GM initiates $10 billion buyback, raises dividend and restores 2023 guidance after UAW strikes

Mary Barra, Chairman and CEO of General Motors Company (GM), speaks during the Milken Institute Global Conference on May 2, 2022 in Beverly Hills, California.

Patrick T Fallon | AFP | Getty Images

General Motors is working on Wednesday to regain Wall Street’s confidence heading into 2024 with several investor-focused initiatives after the company endured a tumultuous year of labor strikes and setbacks in its electric and autonomous vehicle plans.

The Detroit automaker plans to increase its quarterly dividend next year by 33% to 12 cents per share; initiate a $10 billion accelerated share buyback; and reinstating its 2023 guidance to include estimated earnings before interest and taxes (EBIT-adjusted) of $1.1 billion resulting from approximately six weeks of U.S. labor strikes by the United Auto Workers union .

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

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

Shares of GM rose about 8% during premarket trading on Wednesday. At the start of the announcement, the stock was down 14.1% so far this year.

GM’s reinstated 2023 guidance also includes:

  • Net income attributable to shareholders is $9.1 billion to $9.7 billion, compared with a previous forecast of $9.3 billion to $10.7 billion.
  • Adjusted EBIT of $11.7 billion to $12.7 billion, compared to previous guidance of $12 billion to $14 billion.
  • Adjusted earnings per share, including the share repurchase, are approximately $7.20 to $7.70, compared to previous guidance of $7.15 to $8.15.
  • Earnings per share are between $6.52 and $7.02, including the share repurchase, compared to previous guidance of $6.54 to $7.54.
  • Adjusted automotive free cash flow of $10.5 billion to $11.5 billion, compared to previous guidance of $7 billion to $9 billion.
  • Automotive net operating cash flow is $19.5 billion to $21 billion, compared to previous guidance of $17.4 billion to $20.4 billion.

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

Effects of ADRs

Before the UAW strikes, CFO Paul Jacobson said the company was on track to hit “near the top half” of its profit guidance.

On Wednesday, the automaker said new labor agreements in the U.S. and Canada are expected to increase costs by $9.3 billion and increase per-vehicle costs by about $575. Much of this impact comes from the UAW deal, which expires in April 2028.

The UAW deal includes, among other things, an increase in hourly wages of at least 25%, the reinstatement of cost-of-living adjustments and improved profit-sharing payments.

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GM shares after a series of business updates on Wednesday.

To offset some of those increased costs, GM said Wednesday that capital spending in 2023 will now be between $11.0 billion and $11.5 billion, down from its previous forecast of $11 billion to $12 billion corresponds. The reason for this is already announced plans to postpone some new products and investments, particularly with regard to electric vehicles.

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

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

GM has said it expects to achieve low- to mid-single-digit EBIT-adjusted margins on its electric vehicle portfolio in 2025, before clean energy tax credits take effect. It has also announced that it will offer only electric vehicles by 2035.

cruise

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

Cruise recently conducted a voluntary recall of 950 of its robot taxis and suspended all vehicle operations on public roads following a series of incidents that drew criticism from first responders, labor activists and local elected officials, particularly in San Francisco.

The events, particularly an accident involving a pedestrian in October, led to CEO and co-founder Kyle Vogt leaving the company.

“Our priority now is to align the team around safety, transparency and accountability,” Barra said. “We must restore trust with local, state and federal regulators, as well as first responders and the communities in which Cruise will operate.”

Share buyback

The accelerated share buyback includes a total of $10 billion to the banks running the program, including Bank of America, Goldman Sachs, Barclays and Citibank.

GM will immediately receive and cancel $6.8 billion in common stock. GM had approximately 1.37 billion shares of common stock outstanding prior to the program.

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

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

The company said it paid $4.2 billion in common stock dividends and repurchases from the beginning of 2022 through the third quarter of 2023, while maintaining adjusted automotive free cash flow following business investments of more than $20.5 billion -Dollars generated.

“These strategies are designed to keep our margins and free cash flow strong, and we are well positioned heading into 2024,” Barra said at the end of her letter to shareholders. “I am confident that we can implement our plan and am excited about the future. We look forward to sharing our progress with you.”


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