General Motors Earnings Preview: European Losses Cutting Profit

Analysts Predict Climbing Losses In European Auto Market

  @YannickLeJacq on October 30 2012 8:27 AM
General Motors
An ad for the new Chevrolet Trax SUV by General Motors has been pulled after it was discovered that the advertisements' accompanying music had racially insensitive lyrics toward China and other Asian nations. Reuters

General Motors Company (NYSE:GM) is expected to report third-quarter profits plunging by nearly half as the No. 1 U.S. carmaker struggled with its loss-making European Opel-Vauxhall unit and worked to sell off high levels of North American inventory.

Analyst surveys indicate Wall Street expects the Detroit, Mich., company, which reports Wednesday, to post earnings per share of 60 cents to 63 cents. In third quarter 2011, the company earned $1.03 per share. Revenue in the July through August period is expected to decrease 2.2 percent year-over-year to slightly less than $36 billion, down from $36.72 billion in the year-earlier quarter.

A key part of GM's third-quarter struggles stem from its European operations. The company lost $361 million in that region in the second quarter and risks posting increasing losses in the coming quarters. Morgan Stanley analyst Adam Jonas told Daily Finance that he expects GM Europe's losses to exceed $500 million in the third quarter.

Weak auto demand in Europe is also weighing on GM's rivals; last week, Ford Motor Company (NYSE: F) announced a massive overhaul of its European operations.

Analysts have become increasingly negative about GM's third-quarter performance in recent weeks, despite GM's promising turn towards the Chinese market and plans to streamline both the company’s internal management structure and its current product line-up. 

Revenue rose 4.3 percent in the first quarter of 2012, but fell 4.5 percent in the second quarter. While remaining profitable over the last eight quarters, the company’s net income has slipped over the past four quarters by an average of 37.6 percent,   year-over-year. GM took its biggest earnings slide in the first quarter of this year when it dropped by 60.9 percent.

For all of this year, analysts estimate, on average that GM will report earnings of $3.15 per share on revenue of $151.13 billion.

Shares closed Friday at $23.28.

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