US Markets
Wednesday, November 29th, 2023 3:08 pm EDT
Key Points
- Financial Initiatives for Investor Confidence: General Motors (GM) is actively working to restore Wall Street’s confidence following a challenging year marked by labor strikes and setbacks in its electric and autonomous vehicle plans. The company’s key financial initiatives include a 33% increase in the quarterly dividend, an accelerated $10 billion share repurchase program, and the reinstatement of its 2023 guidance, considering the impact of labor strikes.
- Strategic Adjustments and Long-Term Plan: GM CEO Mary Barra emphasized the company’s commitment to a long-term plan aimed at reducing capital intensity, enhancing product development efficiency, and further reducing fixed and variable costs. The strategic adjustments include lowering 2023 capital spending, driven by delayed plans for new products and investments, particularly in the electric vehicle (EV) segment. Despite disappointment in this year’s production of next-generation EVs, Barra expressed optimism for significantly higher production and improved margins in the future.
- Challenges and Addressing Issues: GM is facing challenges, particularly with its majority-owned autonomous vehicle subsidiary, Cruise. The company plans to spend significantly less on Cruise in the coming year compared to 2023, addressing issues that led to a voluntary recall and suspension of vehicle operations. Barra emphasized a renewed focus on safety, transparency, and accountability at Cruise and mentioned ongoing independent investigations. Additionally, an accelerated stock buyback of $10 billion is part of GM’s strategy, aiming to maintain liquidity and credit ratings while returning value to shareholders. The company has returned significant amounts in common stock dividends and buybacks and generated substantial adjusted automotive free cash flow, positioning itself well for 2024.
General Motors (GM) is strategically navigating challenges and aiming to restore investor confidence as it faces the aftermath of a tumultuous year marked by labor strikes and setbacks in its electric and autonomous vehicle plans. The Detroit automaker is proactively implementing several initiatives to strengthen its financial position and address concerns.
One key move involves a 33% increase in the quarterly dividend for the next year, bringing it to 12 cents per share. Additionally, GM is launching an accelerated $10 billion share repurchase program. The company is also reinstating its 2023 guidance, factoring in an estimated $1.1 billion impact on earnings before interest and tax (EBIT-adjusted) from approximately six weeks of labor strikes by the United Auto Workers (UAW) union.
Mary Barra, GM’s CEO, emphasized that the company is finalizing a budget for the upcoming year that will offset the incremental costs associated with new labor agreements. This long-term plan includes reducing capital intensity, enhancing product development efficiency, and further cutting fixed and variable costs.
Following these announcements, GM’s stock saw a significant uptick of around 10% in early trading, partially recuperating from a 14.1% decline earlier in the year. Barra acknowledged the disappointment in the stock price during an investor call and expressed commitment to executing the long-term plan effectively.
The reinstated 2023 guidance provides a comprehensive overview, including net income attributable to stockholders, adjusted EBIT, adjusted earnings per share, and various financial metrics. The guidance considers the impact of labor deals in the U.S. and Canada, with increased costs of $9.3 billion and an additional $575 in costs per vehicle.
To counter some of these increased costs, GM plans to reduce 2023 capital spending to a range of $11.0 billion to $11.5 billion, down from the prior guidance. This reduction is attributed to delayed plans for new products and investments, particularly in the electric vehicle (EV) segment.
Barra acknowledged disappointment in the production of the next-generation EVs, known as Ultium vehicles, this year. However, she expressed optimism for significantly higher Ultium EV production and improved EV margins in the future. GM aims for low- to mid-single-digit EBIT-adjusted margins on its EV portfolio by 2025, with an exclusive focus on electric vehicles by 2035.
The challenges extend to GM’s majority-owned autonomous vehicle subsidiary, Cruise. Barra mentioned that the company is addressing issues at Cruise, which recently faced setbacks, including a voluntary recall and a suspension of vehicle operations on public roads. GM plans to spend “hundreds of millions of dollars” less on Cruise in the coming year compared to 2023.
The article also highlights Cruise’s recent challenges, including the resignation of CEO Kyle Vogt and the need to rebuild trust with regulators and communities. Barra emphasized a renewed focus on safety, transparency, and accountability at Cruise and mentioned ongoing independent investigations into the company.
A significant component of GM’s strategy is an accelerated stock buyback of $10 billion, with immediate retirement of $6.8 billion worth of common stock. The buyback involves collaboration with major banks such as Bank of America, Goldman Sachs, Barclays, and Citibank. The company aims to maintain liquidity and credit ratings while returning value to shareholders.
In conclusion, GM’s multifaceted approach, encompassing dividend increases, share repurchases, cost management, and strategic adjustments in its EV and autonomous vehicle segments, reflects a concerted effort to overcome recent challenges and instill confidence among investors as it heads into 2024. Barra expressed confidence in the company’s ability to execute its plan and conveyed excitement about the future, promising to keep shareholders updated on progress.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/11/29/gm-buyback-dividend-guidance.html
