By on August 2, 2012

GM posted better quarterly numbers today than analysts expected. Instead of jumping on the news, the GM share is down at the time of this typing? Why? Analysts and financial reporters quickly caught on to an old trick that has an air of despair: GM delayed spending into the next quarter. Says Reuters:   

“General Motors posted a stronger-than-expected quarterly profit as its loss in Europe was not as bad as feared, and its results were boosted by delayed spending in North America.”

GM reported $0.90 earnings per share for the quarter, the consensus estimate expected $0.79. GM’s revenue for the quarter was down 4.6% on a year-over-year basis.

The street quickly caught on to the shifty shifting of expenses and profits. Again, Reuters:

 “However, GM, which delayed the spending to the third quarter, said its average profit outlook for the second and third quarters combined in North America would still be the same as previously forecast, suggesting analysts will need to cut their estimates for the third quarter.

GM had previously said its second and third quarter operating profit in North America would be similar to the $1.7 billion it reported in the first quarter. It earned $1.97 billion in the second quarter, implying it will earn about $1.4 billion in the third quarter, analysts said.”

Analysts also don’t buy that things are suddenly peachier in Europe. Said Jefferies analyst Peter Nesvold:

“I feel like Europe will continue to be a black hole until we’re at least able to frame the magnitude of the downturn. They showed some nimbleness in this quarter that they have not shown so far since the new GM went public. People will remain skeptical though before they want to give them any credit.”

 

 

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47 Comments on “What’s That Smell? It’s GM, Cooking The Books...”


  • avatar
    Volts On Fire

    At this point it wouldn’t surprise me to hear that Dunce Cap Dan himself was selling meth on the streets of Detroit to generate revenue.

    What will it take to finally kill this company?

  • avatar
    Pch101

    “GM posted better quarterly numbers today than analysts expected. Instead of jumping on the news, the GM share is down at the time of this typing? Why?”

    There’s an old Wall Street adage: “Buy the rumor, sell the news.” http://www.dummies.com/how-to/content/how-to-buy-stocks-on-the-rumor-sell-on-the-news.html

    You should also note that the Dow, S&P 500 and Ford are all down today. GM is a pretty mediocre company, but a lot of its current stock price is a reflection of their dependency on future US sales. Nervousness about anticipated US consumer spending is not going to be good for the short term price of shares in F or GM.

    And unless you want to lose money on your portfolio, using hourly or daily price movements as a barometer for overall corporate health isn’t exactly a great idea.

    • 0 avatar
      mike978

      Agreed.
      Also is the street that sharp when GM themselves state : “However, GM, which delayed the spending to the third quarter, said its average profit outlook for the second and third quarters combined in North America would still be the same as previously forecast, suggesting analysts will need to cut their estimates for the third quarter.”
      Whether delaying is good or not, this was hardly hidden. One of the downsides of reporting quarterly. At least VW and Toyota have more sympathetic/long term investors that don`t jump on quarterly figures.

    • 0 avatar
      Secret Hi5

      Your sound reasoning has no place on the Internet.

  • avatar
    sunridge place

    I heard the delayed spending was because Joel Ewanick’s last expense report hasn’t come through yet.

  • avatar
    el scotto

    GM is playing quarterly profit games to please Wall Street.
    “I feel like Europe will continue to be a black hole until we’re at least able to frame the magnitude of the downturn. They showed some nimbleness in this quarter that they have not shown so far since the new GM went public. People will remain skeptical though before they want to give them any credit.”
    That’s damning with faint praise and still puts a “sell” call on GM stock. The big question is can GM stock rebound like Ford’s did?

    • 0 avatar
      APaGttH

      Ummmm, what do you mean?

      https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1343937600000&chddm=57868&chls=IntervalBasedLine&cmpto=NYSE:F&cmptdms=0&q=NYSE:GM&ntsp=0

      GM stock is out performing Ford stock year-to-date.

      If you go last 12 months, Ford has outperformed GM by 4% — but down 25% versus down 29% sure isn’t doing great…

      https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1343937600000&chddm=98923&chls=IntervalBasedLine&cmpto=NYSE:F&cmptdms=0&q=NYSE:GM&ntsp=0

    • 0 avatar
      tuffjuff

      Every company does this. My computer ramps up the overtime toward the last 2-3 weeks of the quarter to make sure our numbers look good. My last employer had you work Saturdays for the last few weeks of the quarter to get more orders put through, to make our quarter look better. This is literally nothing new or unusual.

