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Earnings Preview: GM expected to report 3Q profit

November 7, 2011

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DETROIT—General Motors Co. reports third-quarter earnings on Wednesday, and a strong profit is expected with global sales rising over last year. But GM faces higher structural costs, and like rival Ford Motor Co., could see profits reduced by charges from falling prices of hedged commodities.

WHAT TO WATCH FOR: GM's revenue is likely to be higher than the $34.1 billion it took in during the third quarter of 2010, mainly because global sales are up. The Detroit company sold just under 1.9 million vehicles in China through September, up 7 percent from a year ago. U.S. sales are up 16 percent in the same period, to a little more than 1.9 million. GM is continuing to get strong prices for its cars and trucks in the U.S.

GM earned $5.4 billion in the first half of the year, but that included a $1.6 billion first-quarter gain from the sale of its stake in Delphi Automotive, its former auto parts division.

Barclays Capital analyst Brian Johnson is expecting a decent third quarter and said in a note to investors that he sees increased pretax profits in North America "especially in light of tail winds from pricing."

But he cautioned that Ford saw its third-quarter profit drop because of a $350 million noncash charge due to hedging on commodities like copper and aluminum, for which prices fell. "We would not be surprised to see a similar headwind at GM," Johnson wrote.

GM is not expected to announce any share buyback program or the timing of when the government will sell its remaining stake in the company, Johnson wrote. GM has said it wants to assess its underfunded pension plans before returning money to shareholders, he wrote. The pension plans were worth about $9 billion less than their obligations at the end of the second quarter.

If GM posts a profit as expected, it will be the company's seventh-straight quarter of making money. The company emerged from bankruptcy protection in 2009 and needed a $49.5 billion government bailout to survive.

WHY IT MATTERS: GM, although smaller than before its trip through bankruptcy court, still employs 208,000 people worldwide. Its car sales are a major component of the U.S. economy.

Its results also are being watched closely by the U.S. government, which still holds 500 million GM shares that it got as part of the company's 2009 bailout package. The government needs $26.4 billion to recoup its full investment in GM, meaning GM's stock would have to sell for roughly $53 per share. Strong earnings could drive up the share price, which closed Friday at $23.61.

EXPECTATIONS: Analysts polled by FactSet expect net income of $1.58 billion, or 92 cents per share, in the third quarter. Excluding special items, they expect 96 cents per share. Revenue is expected to be $35.88 billion.

LAST YEAR: In the same period a year ago, GM earned roughly $2 billion, or $1.20 per share, on revenue of $34.1 billion.