General Motors Renaissance Center. Photo Credit: General Motors.
There was a bit of pressure on General Motors (GM 2.95%) to beat analyst estimates this morning after crosstown rival Ford soundly beat estimates yesterday with a very strong second quarter. Ford's strong beat even helped give GM's stock price a small boost yesterday in hopes that it would imitate Ford's narrowed losses in Europe and stronger profits from truck sales – sales from which both derive much of their profits. Well, General Motors delivered, beating Wall Street estimates, and with a couple bright spots in its report.
By the numbers
Starting from the top, GM's net revenue in the second quarter reached $39.1 billion, a 4% improvement from last year's $37.6 billion. From that revenue GM managed a net income of $1.2 billion, or $0.75 cents per fully diluted share, which includes a special item loss that reduced net income by $0.09. Typically analysts don't take into account special items in their estimates, so by excluding that special item, GM's EPS came in at $0.84 cents per share – handily beating Wall Street expectations.
Although beating expectations, EPS still came in below last year's second-quarter results that reached $0.90 cents per share. Part of that reason was due to the costs of launching its very important redesigned trucks – the Silverado and the Sierra. This will weigh a little bit next quarter, but one positive aspect about it is the way inventory was handled.
In April, investors were concerned that GM wouldn't be able to lower inventory in time and would face a large profit and margin pinch because heavy incentives would be needed to move older product – amplified by the fact that the new model Silverado wouldn't have a price increase.
Information via Automotive News DataCenter.
"We've had a very successful time managing through the inventory transition from the old truck to the new truck," CFO Dan Ammann said at GM headquarters today, according to Automotive News.
Avoiding the inventory crisis paved the way for strong profits from the Silverado (GM's biggest profit maker), the Cadillac ATS, and the Impala, which boosted earnings before taxes and interest in North America nearly $2 billion. But there was another bright spot in the company's report: its narrowed losses in Europe.
Following Ford's lead, GM also posted a much smaller loss in its Europe operations; it fell from $394 million a year ago to $110 million. Both automakers plan to break even in Europe at some point in 2015 by quickly beefing up bottom-line profits over the next couple of years.
Bottom line
GM still has a long way to go in matching Ford's lean operations, but it is a much improved company, and therefore a much improved investment – regardless of how you feel about the company. As an emotionless investor, I see opportunity in owning GM stock. If it continues to improve both its operational efficiency and its margins, then the company has a lot of global sales and revenues to work with. It's also important for investors to see that GM can handle its launches flawlessly, as it will be refreshing, replacing, or redesigning 90% of its vehicles by 2016 – its largest revamp in history.
One thing is for sure, both Ford and GM are delivering with their new vehicles and it's showing in their respective earnings reports and stock price increases. Is it possible that they will relapse into old ways and burn investors? Only time will tell, for now GM and Ford appear to be solid investments even after this year's price run-up.
