General Motors Co. reported a profit for the third straight quarter yesterday (Wednesday) and said it is on a path this year to produce its first annual profit since 2004, gathering critical momentum for its planned initial public offering (IPO) next week.
The world's largest automaker said profits rose to $2.16 billion in the third quarter and revenue rose 20% to $34.1 billion. The company reported earnings per share of $1.20, compared to a loss of 73 cents a share in July through September last year, after it exited bankruptcy reorganization.
"It's a very strong quarter financially," Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan, told Bloomberg News in a telephone interview. "They've taken the excess capacity out of the system and cut costs throughout the organization. Any gain in the overall market is going to be very positive for General Motors, and the market has turned around from 2009."
The company rang up the numbers as it prepares to ask potential investors for a vote of confidence in the amount of roughly $13 billion to fund its return to public trading, scheduled for next week.
The exact date of the IPO has not been released, but it's widely expected to happen Nov. 18. Meanwhile, senior GM managers are conducting a road show around the globe, drumming up interest and trying to win commitments from key investors — including several sovereign wealth funds in the Middle East and Asia.
If the industry can execute a return to the glory days and see annual sales peak at 17 million units by mid-decade, as some analysts expect, the automaker's annual earnings could exceed $13 billion, GM Chief Financial Officer Chris Liddell told MSNBC.
GM can make "significant" profit even if the U.S. auto sales rate remains depressed at about 12 million vehicles a year, about 30% slower than before the financial crisis, Chief Executive Officer Dan Akerson has said.
GM has slashed U.S. hourly labor costs to an estimated $5 billion this year, from $16 billion in 2005, Liddell said in the road show presentation.
"I know a great investment opportunity, and the new GM is just that," Akerson said in a video presentation posted on the Internet last week. "We can make significant profit even in today's difficult environment."
GM, 61% owned by the U.S. Treasury Department, will offer 365 million shares at $26 to $29 each, according to the company's Nov. 3 filing with the U.S. Securities and Exchange Commission. The automaker also will offer $2 billion to $3 billion of preferred shares that later will become common stock.
GM will issue its stock to the public in an effort to pay back the $49.5 billion of taxpayer funds it received last year. GM recently returned $2.1 billion to the U.S. Treasury, bringing the total amount it has repaid through loan payments, interest payments and dividends to $9.5 billion.
"From what we're hearing, the road show has gone really well," Geoffrey Tirman, president of Talisman Capital SA in Chexbres, Switzerland, which manages $110 million, including bonds that will convert into GM shares told Bloomberg. "My guess is there will be a lot of secondary demand in the market, especially if they keep the IPO priced low."
Akerson, who is currently conducting the road show for prospective investors in Boston, said in a conference call GM has slashed costs, improved its balance sheet and is generating cash. At the same time, however, the automaker is still losing money in Europe and has to improve the way its vehicles are marketed in its core North American market, he added.
GM had operating profit of $2.1 billion in its North America operations, boosted by higher sales of high-margin pick up trucks. But the company lost money in Europe to the tune of $559 million. Meanwhile, it made $646 million in its international operations, which include fast-growing markets such as China and India.
"We know we still have much more work to do," Akerson said today in the conference call. "We still need to fix Europe. We continue to be vigilant in reducing cost in the enterprise, and we have just started doing a better job in marketing our brands to consumers."
The automaker generated $2.62 billion in cash from operations and said it ended the quarter with $33.5 billion in cash and marketable securities.
While fourth quarter earnings before interest and taxes (EBIT) will remain positive, they will be "significantly lower" than in the first three quarters of the year, Akerson said.
In its Nov. 3 regulatory filing, GM said that EBIT would be lower than prior quarters because its factories will be manufacturing a different mix of vehicles and engineering costs for future models will rise. GM is introducing its much-awaited gas-electric car, the Chevrolet Volt, and a new compact, the Chevy Cruze, during the quarter.
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