In this article, let's take a look at General Motors Co (GM, Financial), a $59.84 billion market cap company, which builds, and sells cars, crossovers, trucks, and automobile parts worldwide.
Mixed Q1 Results
General Motors has posted smaller-than-expected profit and the explanation involves weakening activities in South America and Russia, as well as a higher than expected tax rate. Chief Financial Officer Chuck Stevens said "Clearly the macro environment in South America, and it's primarily Brazil, deteriorated versus even where we thought it was going to be". This country will be affected by some decisions like the reduction in the production of some plants. It is likely that cost saving actions will bring about $200 million in annual savings, more or less the same amount that the company has lost in South America in Q1.
Fortunately other regions had a good performance in the first quarter. China, the rest of Asia, the Middle and Africa, earned $371 million, up from $252 million a year earlier.
Revenue fell 4.5% to $35.7 billion, below the $37.6 billion that analysts expected. Among the reasons we can find a lower volume in Brazil and Russia; and the impact of Venezuelan currency devaluation. The company announced last month that it will stop nearly all manufacturing in Russia. Although net income increased more than four times from a year earlier, to $945 million, it misses Wall Street's expectations.
On a per share basis, it reached $0.56 from $0.06 obtained in the same quarter a year ago; but earnings adjusted for non-recurring costs, were $0.86 per share, below expectations of $0.97 per share.
New Stake
David Einhorn (Trades, Portfolio)'s Greenlight Capital, a value-oriented investment advisor, has taken a new stake in General Motors, according to its latest investor letter. The fund initiated the position in Q1 2011 and about a year ago it sold off around 17.05 million shares. Now, Greenlight Capital said that it bought the shares at $34.62 per unit, but it doesn’t disclose the size of the new position.
Some reasons for being long in the company was the plan to buy back shares, is expected to begin a $5 billion share buyback and the fact that seems far away now the effects of the 2.5 million vehicles which have ignition switch problems last year. We must remember that the automaker paid dividends of about $500 million in the first quarter.
Hedge Funds
In terms of valuation, the stock sells at a trailing P/E of 22.7x, trading at a premium compared to an average of 21.5x for the industry which means that is relatively overvalued compared to its peers. However, in the last quarter of 2014, the two major investors in General Motors were Warren Buffett (Trades, Portfolio) and David Tepper (Trades, Portfolio). Further, hedge fund managers Alan Fournier (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Ken Heebner (Trades, Portfolio) and Martin Whitman (Trades, Portfolio) as well as Caxton Associates (Trades, Portfolio) initiated a new position in that quarter.
Disclosure: Omar Venerio holds no position in any stocks mentioned
