the previous quarter, Q4 2010. Its global market share increased to 11.5 percent from 11.1 percent in the year-ago quarter, but it remained sequentially flat from the Q4 last year. The automaker's sales increases in China underscore the importance of that growing market, although sales growth fell from the 30 to 40 percent increases GM had been experiencing. (For more on market share, read Where Top Down Meets Bottoms Up.)
Analyst Reaction Muted
Analyst reaction was blasé, deeming the GM report only "okay". The investment community appreciated that GM appeared to be straightening out its pricing with fewer incentives, and the prospect that rising costs will be offset as the year goes on.
Not much was said about the still substantial GM shareholder, the U.S. Treasury, which originally sprung for $50 billion in IPO shares of the automaker after it emerged from bankruptcy. The Treasury still holds 500 million shares, which it would have to sell at approximately $53 to recover its investment. Shares have only recently climbed back to their IPO level of about $33. (For more on analysts, see Analyst Forecasts Spell Disaster For Some Stocks.)
GM's Prospects
GM has a strong financial position, with $30.6 billion in cash and marketable securities at the end of the quarter, an increase from the $27.6 billion a year ago. It faces headwinds, mostly along with other automakers. Gas prices loom large, more so than even automotive rivals, as this dent in the consumer would slow GM down. (To read more on gas price, check out What Determines Gas Prices?)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Greg Sushinsky
Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
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