      Seriously TTAC, at least *pretend* you don’t have a personal vendetta against GM, eh?

      • 0 avatar
        28-Cars-Later

        TTAC sometimes resembles GMhate.com

        Oddly though, the overall percent of coverage for Chrysler/Ford/Toyota’s operations etc. vs. GM seems much lower, is it just there are more sources in GM, or is it GM is so much more of a soap opera?

      • 0 avatar
        mike978

        28 – I agree. GM does seem managed worse than those other companies you mention but for a company with a global market share of 10-15% they take a vastly disproportionate % of the coverage (good, or as is more usual,l bad).
        I would like to hear about other companies, any not just 5 day LFA specials.

      • 0 avatar
        KixStart

        Well, they are the second biggest manufacturer, so they’re not an unimportant bystander, like Suzuki or something. They just had a couple of top-level executions and allegations of mismanagement are involved. They inked a big deal, presumably for the publicity, after firing somebody for the deal. It’s owned by the Feds, that’s different. Theyir people like to complain about their press coverage. Opel is in the crapper yet GM is digging deeper into Europe with a partner that turns out to be extremely weak. GM spent 2007-2010 bragging about the Volt, presumably for coverage and they way overpromised back in the beginning and it is tied for most outsized tax rebate ever. GM generally rolls out new cars far ahead of availability, presumably for coverage. They have a suspiciously large inventory while increasing production. They have suddenly slid spending a quarter.

        Hmmm… Yeah, no reason for coverage. It *must* be the haters.

      • 0 avatar
        28-Cars-Later

        I certainly enjoy the discussions, positive or otherwise, on GM simply because I can usually chime in on the conversation vs something like Suzuki which I couldn’t give a hoot about. I just find it odd there is so much GM drama to report on, and yet we don’t hear about too much of the dirty laundry of their competitors. The only recent ‘drama’ coming to mind of significance for a competitor is some of the controversy surrounding the Scion FR-S.

      • 0 avatar
        KixStart

        I imagine we don’t get much of drama from Ford because the Ford family has control of the company. The Japanese have a completely different style, which doesn’t lead to a lot of drama, either.

        You see a fair bit of reporting on TTAC about the VW/Porsche executive suite & corporate activity.

        The reporting is most likely because GM does stuff that’s relatively newsworthy. Lutz was a gold mine for the press, they probably miss him dearly.

      • 0 avatar
        schmitt trigger

        Indeed, most, if not every company, does accounting tricks.

        On my previous company, there was a blackout period two or three weeks prior to quarter’s end, where NOBODY would get paid. Only the payroll itself was exempt.

        If you turned your travel expense report during those days, you would not get the reimbursement check until after the blackout.

        As such, we who had to travel a lot, would either schedule our travel prior or after the period, even if another time would have been more appropriate. The employees also learned how to play the game.
        Stupid game, if you ask me.

      • 0 avatar
        mike978

        Kix – I agree with most of what you said. The whole Ewanick thing of course would (and rightly) be newsworthy. Yes Opel is having a hard time, although hardly unique. They release info about their cars well before time (the new Malibu was the worst offender, but the Fusion details were released 9 months ahead of release so others do it too). Yes they are the second biggest in the world, but that only means they have 10-15% of market share. Yes they are partially owned by a Government, as is VW.

        My point was primarily around the amount of news and the tone – for example the recent German sales figures article and Opel was singled out in the headline when BMW, PSA and others fared even worse. Or the comment about homeopathic levels of sales when 4-5 other mainstream companies had even lower levels, including one (Chrysler) that was mentioned in the same paragraph.

        I do agree though that they lack the apparent stability of say a VW, Toyota or Ford. Some of this may come down to ownership structures and culture and the issue of quarterly figures. I just hope they become more “boring” and get on with the job at hand.

      • 0 avatar
        Pch101

        “Yeah, no reason for coverage. It *must* be the haters.”

        Coverage is one thing. The tone, and the balance or lack thereof that accompanies it, is another.

