Article in July 26, 2006 Detroit Free Press

GM earnings report beats estimates, stock price surges

By MICHAEL ELLISFREE PRESS BUSINESS WRITER

July 26, 2006

General Motors Corp. shares surged more than 4% on Wednesday after the automaker reported surprisingly strong operating earnings, fueled by its massive cost-cutting efforts initiated after last year’s huge losses.

GM reported a second-quarter operating profit of $1.15 billion, or $2.03 per share, excluding charges totaling $4.3 billion, mostly from the costs of incentives to persuade 34,410 UAW members to retire early or quit.

“Our turnaround has not just gained traction, it’s accelerating into high gear,” GM Chief Executive Rick Wagoner said in a press release. “Conventional wisdom is that you can’t turn a ship as big as GM around quickly. We aim to prove that conventional wisdom wrong.

”Wall Street analysts had on average expected GM to earn 53 cents per share, excluding one-time charges, according to Thomson Financial.

GM’s global automotive operations also posted an operating profit for the first time since 2004.

The second quarter results come as GM’s largest single investor, Kirk Kerkorian, is pushing for the automaker to study a possible alliance with Japan’s Nissan Motor Co. and France’s Renault SA.

GM officials and supporters outside the company have said that talk of the alliance could distract the company as it tries to recover from last year’s losses of $10.6 billion, one of the worst years in GM’s history.

GM’s shares were up $1.25, or more than 4%, to $31.91 in late morning trading on the New York Stock Exchange.

While GM cheered the results, some Wall Street analysts warned that much of the earnings gains may not be sustainable. Higher shipping costs from increased gas prices and rising costs of raw materials used in building vehicles offset increased profits from GM's new full-size SUVs, which were launched this year.

“This does not bode well for the sustainability of earnings from the new products – especially because revenue per unit on new products tends to fall off as early adopter momentum fades but higher raw material and freight costs may not,” Goldman Sachs analyst Robert Barry said in a note to clients.

Including all charges, GM lost $3.2 billion, or $5.62 per share. GM reported its second consecutive quarter of record net sales -- $54.4 billion, up from $48.5 billion in the second quarter last year.