Earnings Preview: GM reports 3Q earnings Wednesday
DETROIT (AP) — General Motors Co. reports third-quarter results on Wednesday. Earnings are expected to fall short of last year's performance due to mounting losses in Europe and slowing profits in North America.
North America is still expected to do well. But in Europe, the company has too many factories cranking out cars in the slumping region. GM is expected to post big losses in Europe.
WHAT TO WATCH FOR: Wall Street expects GM's European loss to widen to $500 million before taxes. North America, GM's most profitable region, is expected to make about $1.5 billion pretax, down 32 percent from a year earlier.
Analysts are expecting comments about GM's restructuring efforts for its Opel and Vauxhall brands in Europe. European passenger car sales were down 7.6 percent for the first nine months of the year.
"Either on or just after 3Q earnings, we expect GM to provide an update on its labor strategy and strategic partnerships, expressing continued commitment to Opel," Morgan Stanley analyst Adam Jonas wrote in a note to investors.
Last week, GM revealed part of its joint venture strategy with France's PSA Peugeot Citroen. The companies said they'll jointly make a small van for Opel and Vauxhall and a compact crossover vehicle for Peugeot. They'll also develop a new, low-emissions small car and work together on mid-size cars and small vans. The two companies inked an alliance earlier this year that included GM taking a 7 percent stake in Peugeot.
GM's results in North America will take a hit from marketing and engineering costs delayed from the second quarter. The results will also reflect costs associated with converting factories to build new Chevrolet and GMC pickup trucks, which come out early next year, Jonas wrote.
Also, GM's U.S. sales through September grew only 3.4 percent, lagging the overall market's growth of 14.5 percent.
Still some analysts see GM as a promising stock buy. Jonas has a 12-month price target of $44 per share, almost 90 percent higher than Friday's closing price of $23.28. Stock markets were not open Monday due to Hurricane Sandy. Many investors and sell-side analysts see untapped potential for GM and its $27 billion cash stockpile that has been overlooked by the market, Jonas wrote.
He also wrote that due to tax write-offs from years of losses, GM probably won't pay taxes to the U.S. government until 2018.
WHY IT MATTERS: GM, although smaller than before its trip through bankruptcy court, still employs 210,000 people worldwide including 79,000 in the U.S. Its car sales are a major component of the U.S. economy.
GM's results also are being watched closely by the U.S. government, which still holds 500 million GM shares that it got as part of the company's 2009 bailout. The government needs $26.4 billion to recoup its full investment in GM, meaning GM's stock would have to sell for roughly $53 per share. Strong earnings could drive up the share price.
EXPECTATIONS: Analysts expect net income of just over $1 billion, or 64 cents per share, far short of the $1.7 billion, or $1.03 per share, the company made in the same quarter of 2011. Excluding special items, analysts polled by FactSet expect 60 cents per share. Revenue is expected to total $35.96 billion, down 2 percent from a year earlier.