General Motors Company (GM) Q2 2013 Earnings Preview: Revenue Up, Profit Down As Europe Weighs And GM Aggressively Works To Overhaul Product Lines

[UPDATE July 25, 9 a.m. EDT] Click here to read GM's earnings results.

General Motors Co. (NYSE:GM) is expected to post a 17 percent drop in profit for its second quarter ended June 13 as Europe continues to weigh on earnings while GM pursues an aggressive overhaul of its product lines.

North America’s biggest automaker will release its second-quarter earnings statement on Thursday before U.S. stock markets open.

On average, analysts polled by Thomson Reuters expect GM to report net income of $1.1 billion, or 75 cents per share, compared with $1.5 billion, or 90 cents per share, in the same period last year, when the company had its second best year since its 2009 bankruptcy. Revenue is expected to be up 2 percent to $38.4 billion.

“It was a stable quarter for GM on the home front, with the automaker posting a 6.8 percent increase in sales while losing a small amount of market share," said Jesse Toprak, senior analyst for TrueCar. “We expect the continued housing sector recovery to have a positive momentum on GM profitability due to the boost it will provide to highly lucrative truck sales.”

General Motors saw an average 6.7 percent rise in monthly sales in the United States in its second quarter. The company’s stock price gained nearly 23 percent in the same period amid a robust rebound in the U.S. auto market and continued strength in China, where GM competes head-to-head with Volkswagen AG (FRA:VOW3) as the two top foreign automakers in the world’s fastest-growing and largest auto market.

As it does for other auto makers, Europe continues to weigh on GM's profitability. The 7 percent rise in GM’s China sales in the first half of the year was offset by a 6.5 percent drop in European sales. GM’s European woes have it investing in restructuring there.

“Europe remains a key risk, where intense competition and a weak end market are likely to keep GM’s Opel subsidiary loss-making,” said a research note from Goldman Sachs. “Our forecasts do not contemplate any relevant contribution from Opel, but the risk is that the outcome could be worse.”

A strong housing market and positive U.S. consumer sentiment in recent months have boosted North American pickup truck sales, an important segment for both GM and Ford Motor Co. (NYSE:F) because of the wide profit margins on trucks.

“While pickup truck sales are strong, GM is in the midst of switching from the old model [Chevrolet] Silverado to the new one,” said Edmunds.com senior analyst Michelle Krebs. “There are costs associated to launching, so it will be interesting to see [in GM’s earnings report] how well they’re doing financially in launching those vehicles and whether that was in line with what their thinking was. Launching vehicles is costly.”

The 2014 Silverado and GMC Sierra – two of the most important model rollouts for GM since its 2009 bankruptcy and U.S. government bailout – began appearing en masse in dealer showrooms in the past quarter. GM SUVs and trucks account for more than half of the company’s total earnings.

“With GM we know they’re having some challenges in the sedan segment,” said Alec Gutierrez, senior market analyst for automotive valuation company Kelley Blue Book. “The Malibu was down, and there was some pretty heavy incentives spent on it. Sales were down for the Impala, but transaction prices in the last month were up with the new ’14 model. Cruze did pretty well and Sonic did well, but those aren’t exactly high profits getters.”

In the past quarter GM saw its reopened plant in Jakarta, Indonesia, rolling out its Chevrolet Spin – a people carrier with three rows of seats – into showrooms as it starts to take more seriously challenging the Japanese dominance of Southeast Asia’s largest auto market.

GM financing subsidiary General Motors Financial Co. Inc. also completed in the past quarter its acquisition of Detroit-based Ally Financial Inc. The $2.6 billion sale, first announced in November, will greatly expand the company’s global auto financing services in Europe and Latina America. GM is amid an aggressive overhaul of its U.S. product line that will continue through 2016.

According to an industry forecast from Bank of America Merrill Lynch, GM will replace nearly a fourth of its sales volume with fresh models, focusing its $37 billion in cash toward introducing new models away from buying back shares or paying dividends.