General Motors Hits a European Roadblock

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GMAutomaker General Motors (NYSE:GM) drove past Wall Street forecasts Wednesday, posting its seventh-straight quarterly profit. Unfortunately, the stock hit the brakes to the tune of about 8.5% in early Wednesday trading, and the chief catalyst was a European roadblock.

The company, which produces such iconic brands as brands as Chevrolet and Cadillac, was in bankruptcy just two years ago. Now, it has reported a third-quarter profit of $1.7 billion, or $1.03 per share. That’s lower than the profit of $2 billion, or $1.20 per share, a year earlier, but higher than the 96 cents per share that most on Wall Street were expecting. Revenue climbed 7.6% to $36.7 billion, which was in step with consensus estimates.

Given the earnings beat, you would think that GM stock would be off to the races. However, this stock — along with virtually the entire market — had to cope with the bunched-up traffic from Europe’s drawn-out financial wreck Wednesday.

Stocks tumbled more than 2% virtually across the board in Wednesday trading, as bond yields in Italy spiked above 7%. Even with the prospect of Prime Minister Silvio Berlusconi’s resignation (news that prompted big buying near Tuesday’s end), financial markets couldn’t shed that Italian yield hangover.

But GM’s European issues aren’t just about the wider debt-induced selloff. The company actually has fundamental problems in the region, and GM made that clear in its earnings statement. GM said it expects flat results in the fourth quarter because of seasonal trends in North America, along with weakness in Europe. The company also said it no longer expects a break-even year in Europe — something it had anticipated earlier this year.

The negative comments about European business, as well as the overriding uncertainty caused by the debt issues facing the region, show that GM shares — as well as the broader market — could continue to stall in the face of Europe’s fiscal potholes.

Until the European roads get a little better, expect more global firms to keep their foot off the gas.

As of this writing, Jim Woods did not own a position in any of the aforementioned stocks.


Article printed from InvestorPlace Media, https://investorplace.com/2011/11/general-motors-italian-bond-gm-stock/.

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