General Motors Co. ( GM - Analyst Report ) reported a sharp 41% fall in profits to $1.49 billion or 90 cents per share in the second quarter of the year from $2.52 billion or $1.54 in the same quarter of 2011. Nevertheless, profits exceeded the Zacks Consensus Estimate by 15 cents per share.

Revenues in the quarter fell 4.5% to $37.61 billion, which is lower than the Zacks Consensus Estimate of $37.98 billion. Unit sales rose 3% to 2.39 million vehicles from 2.32 million vehicles in the second quarter of 2011. The automaker occupied a worldwide market share of 11.6% during the quarter, down from 12.3% a year-ago.

Adjusted earnings before interest and tax (EBIT) dipped 28% to $2.12 billion from $2.96 billion in the second quarter of 2011. Operating profit ebbed 26% to $1.82 billion from $2.45 billion a year ago.

The decline in profits and revenues was attributable to strengthening of U.S. dollar against most of the major currencies as well as weak macroeconomic conditions globally, especially in Europe and South America.

Segment Results

GM North America (GMNA) reported a marginal $228 million drop in revenues to $22.90 billion during the quarter. Adjusted EBIT decreased 13% to $1.97 billion from $2.25 billion in the second quarter of 2011.

GM Europe (GME) saw a sharp 21% fall in revenues to $5.89 billion. The segment reported an adjusted loss before interest and tax of $361 million in stark contrast to a profit of $102 million in the year-ago quarter.

GM International Operations (GMIO) reported an 8% rise in revenues to $4.18 billion. Adjusted EBIT was almost flat at $557 million compared with $573 million in the comparable quarter of 2011.

GM South America (GMSA) witnessed a 4% decline in revenues to $4.18 billion. The segment had an adjusted loss of $19 million in the quarter compared with a profit of $57 million in the second quarter of 2011.

GM Financial reported an impressive 48% rise in revenues to $487 million during the quarter. EBIT in the segment improved 51% to $217 million from $144 million in the year-ago quarter.

Financial Position

GM had cash and cash equivalents of $22.18 billion as of June 30, 2012 compared with $16.07 billion as of December 31, 2011. Total debt (Automotive and Financial) increased to $14.79 billion as of June 30, 2012 from $13.83 billion as of December 31, 2011. However, debt-to-capitalization ratio remained flat at 27% as of June 30, 2012 compared with the same at the end of 2011.

During the first half of the year, the company had a net cash flow of $6.03 billion from automotive operations, up from $4.37 million in the year-ago period. After deducting $4.05 billion and $2.49 billion of capital expenditures in the second quarter of 2012 and 2011, respectively, the company’s free cash flow stood at $1.98 billion during the quarter compared with $1.87 billion a year ago.

Our Take

GM has presence in almost 120 countries and has facilities in 31 countries. It had to seek bankruptcy protection in 2009 due to unfavorable economic conditions and a rapid decline in sales. However, the automaker recouped its sales and earnings by banking on the emerging markets and improved cost structure.

However, due to its significant exposure in troubled Europe and economic weakness in other regions, the company currently retains a Zacks #4 Rank on its stock, which translates to a short-term rating of Sell.

GM’s major rival Ford Motor Co. ( F - Analyst Report ) posted a 39% fall in profits of $1.20 billion or 30 cents per share in the second quarter from $1.98 billion or 49 cents in the corresponding quarter of 2011 due to lower operating results in all the regions except North America. However, the company’s profits were higher than the Zacks Consensus Estimate of 28 cents per share.