  • avatar
    Motorhead10

    Sell-side analysts have 17 buys, 5 holds, 0 sell ratings. Nesvold is a Hold since July 2

    also won’t be surprised to see some outperformance out of Europe given Girsky’s increased role – not because GME will be any better fundamentally, but because he understands the expectations of the street and can manage them to his advantage.

  • avatar
    doctor olds

    It is not cooking the books to actually delay spending. All the conspiracy ideas are just silly, given the real results will come out in the end.

    It is hilarious to see how much is made of a company’s performance relative to “analysts” projections. They, like all of us here, are at best sideline chatterers.

    As for the weak minded notion that GM is dying, $1.5B in quarterly profit is really not too shabby, given the weakness in a good share of the worlds’s economy.

    • 0 avatar
      Motorhead10

      When GM needs to raise money in the future – in the equity or debt markets (somebody has to buy that 32% govt stake), whose clients will be on the other side of the trade? Not exactly what I would call “at best sideline chatterers” and really nothing like “all of us here” except those that are on the sell-side.

      • 0 avatar
        doctor olds

        @Motorhead10- Sure the stock value will be important to GM from a business perspective, IF they elect to offer more shares. That seems exceedingly unlikely in the near term. Besides, they have plenty of capital now.

      • 0 avatar
        jkross22

        “Besides, they have plenty of capital now.”

        This is an excellent point. Since they have plenty of capital now, how about investing in themselves and buying some of the shares held by the government with that money? It will indeed show they have confidence in themselves and their future, it will take some pressure off of Obama and the GM-ophiles can point to the rest of us with a smugness and say “see!”.

        I wonder why they’re not doing that.

    • 0 avatar
      gslippy

      Agreed. Nothing illegal here, just maybe an investment concern.

    • 0 avatar

      Maybe they can use some of those profits to offset massive losses of taxpayer funds due to stock collapse. If Treasury were to sell the remaining 26%, they would write off about 30 billion. (30/1.5)/4 = would only take 5 years.

      • 0 avatar
        mike978

        Pete – I thought the same thing. If they are making somewhere north of $5 billion a year then they could set aside some money year on year. I know they have no legal reason to do it since they are the “new” GM. But it would help get rid of some of the negativity.

      • 0 avatar
        rnc

        They still have massive unfunded pension liabilities and about 15 of underinvestment that needs to be addressed. Ford isn’t playing the Q game, they are playing the pay back debt as soon as possible to a) get debt back to investment grade before any of the LTD from Ford’s financial division becomes due and to continue to make significant investments in cars and factories over short term profits (the stock price isn’t a primary concern, short term income statements are meaningless). Ford announced they are going to begin to fund pension obligations with free cash flow and investment grade bonds vs. the traditional 70% equity and pretend 7% return, has GM made a similar announcement? (this should tell you all you need to know regarding their relative long term health.) I don’t hate GM, just reality

      • 0 avatar
        doctor olds

        @ Pete Zaitcev
        Actually, if Treasurer dumped their 500M shares at today’s price ($19.14), taxpayers would lose $16.4B – about $53 per American.

    • 0 avatar
      28-Cars-Later

      Phillips 66 (PSX) which is I believe the second largest refining company in the US, recently declared a 1.2 billion dollar quarterly profit. The only reason I know this is because I had been following it since IPO and took a position in it shortly before Q2 profits announcement yesterday.

      1.5 billion is certainly nothing to sneeze at, especially at a firm who was recently bankrupt, but to me it seems low for the amount of product they sell quarterly worldwide… how much did the Opel black hole consume from EBIT?

  • avatar
    Zackman

    I can see Chevy back to their rightful place in grabbing a 30% market share and GM as a whole at 50% in the very near future… ;}

    ( – choking… – )

    • 0 avatar
      sunridge place

      No, but I do see them at 18% market share and making money.

      Sure as heck beats 30% share and going bankrupt doesn’t it? Market share does not equal profit….do you understand that?

      • 0 avatar
        28-Cars-Later

        How’s Toyota doing? Worldwide I thought they were nipping at the top spot recently.

      • 0 avatar
        sunridge place

        So, if you’re making money at 18% market share, the prudent thing to do is build some factories to ramp up production to try and get more market share and make more money? Ok. Sure.

