GM’s First Quarter May Be Most Profitable in 11 Years on Sales
General Motors Co., the largest U.S. automaker, may report $1.74 billion in net income for the three months ended in March as rising sales in the U.S. and China helped the company to its best first quarter since 2000.
Earnings probably rose 63 percent from $1.07 billion a year earlier, according to the average of four analysts’ estimates compiled by Bloomberg. The results, to be released tomorrow, would be the fifth straight quarterly profit for the Detroit- based automaker since emerging from bankruptcy in July 2009.
The automaker’s performance and the market’s reaction will help determine how quickly the U.S. Treasury Department can start selling the remaining 33 percent stake held in the company. The Treasury can file to sell its shares as soon as May 22 and will track market prices after earnings are announced, a person familiar with the matter said last month.
“There needs to be some catalyst to move the stock,” said David Whiston, an analyst with research firm Morningstar Inc. in Chicago. “It will probably take several quarters of beating analyst estimates to get the stock price in the high $30s.”
GM hasn’t closed above last year’s $33 initial public offering price since March 3 as investors evaluate how much the company is outspending competitors to boost sales and assess management stability following the April 1 departure of Chief Financial Officer Chris Liddell, Whiston said. While the maker of Chevrolet, Buick, GMC and Cadillac cars will post strong results, the challenge is getting investors to notice, he said.
GM yesterday rose 81 cents, or 2.5 percent, to $32.99 in New York Stock Exchange composite trading. The stock has fallen 15 percent from its Jan. 7 closing high of $38.98.
Earnings probably rose partly because of sales growth in North America, Chris Ceraso, an analyst at Credit Suisse Group AG in New York, wrote in an April 21 research note. Sales increased industrywide in North America, with GM grabbing a larger portion by offering buyer incentives, Ceraso said.
“After all of the concern over GM’s incentive strategy, it appears that the favorable profit contribution from higher volumes more than offset the additional cost from the incentives,” Ceraso wrote.
Excluding certain items, GM is expected to report first- quarter profit of 91 cents a share, the average of 13 estimates.
GM said April 1 that U.S. sales jumped 26 percent to 592,545 vehicles in the first quarter as demand for the Chevrolet Cruze helped double the company’s share in the compact-car segment to more than 11 percent.
With Japanese automakers facing inventory shortages stemming from the March 11 earthquake and tsunami, GM may be able to add 1.1 percentage points of total U.S. market share and boost earnings per share this year by 60 cents, Colin Langan, a UBS Securities analyst in New York, said in a May 3 report. He upgraded the stock to “buy” with a $42 12-month price target.
“GM will be the biggest beneficiary of the upcoming Japan- related inventory shortages,” Langan said.
GM’s margins probably improved in the first quarter, Itay Michaeli, an analyst at Citigroup Global Markets in New York, said in a telephone interview.
“There’s a positive read-through from Ford’s earnings, Michaeli said. ‘‘Look at how nicely Ford’s margins recovered in the first quarter, and how they did in Europe, where everyone has been struggling,” Michaeli said.
GM is expected to retake the crown for most global auto sales from Toyota Motor Corp. this year, said Jeff Schuster, executive director of forecasting for J.D. Power & Associates, a research firm in Westlake Village, California. Toyota has lost production because of plant shutdowns following the earthquake. GM also is better positioned to expand sales in China, he said.
While GM may see weaker results in China in the short-term as some regional governments restrict car sales to manage traffic congestion, GM’s China operations are a reason to buy the stock, Michaeli said in his note.
“What happened in the first quarter was not a structural change in demand in China,” Michaeli wrote. “These are more growing pains and near-term volatilities you have in a growing market. The core fundamentals for China vehicle penetration remain very strong.”
Citigroup is forecasting about 15 percent growth in China car sales and a little less than that for GM. Last year, car sales rose 27 percent in China, Michaeli said.
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