Good enough progress for long enough to peddle the taxpayer owned stock?
General Motors Company today announced its second quarter 2010 results with revenue of $33.2 billion and net income attributable to common stockholders of $1.3 billion. This is about a $14 billion swing when compared to the loss of almost $13 billion in Q2 of 2009 when it was bankrupt. GM only survived because of lavish taxpayer subsidies from the Canadian and U.S. governments.
GM earnings per privately-held share on a diluted basis tallied at $2.55. GM’s second quarter earnings before interest and tax (EBIT) was $2.0 billion.
Whether the results are good enough to engender private and institutional investor confidence in a pending IPO will be a matter of much debate today. Since the offering will be among the largest in history, its timing is crucial to acceptance.
“Yes, these are good enough results to get an IPO done,” said Joe Phillippi of the AutoTrends consultancy. Phillippi, who has written road show presentations for IPOs, noted that big questions remain around market conditions. “‘How many shares and at what price will private and institutional investors accept?” Phillippi said.
GM refused to comment on the IPO.
During the second quarter, GM vehicle production was up in all regions, totaling about 700,000 more vehicles at 2.3 million than the previous quarter. It estimated its global market share at 11.6%, with share gains in every region.
GM North America had EBIT in the second quarter 2010 of $1.6 billion, up from $1.2 billion in the first quarter. As expected GM Europe remained problematic with a loss before interest and taxes of $0.2 billion. Still this was an improvement of $0.3 billion from the first quarter from Opel-Vauxhall in the stalled European market.
More troublesome was GM International Operations, which posted EBIT of $0.7 billion, down from $1.2 billion in the first quarter.
Cash flow from operating activities was $3.9 billion and after adjusting for capital expenditures of $1.1 billion, free cash flow was good at $2.8 billion. GM ended the second quarter with $32.5 billion in cash and marketable securities, including funds in the Canadian Health Care Trust escrow.
“I am pleased with our progress on achieving our business objectives,” said Chris Liddell, vice chairman and chief financial officer. “We have delivered strong product, maintained cost discipline, progressed strategic initiatives such as restructuring Europe and acquiring AmeriCredit, and delivered two consecutive quarters of profitability and positive cash flow.”
Liddell is staying on the talking points that are needed to successfully pull off an Initial Public Offering, which could come at anytime.
GM is holding market share at roughly 19% in North America for first place, but it is using incentives of about $3,500 per vehicle, depending on whose numbers you use from independent sources. This is about $1,000 more than the industry average, and a consistent drag on earnings. Auto companies do not disclose incentive costs.
The website Edmunds.com said that most GM vehicles sell for an average of 15.7% off sticker price. The industry average is estimated at 13.7%. During first quarter, GM’s discount was 13.9% and the industry’s was 13.2%. In second quarter of last year, GM’s discount was 16.6% and the industry’s was 15.5%.
The derisive “Government Motors” slur used by those who opposed saving what is now a recovering company is thought to be an impediment to improving sales and returns.
(See also GM Q2 Results Tomorrow. IPO Filing Friday?)