As of 10:30 a.m. EDT Thursday, General Motors (NYSE: GM) shares were up nearly 2% at $31.93 a share. For a company that's had a rough year, exactly why is GM stock going up today?
Here's your answer...
General Motors released third-quarter earnings before opening bell Thursday. Its report sent GM stock up more than 3% in pre-market trading, and the gain has continued this morning.
The company matched analyst estimates with earnings per share (EPS) of $0.97 a share - a $0.01 gain from the same period the year before. Revenue came in at $39.3 billion, beating analyst expectations of $38.7 billion.
But sales were still down from $38.98 billion in revenue from the same period a year ago.
That's in large part because GM has delivered bad news to its car and truck buyers all year...
The company has issued more than 30 million recalls - three times last year's sales of 9.7 million cars and trucks. By July, it had issued enough recalls to account for 3% of the world's total cars.
What's more, General Motors handled the faulty ignition issue in its Cobalt model in a horrible fashion. America's number one car-seller admitted in March that it knew of the ignition problem as early as 2001 - three years earlier than it'd previously said. The faulty ignition has been linked to 13 deaths and multiple injuries.
As a result, GM stock has plummeted more than 23% in 2014, compared to a roughly 5% gain for the S&P 500. In the previous earnings reported on July 24, GM saw an 80% drop in net income compared to a year earlier.
"This is going to be a legacy issue for years to come," Money Morning Capital Wave Strategist Shah Gilani said earlier this year.
In 2014 quarters prior to today, GM's profit margins were clobbered by expenses associated with recalls and victim compensation.
But that appears to be turning around, contributing to why GM stock is going up today...
The company's Q3 release made little mention of costs associated with the recalls. Instead, it noted $300 million in special items due to flood damage to its Michigan tech center, and asset impairments in Russia. The net loss from these special items lowered net income by $0.3 billion, or $0.16 per diluted share, but those numbers were still healthy. Net income came in at $1.38 billion - double the $698 million the company earned the same period a year ago.
The report also showed evidence of a vision for future growth. GM sold 2.45 million vehicles worldwide this quarter - its best July-September period since 1980. And last month, the company announced a long-term growth plan that targets growth in China.
That's a good thing for GM stock because China's home to the largest auto market in the world. It's notched double-digit annual growth rates every year over the last decade.
In earnings today, we saw GM's global vehicle sales climb 2%, driven by demand in both China and the U.S. In fact, the company saw "record vehicle sales" in Q3 in China.
"Strong global sales and growing margins in North America and China helped GM deliver very solid third-quarter results," General Motors Chief Executive Officer Mary Barra said in a statement. "Despite industry challenges in Russia and South America, our earnings were on plan as we continue to execute our customer-focused strategy."
Despite the market's positive reaction to earnings today, Money Morning Defense & Tech Specialist Michael A. Robinson isn't convinced GM stock is a buy right now. You can read more on that here...