Deutsche Bank's First Look at General Motors' (GM) Q2 Results

Deutsche Bank analyst Rod Lache commented on General Motors (NYSE: GM) following the release of the company's Q2 results. Shares traded higher by 6% heading into the call.

Lache said, "Upside came from NA ($2.8bn earnings and 10.5% margin vs. DBe of $2.6bn; strong margin was achieved despite an unusual $0.3bn impact from liquidation of rental vehicles), EU (breakeven vs. DBe of negative $0.2bn), and SA ($0.1bn loss vs. DBe of $0.2bn loss). Importantly, China was in-line with our est for the qtr ($0.5bn equity income for the qtr, and somewhat surprisingly margins actually rose yoy to 10.2% vs. 10.0% in 2Q14)."

"There were modest negative variances in consolidated IO, Financial Services, and Other. As we expected, FCF for the qtr was very strong ($3.3bn vs. DBe of $3.5bn). And YTD GM executed $2.0bn share repurchases, in addition to $1.1bn being returned through dividends. GM’s commentary regarding the outlook for 2H15 looks relatively strong: 2H earnings will exceed 1H earnings driven by NA, and relatively sustained performance in China (GM believes China will be supported by new launches, lower product changeover costs, and cost initiatives)," continued the analyst.

"We would expect the St to respond positively to these results. While skeptics will likely argue that these results reflect peak-ish conditions in NA and China, these results do substantiate GM’s 2016 financial targets (i.e. 10% margin in NA, breakeven in EU). We expect investors to focus on two areas during today’s 10 am call: 1) Factors that give GM confidence in the earnings outlook for China. In particular, investors are seeking additional transparency into the prospective earnings bridge in China, and sensitivity to volume and pricing scenarios; 2) Factors within GM’s control, that would enable them to achieve continued strong performance in NA. As noted in the table below, the upside variance to NA this qtr was largely derived from content cost ($0.6bn yoy positive vs. DBe of $0.3bn) and relatively benign structural cost inflation. GM has argued that both of these have potential to be favorable going forward, which may help mitigate more challenging pricing/mix, and regulatory content," Lache added.

Deutsche Bank has a Hold rating on General Motors (NYSE: GM) with a price target of $38.

For an analyst ratings summary and ratings history on General Motors click here. For more ratings news on General Motors click here.

Shares of General Motors closed at $30.30 yesterday.

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