Well, so much for "analyst predictions."
General Motors announced its October sales results on Wednesday afternoon, and contrary to widespread expectations, the General had a decent month. While most industry-watchers expected a year-over-year sales decline, GM managed to eke out a 4.2% gain.
That still wasn't enough to keep pace with the gaudy 19.3% increase posted by GM's crosstown rival Ford (NYSE: F), or even with the industrywide increase of 13.4%. And it wasn't really the confidence-booster the company needed after its U.S. sales fell below expectations in September.
But it was better than many expected -- and as it turns out, it was only a small part of what was a big news day for the Detroit giant.
GM's IPO: It's on
The sales number deserves a closer look, but the big news on Wednesday was elsewhere. GM's PR crew dropped a pair of big announcements, starting with a long-awaited biggie: The IPO is officially on with 365 million shares of common stock, estimated to price between $26 and $29 a share, for a valuation somewhere in the neighborhood of $50 billion. The lead underwriters are Morgan Stanley (NYSE: MS) and JPMorgan Chase (NYSE: JPM), as we knew, and the issue is expected to price on Nov. 17 and begin trading on the NYSE the next day.
There are an awful lot of questions to be answered -- will the government get paid back? what's GM really worth? -- and we'll get to all of them in the coming days. But here's one little nugget to ponder: GM just did a 3-1 split, so it has 1.5 billion shares outstanding. At $27.50, the midpoint of the expected offering range, the company's market cap would be $41.25 billion, or roughly 7.5 times expected 2010 earnings, according to Bloomberg.
For comparison, Ford's forward P/E is about 7.8 at the moment, and its market cap is approaching $55 billion.
Speaking of earnings
GM PR's second Wednesday missive was a preliminary third-quarter earnings release, and the numbers they gave looked pretty solid: GM expects $1.9 billion to $2.1 billion of net income on revenues of about $34 billion, up nicely from last quarter's $1.33 billion profit.
That's one trend that GM definitely has moving in the right direction -- consider that many were surprised when GM posted an $863 million profit in the first quarter. But the company also offered a caveat: GM expects fourth-quarter results to be less impressive "due to the fourth quarter having a different production mix, new vehicle launch costs (in particular the Chevrolet Cruze and Volt) and higher engineering expenses for future products."
That last phrase seems like the big one to me. Like many GM-watchers, I've been expecting a huge product-development push to shift into overdrive after the IPO. Product development programs were cut to the bone (and in some cases, beyond) during the company's financial crunch, in contrast to Ford, Toyota (NYSE: TM), Honda (NYSE: HMC), and other rivals that were able to sustain spending through the downturn. GM's got a lot of catching up to do.
I'll have more on GM's quarter next Wednesday, after the company releases its full results.
GM's most important market: Still strong
Despite not-stellar sales at home, GM's sales in its biggest market -- that'd be China -- were up nicely in October. The company and its joint venture partners posted a 19.6% year-over-year increase on strong sales of Chevy and Buick products, as GM proudly announced that it had become the first "global automaker" to sell more than 2 million vehicles in China in a single year.
That's solidly ahead of the roughly 1.8 million vehicles sold by the automaker in the U.S. so far this year -- but it's important to note that from a bottom-line perspective, those sales aren't exactly equivalent. All of GM's sales in China are done via joint ventures, and while GM has the contractual right to count those sales as its own, GM doesn't get to take home all of the profits.
Still, GM's China ventures are a big success, one that points out that the last decade wasn't all failures and mismanagement. While there are still lots of questions hanging over the General, it's clear that there's some real value here as well. But how much?
What do you think? Would you pay $29 for a share of New Improved GM? Scroll down to leave a comment and let me know.
