GM initiates $10 billion buyback, boosts dividend and reinstates 2023 guidance after UAW strikes

 

GM initiates $10 billion buyback, boosts dividend and reinstates 2023 guidance after UAW strikes

General Motors is working to regain Wall Street’s confidence heading into 2024 with several investor-focused initiatives Wednesday following a tumultuous year of labor strikes and setbacks in its plans for electric and autonomous vehicles.

The Detroit automaker plans to increase its quarterly dividend next year by 33% to 12 cents per share; initiate an accelerated $10 billion share repurchase program; and reinstate its 2023 guidance to include an estimated $1.1 billion in earnings before interest and tax, or EBIT-adjusted, impact from roughly six weeks of U.S. labor strikes by the United Auto Workers union.

GM CEO Mary Barra in a statement said the company is finalizing a budget for next year that will “fully offset the incremental costs of our new labor agreements.

“The long-term plan we are executing includes reducing the capital intensity of the business, developing products even more efficiently, and further reducing our fixed and variable costs,” she said.

Shares of GM jumped roughly 10% in early trading Wednesday. Heading into the announcement, the stock was down 14.1% so far this year.

Barra during an investor call Wednesday said the stock price “is disappointing to everyone.”

GM’s reinstated 2023 guidance also includes:

  • Net income attributable to stockholders of $9.1 billion to $9.7 billion, compared with a previous outlook of $9.3 billion to $10.7 billion.
  • Adjusted EBIT of $11.7 billion to $12.7 billion, compared with the previous outlook of $12 billion to $14 billion.
  • Adjusted earnings per share of roughly $7.20 to $7.70 including the stock buyback, compared with the previous outlook of $7.15 to $8.15.
  • EPS in the range of $6.52 to $7.02, including the stock buyback, compared with the previous outlook of $6.54 to $7.54.
  • Adjusted automotive free cash flow of $10.5 billion to $11.5 billion, compared with the previous outlook of $7 billion to $9 billion.
  • Net automotive cash provided by operating activities of $19.5 billion to $21 billion, compared with the previous outlook of $17.4 billion to $20.4 billion.

GM pulled its guidance when it reported its third-quarter earnings on Oct. 24, citing volatility caused by the UAW negotiations and labor strikes. The work stoppages ended Oct. 30 when the sides reached a tentative deal.

UAW impact

Before the UAW strikes, CFO Paul Jacobson said the company was on track to achieve “toward the upper half” of its earnings forecast.

On Wednesday the automaker said new labor deals in the U.S. and Canada are expected to increase costs by $9.3 billion and add approximately $575 in costs per vehicle. A majority of that impact is from the UAW deal, which expires in April 2028.

The UAW agreement includes at least 25% hourly pay raises, the reinstatement of cost-of-living adjustments and enhanced profit-sharing payments, among other benefits.

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GM stock after a slew of business updates on Wednesday.

To offset some of those increased costs, GM said Wednesday it now anticipates 2023 capital spending to be between $11.0 billion and $11.5 billion, down from prior guidance of between $11 billion and $12 billion. That’s driven by previously announced plans to delay some new products and investments, specifically regarding EVs.

Barra in a letter to shareholders Wednesday said she was “disappointed” in the company’s production this year of its next-generation EVs, known as Ultium vehicles. She said the company expects “significantly higher Ultium EV production and significantly improved EV margins.”

“We’ve spent years preparing the company for an all-electric future, and our long-term EV profitability and margin goals are intact, despite recent headwinds,” Barra said.

GM has said it plans to earn low- to mid-single-digit EBIT-adjusted margins on its EV portfolio in 2025, before the positive impact of clean energy tax credits. It also has said it plans to exclusively offer electric vehicles by 2035.

Cruise

Barra also said the automaker is “addressing challenges” at Cruise, its majority-owned autonomous vehicle subsidiary.

GM is planning to spend “hundreds of millions of dollars” less on Cruise next year compared to 2023, CFO Jacobson said. The automaker has reported $1.9 billion in 2023 Cruise losses through the third quarter of the year.

Cruise recently issued a voluntary recall affecting 950 of its robotaxis and suspended all vehicle operations on public roads following a series of incidents that sparked criticism from first responders, labor activists and local elected officials, especially in San Francisco.

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The events, specifically an October accident involving a pedestrian, led to co-founder and CEO Kyle Vogt resigning from the company.

“Our priority now is to focus the team on safety, transparency and accountability,” Barra said in the letter. “We must rebuild trust with regulators at the local, state and federal levels, as well as with the first responders and the communities in which Cruise will operate.”

Barra declined to further elaborate on GM’s plans for Cruise, pending ongoing independent investigations into the company. She reiterated that when Cruise does eventually relaunch, it will be in more focused, disciplined way.

“After we get the results of these two independent reviews, we will chart the course forward,” Barra said.

Cruise previously said its strategy is “to re-launch in one city and prove our performance there, before expanding.”

Stock buyback

The accelerated stock buyback includes an aggregate of $10 billion to the banks executing the program: Bank of America, Goldman Sachs, Barclays and Citibank.

GM will immediately receive and retire $6.8 billion worth of its common stock. The company had approximately 1.37 billion shares of common stock outstanding prior to the program.

Jacobson said the size of the buyback was determined after the company built up cash amid the uncertainty of its labor deals.

“I would say it’s stretched us a little bit, but we could do it comfortably and still maintain the liquidity and targets that are important to maintain the credit ratings that we have,” he said. “I think it was a really good mark.”

The total number of shares ultimately repurchased under the initiative will be determined at the end of the program, which is expected to occur during the fourth quarter. It will be based on the average of the daily volume-weighted prices of GM stock.

Outside of the announced program, GM said it will have $1.4 billion of capacity remaining under its share repurchase authorization “for additional, opportunistic share repurchases.”

The company said it has returned $4.2 billion in common stock dividends and buybacks from the start of 2022 through the third quarter of 2023, while generating more than $20.5 billion in adjusted automotive free cash flow after business investments.

“These strategies are designed to keep our margins and free cash flow strong, and we are well-positioned as we head into 2024,” Barra said at the end of her letter to shareholders. “I’m confident we’ll be able to execute our plan and excited about what the future holds. We look forward to sharing our progress with you.”

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