GM stock sell-off despite earning 3.2 billion in Q1

Despite announcing first quarter net income attributable to common stockholders of $3.2 billion, or $1.77 per fully-diluted share, marking the company’s fifth consecutive profitable quarter, General Motors Company (NYSE: GM) stock started dropping with the pre-market opening trade. Update: By the close of trading in New York, GM stock was down $1.02

The hourly Chart of GM stock (NYSE: GM) in pre-market trading implied the stock would go lower on Cinco de Mayo; and it did.

Like a Phoenix, though, GM stock started rising on Cinco de Mayo from its pre-market opening trade, but fell back again. Looking again at this hourly chart from this morning GM was trading at 32.61. Question was, how would GM stock perform the rest of the day? The answer at the end of the day's trading was even lower at 32.03 by the close.

According to the GM media release

GM also reported a revenue increase of $4.7 billion to $36.2 billion, compared with the first quarter of 2010.

And to add further good fundamental news, GM North America (GMNA) reported EBIT of $2.9 billion compared with $1.2 billion in the first quarter of 2010. That’s an increase of 141 percent. On an EBIT-adjusted basis, GMNA increased its earnings by $0.1 billion to $1.3 billion compared with the first quarter of 2010.

So, it may be surprising to some that pre-market trading would kick the stock down. Perhaps it’s selling on the news, because it certainly has been trading up on the rumors.

The Report Details

“We are on plan,” said Dan Akerson, chairman and CEO. “GM has delivered five consecutive profitable quarters, thanks to strong customer demand for our new fuel-efficient vehicles and a competitive cost structure that allows us to leverage our strong brands around the world and focus on driving profitable automotive growth.”

Net income attributable to common stockholders includes gains of $1.6 billion and $0.3 billion respectively related to the sales of the company’s ownership interest in Delphi Automotive LLP and Ally Financial Inc. preferred stock. It also includes a $0.4 billion goodwill impairment charge at GM Europe (GME) resulting from a change in accounting standards and charges totaling $0.1 billion at GM International Operations (GMIO) related to revised tax regulations affecting the company’s India joint venture. Combined, these special items increased net income attributable to common stockholders by $1.5 billion or $0.82 per fully-diluted share.

Earnings before interest and tax (EBIT) were $3.5 billion. EBIT adjusted to exclude special items was $2.0 billion compared with $1.7 billion in the first quarter of 2010.

Regional

As noted above, GM North America (GMNA) reported EBIT of $2.9 billion compared with $1.2 billion in the first quarter of 2010. On an EBIT-adjusted basis, GMNA increased its earnings by $0.1 billion to $1.3 billion compared with the first quarter of 2010. The company expects GMNA’s quarterly EBIT-adjusted results to improve on average for the remainder of the year compared with the first quarter as better pricing and improved fixed cost should more than offset commodity cost increases and unfavorable mix.

GME reported EBIT of $(0.4) billion. GME’s results improved by $0.6 billion on an EBIT-adjusted basis compared with the first quarter of 2010 and it achieved a significant milestone by delivering breakeven results on that basis. Based on current plans, GME is targeting to achieve breakeven results on an EBIT-adjusted basis before restructuring for the entire year.

GMIO reported EBIT of $0.5 billion compared with $0.9 billion in the first quarter of 2010. On an EBIT-adjusted basis, GMIO earned $0.6 billion in the first quarter, a decline of $0.3 billion compared with the first quarter of 2010.

GM South America (GMSA) reported EBIT of $0.1 billion, down $0.2 billion from the first quarter of 2010. There were no adjustments in either period.

Overall

GM expects that full-year 2011 EBIT-adjusted results will show solid improvement over 2010. GM continues to expect no material impact on full-year results from the Japan crisis.

For the quarter, automotive cash flow from operating activities was $(0.6) billion and automotive free cash flow was $(1.9) billion. Both figures include the $2.5 billion cash impact of GM’s decision, announced in October 2010, to end a wholesale advance agreement with Ally Financial.

GM ended the quarter with very strong total liquidity of $36.5 billion. Automotive cash and marketable securities, including Canadian Health Care Trust restricted cash, was $30.6 billion compared with $27.6 billion at the end of the fourth quarter of 2010.

“GM has great potential to deliver profitable growth around the world as the recovery continues,” said Dan Ammann, senior vice president and CFO. “While we’re encouraged, we keenly recognize we have more opportunities to leverage our scale, improve spending and investment efficiencies, and optimize our strong balance sheet.”

GM stock expectations

Nobody ever knows where a stock will ultimately trade. However, fundamental news like this at least gives credence to the upward move of GM stock since its low of 29.17. Question is, will GM stock rise high enough for the US government to turn a profit on its investment on behalf of taxpayers?

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Disclosure: Frank Sherosky, creator of the chart and author of "Awaken Your Speculator Mind" does not hold any stock, option or futures position in this equity or futures at this time.

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About the Author: After 39 years in the auto industry as a design engineer, Frank Sherosky now trades stocks and writes articles, books and ebooks via authorfrank.com, but may be contacted here by email: [email protected]

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