GM results to show gain over first quarter
General Motors Co is preparing to report second-quarter results that will show a substantial gain over the first quarter in a report it will use to bolster its bid to return to capital markets and pay back taxpayers, two people familiar with the matter said.
GM, now 61 percent-owned by the U.S. government, is counting on the momentum from its quarterly results to help it clinch a $5 billion bank credit facility as it prepares a stock offering expected to be the largest ever for the U.S. market.
GM has substantially completed work needed to register the IPO with the SEC but needs to complete negotiations with banks for its credit facility before that filing, the sources said.
As part of that process, GM has been reaching out to financial institutions and investors in an outreach spearheaded by Chief Financial Officer Chris Liddell and intended to give them confidence in the automaker's outlook, according to people with knowledge of those private discussions.
GM Chief Executive Ed Whitacre, appointed by the Obama administration to oversee the automaker's turnaround, said last week he expected the automaker's second-quarter result would be viewed positively by both potential investors and creditors.
It will be good. It will be impressive, said Whitacre, who has also said his top priority is shedding the automaker's ties to the U.S. government and the label Government Motors used by critics of its bailout.
A GM spokeswoman said the automaker was not providing financial forecasts and would not comment. GM will report second-quarter results on Thursday.
GM could finalize its bank credit facility by the end of August, allowing it to press ahead with its stock offering by the end of the year, the sources said.
Meanwhile, GM's second-quarter results this week will show higher earnings than the first quarter's $865 million profit, its first quarterly profit since 2007, they said.
For 2011, GM is projecting that it could generate $16 billion in earnings before interest, taxes, depreciation and amortization, one of the sources said. JPMorgan debt analyst Eric Selle has forecast GM's 2010 EBITDA at $11.4 billion.
That measure of cash generation is important because it is one of the key measurements that bankers and investors will use to estimate how much the restructured automaker should be worth when it reemerges as a publicly traded company.
RUNNING THE NUMBERS
The U.S. government converted $43 billion of aid to GM into an equity stake in the automaker through a 2009 bankruptcy process that allowed GM to slash costs and return to profit even at sharply reduced sales rates.
We aren't seeing huge sales volumes for GM but we are seeing profit, said analyst Aaron Bragman with IHS Global Insight. They have restructured to be profitable in a much weaker market.
One key number for the U.S. Treasury is the $70 billion valuation mark for GM since that would allow U.S. taxpayers to break even on the still controversial bailout of 2009.
Achieving EBITDA of $16 billion in 2011 would value GM at just over $70 billion applying the multiple of its nearest U.S. competitor by sales, Ford Motor Co.
On another measure -- price-to-earnings -- GM would have to earn almost $10 billion in 2011 to justify a $70 billion value if investors applied Ford's multiple to its larger rival.
GM's advisers for its upcoming IPO have said they believe the automaker could be valued at over $80 billion after accounting for its stake in supplier Delphi -- expected to IPO in 2011 -- and Ally Financial, formerly GMAC.
Ron Bloom, the White House adviser overseeing the government's investment in GM and Chrysler, said he believed GM was still on track for a stock sale by the end of the year.
A successful GM IPO would provide the Obama administration with a piece of evidence it could use in its argument that the unprecedented intervention in the U.S. auto industry in 2009 has been a financial success even as it saved jobs.
Since GM remains privately held, Wall Street analysts have not prepared or released earnings forecasts.
GM was helped in the second quarter by a 27 percent gain in U.S. sales compared with the first quarter and a shift in the market toward more expensive trucks and newer models that carry lower discounts.
GM also scrambled to add production capacity in Canada for its hot-selling Chevrolet Equinox and GMC Terrain crossovers, moves that will boost revenue.
Despite GM's progress, analysts say the automaker faces a continued challenge in Europe where industry-wide sales are sliding and it is restructuring its Opel unit.
In addition, GM has struggled with its marketing since bankruptcy and has not yet reversed consumer perceptions of its main brand, Chevy, in the way that Ford has done under Chief Executive Alan Mulally, analysts say.
To get from where they've been to here is a tremendous accomplishment, Bernie McGinn -- president of McGinn Investment Management, who holds Ford shares -- said of GM.
But they are still behind Ford, and Ford is starting to fire on all cylinders, he said.
(Reporting by Soyoung Kim and Kevin Krolicki, additional reporting by Philipp Halstrick in Frankfurt; Editing by Gary Hill)
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