General Motors Co. (ticker: GM) stock traded slightly higher on Tuesday morning after the company reported declining revenue and profits in the second quarter. While GM beat analyst expectations on earnings, the company still faces an uncertain future in a softening auto market.
GM reported earnings per share of $1.89, topping consensus analyst estimates of $1.69. However, second quarter revenue of $37 billion fell short of Wall Street’s $40.1 billion estimate. EPS and revenue were both down compared to the same quarter a year ago.
“Disciplined and relentless focus on improving our business performance led to a strong quarter and very solid first half of the year,” CEO Mary Barra says. “We will continue transforming GM to capitalize on growth opportunities and deliver even more value for our shareholders.”
One of the ways GM plans to transform its business is by reducing its swollen inventory levels. GM says it will reduce its production by 150,000 vehicles in the second half of the year, with the goal of bringing inventory levels down from 105 days of supply to only 70 days.
Slumping auto sales have been a key driver of the inventory buildup this year. U.S. auto sales have declined for four consecutive months. GM reported a 5 percent year-over-year decline in auto sales in June, and its U.S. car sales are now down 18 percent year-to-date.
In addition to GM cutting production, Reuters reported earlier this week that the company is also considering eliminating six of its vehicle models, including the Buick LaCrosse, Cadillac CT6, Cadillac XTS, Chevrolet Impala, Chevrolet Sonic and Chevrolet Volt.
Despite GM’s growth struggles and the potential headwinds associated with a slumping auto market, there’s still plenty for long-term investors to like about the stock. At a forward price-earnings ratio of 6, GM stock is currently one of the best values in the entire Standard and Poor’s 500 index based on earnings. GM also pays a generous 4.2 percent dividend yield.
“We believe that during this formative time of technology and business model change, investors may show a willingness to value GM on the basis of some of its more valuable assets over the next 12 to 18 months,” Morgan Stanley analyst Adam Jonas said in June.
Morgan Stanley has…
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