General Motors Posts Q2 Earnings of $2.5 Billion. Most in N.A.

“Our earnings and cash flow are solid and we’re going to keep working on the fundamentals of strong brands, great products and operating leverage."

General Motors Company (NYSE: GM) today announced second quarter earnings attributable to common stockholders of $2.5 billion, or $1.54 per fully-diluted share, marking the company’s sixth consecutive profitable quarter. In the second quarter of 2010, GM’s net income was $1.3 billion, or 85 cents per fully-diluted share.

Revenue increased $6.2 billion to $39.4 billion, compared with the second quarter of 2010. Earnings before interest and tax (EBIT) adjusted was $3.0 billion compared with $2.0 billion in the second quarter of 2010. There were no special items in either period. This is in sharp contrast to Q1 of 2011 where profits of $3.2 billion, or $1.77 per fully-diluted share, included special one-time items that increased earnings by $1.5 billion or $0.82 per fully-diluted share.

Virtually all of GM’s earnings – $2.2B – came from North America, a worrisome development for the most international of the Detroit 3, whose largest markets are China, followed by the United States, Brazil, the United Kingdom, Germany, Canada, and Italy.

Earnings were helped by booking revenue from pickup trucks shipped to North American dealers. GM built 516,000 light trucks in Q2, up 14% from a year earlier. Passenger car production increased 10% to 308,000. GM dealers currently have 209,000 pickups in stock – the equivalent of a 115 days supply in an industry that considers 60 days normal.

During the Q2 earnings press conference GM said it would cut N.A. inventories to 90 days by year end. It is also anticipating plant downtime in 2012 to convert to making revised Chevrolet and GMC pickups (delayed during the bankruptcy) so it wants the higher than normal number of truck in dealer stock to prevent lost sales.

In a sense GM is playing a “beat the reaper” game – can GM increase share and sales of less profitable small cars such as the Chevrolet Sonic, which is just entering production, at a greater rate than the drop off in truck sales and larger per unit profits?

There is some evidence that it can. During July newer and more fuel efficient GM vehicles continued to sell well in the U.S. and incentives per vehicle – while still high at just about $3,000 a unit – are declining.

It also appears that its leading North American market share has finally stabilized at 20% after decades of decline.

Total U.S.. sales of the Chevrolet Cruze were above 20,000 for the fourth-straight month, at 24,648 units, meaning it is sold out, and the second best selling compact car in the u.S. About half of the car’s sales are conquests from other brands, an important development for GM, which needs to attract more buyers to increase sales. The GMC Terrain and Chevrolet Equinox compact crossovers posted a combined retail sales increase of 73% during the month.

“GM’s investments in fuel economy, design and quality are paying off around the world as our global market share growth and financial results bear out,” Dan Akerson, chairman and CEO said today.

On the positive side GM did increase cash flow to $5B from $3.8B. Free cash flow was $3.8 billion. GM also strengthened its balance sheet with total automotive liquidity of $39.7B. Automotive cash and marketable securities, including Canadian Health Care Trust restricted cash, was $33.8 billion compared with $30.6 billion at the end of the first quarter of 2011.

Based on current industry outlook, the company expects that EBIT-adjusted in the second half of 2011 will be “modestly lower” than in the first half. Nonetheless, GM predicted its full-year 2011 EBIT-adjusted will show “solid improvement” over 2010.

• GM North America (GMNA) reported EBIT-adjusted of $2.2 billion, an improvement of $0.6 billion compared with the second quarter of 2010.
• GM Europe (GME) reported EBIT-adjusted of $0.1 billion, an improvement of $0.3 billion compared with the second quarter of 2010. In the second quarter of 2011, GME incurred restructuring costs of approximately $100 million which was approximately $200 million less than in the second quarter of 2010.
• GM International Operations (GMIO) reported EBIT-adjusted of $0.6 billion, up $0.1 billion from the second quarter of 2010.
• GM South America (GMSA) reported EBIT-adjusted of $0.1 billion, down $0.1 billion from the second quarter of 2010.

GM has obligations of $4.7B in debt, $5.5B in preferred stock (U.S. government owns 26.5% of GM), $10.8B in unfunded pensions, and $10B in other post retirement employee benefits. It’s not clear how GM is going to fund these. It looks like issuing more common stock is not feasible given current share price of $26, far below the IPO price of $33. Other clouds on the horizon include the weak U.S. economy and the UAW contract that expires this September.

“Our progress has been steady and we’re preparing to launch more new products this year, including the Chevrolet Sonic in North America, the Opel/Vauxhall Zafira in Europe and the Baojun 630 in China to keep the momentum going,” Akerson said.