        Lets try and chase every damn segment and be the low price leader…lets stack up the incentives to try and win, win, win market share!!

        Good advice.

  • avatar
    APaGttH

    Popping popcorn

  • avatar
    fincar1

    I suspect that it may be likely that a company that purchases a fleet of vehicles would want to time the purchase to look the best for its own books. We must remember that each transaction like this has two parties, each of which is trying to maximize its own benefits.

  • avatar
    Russycle

    I guess Apple is in desperate straights too. Every time I have a big buy from them, they do backflips to try to push it through before the quarter ends. Welcome to corporate America.

    The 4.6% revenue drop is concerning, but not that surprising given that many competitors were still in tsunami mode last year.

  • avatar
    BrianL

    Many companies delay spending till the next quarter. Hiring freezes till quarter end, shipping more product, getting asset collection done around quarters… these are common business practices. I am sure you would see these same practices in effect at Toyota, VW, Honda, Ford, Hyundai etc.

  • avatar
    86SN2001

    F – NYQ
    $8.92 0.12 1.33%
    Ford Motor Company Common Stock

    Wow…isn’t that interesting…Ford must be cooking the books too………..

  • avatar

    GM has to decide if they want to be a large company or a profitable one. Losing more than a billion dollars a year in Europe should not be an option. This is what happens when workers hold more control than the employers. Close shop or sell Opel if anyone is interested. Closing Opel will also benefit other European automakers. Better to have a fewer healthier automakers versus having a bunch of struggling ones. With each country opposing any plant closures or job cuts and the automakers consistently losing money, something has to give soon. If selling Opel isn’t an option, then decide if you would rather lose a billion dollars a year for several years or pay a one time severance package. The question is do you wanna pay $2B now to align production/capacity with sales or do you wanna pay the unions $2B after 5 years of losses.

    • 0 avatar
      dejal1

      I pick “pay $2B now”.

      But, the people in charge don’t want to known as the ones that “Lost Europe”. Also, I think they have a misguided hope that someone else will fold first, giving them the opportunity to scavange pieces of the now available market share. I’m wondering if GM is waiting for Fiat to go first. After all, GM had to pay Fiat $2B to NOT buy Fiat a few years ago and Fiat isn’t doing so good. There’s also Peugeot, though the French government would probably jump in somehow.

      For what it’s worth there no reason for GM to take a bullit for Europe to benefit other European automakers. That is just the outcome if GM does bail. That should not be a reason for a GM doing it.

      • 0 avatar
        mike978

        The contraction has started. Renault slimmed down their range in the UK due to falling sales. This left space for the remaining players to grow a little. I agree they may wait to see if FIAT, PSA, or the smaller Japanese companies (Suzuki, Mitsubishi etc) fold and leave. Also they could pay the “$2B” as you mention and close two factories thereby boosting their factory utilization rate and become profitable.

      • 0 avatar
        Pch101

        “For what it’s worth there no reason for GM to take a bullit for Europe to benefit other European automakers.”

        It’s the opposite. The failure of Opel would be akin to handing a checkbook to Volkswagen. In turn, a stronger VW would be a threat to GM in every other market outside of Europe, since the resulting profits would help to fund that additional competition.

      • 0 avatar
        28-Cars-Later

        Good point PCH… the alternative would be for GM or some other competitor to find another way to keep VW at bay in Europe.

      • 0 avatar
        schmitt trigger

        “the people in charge don’t want to known as the ones that “Lost Europe”. ”

        There was an interesting piece about the Roman Empire a while back in the History Channel:

        During the later Empire times, the British Isles had become a serious money_and_resources drain for Rome. However emperors were reluctant to leave…. to be the one blamed for the empire’s decline, although that decline had started many years earlier.

        One emperor -don’t remember his name- said it actually takes greater courage to divest a territory than conquer it.

      • 0 avatar
        28-Cars-Later

        “it actually takes greater courage to divest a territory than conquer it.”

        Wise.

  • avatar
    CelticPete

    I like GM – unlike this website. But its clear its part work program for the UAW. So the would like to be big and kinda profitable over smaller and very profitable. We are going to have to wait till the government sells it before that changes.

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