General Motors
Analysts expect a pretty good quarter from GM, as it has held its ground in a growing market at home and posted some sales gains in key overseas markets like China. But it'll likely be a mixed bag, as several points of concern make it clear that GM's turnaround is still a work in progress.
Signs of strength, points of concern
Analysts expect GM's net income to come in around $1.4 billion, or in the neighborhood of 87 cents a share, on revenues of $37.9 billion, according to Bloomberg. That's a bit below the $1.7 billion (excluding one-time items) that GM managed in the year-ago quarter. Should shareholders be concerned?
I'm a shareholder, and I think the answer is "no," or at least "not yet." I've been arguing for a while now that despite its low debt and several quarters of profitability, GM's turnaround is still a work in progress. GM's product-development programs are still racing to catch up from the ground lost during the company's death spiral. While competitors like Ford
GM is still scrambling to catch up. Here's one example: The all-new Cadillac ATS sedan will arrive at dealers in a couple of months -- but really, it should have been out a couple of years ago. That car's development program was one of many that stalled during GM's descent into bankruptcy. Several other much-needed vehicles, including replacements for the General's all-important pickup trucks, won't arrive until next year -- and GM's promising plan for a global product-line revamp won't be fully realized for several years more.
That means, for the moment, GM is treading water to some extent. GM's sales in the U.S. -- still far and away its most important and most profitable market, despite the company's strength in China and elsewhere -- have been lagging a bit in recent months. Why? Because competitors with fresher products, competitors like Ford
What does all this have to do with GM's earnings? Quite a bit.
Results that reflect a work in progress
GM's big product development effort has resulted in higher levels of expenses in recent quarters, cutting into profits to some extent. I expect that to continue in this quarter -- so while GM's sales in the U.S. have been decent under the circumstances, and its sales in China have been growing faster than the overall market, I won't be surprised if profits are down, roughly in line with the estimates I mentioned.
Another factor that will weigh: Europe. GM CEO Dan Akerson has pushed aggressively to restructure the company's money-torching German subsidiary, Adam Opel AG, once and for all. That's a work in progress, likely to unfold over the next couple of years -- but meanwhile, GM's European division (which includes Opel) has seen declining sales and is likely to post a big loss.
Elsewhere? Sales in China have been strong despite a subdued overall market, but profits -- which are split with GM's local joint-venture partners, remember -- are likely to be relatively modest and affected by GM's ongoing investments in growth in the region. And GM South America, which posted a loss last quarter, should be improving with the arrival of much-needed fresh products.
The upshot: Expect incremental progress
Long story short, GM's turnaround still has a way to go, and I expect Thursday's earnings report to reflect that. While the General should book decent profits, its product issues -- and the investments it's making to improve -- will continue to weigh to some extent. Stay tuned.
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