General Motors stunned the financial markets Wednesday with its announcement of a $1.2 billion second quarter operating profit.
The report shocked Wall Street skeptics and sent GM stock and bonds soaring (GM’s stock rose to a 10-month high of $32 a share).
The company reported an overall loss of $3.2 billion in the period, which was primarily attributable to massive one-time costs incurred for the buyouts and early retirement of more than 33,000 workers.
Without the one-time charges, GM earned $2.03 per share, which was significantly higher than the 55 cents per share forecast by analysts polled by Thomson Financial. Revenue rose to $54.4 billion, compared with $48.5 billion in the second quarter of 2005.
GM’s performance provided the markets with the first tangible evidence that Chairman and CEO Rick Wagoner’s turnaround strategy is working. In his statement, an ebullient Wagoner said, “Our turnaround has not just gained traction, it’s accelerating into high gear”.
Wagoner mentioned that he was particularly pleased with the speed that GM employees have implemented the turnaround plan. He acknowledged that conventional wisdom would indicate that, “You can’t turn a ship as big as GM around quickly. We intend to prove that conventional wisdom wrong.”
Although GM and GMAC bonds have risen in price recently, investors can still take advantage of intermediate-term bonds yielding over 10.0% and 8.50%, respectively.
As we’ve stated before, we continue to believe that the debt of GMAC and General Motors represents a unique opportunity for risk-tolerant investors.