General Motors (GM) shareholders showed just how happy they were with the company’s news Wednesday morning that it was reinstating its full-year guidance as well as engaging in a $10 billion share buyback plan.
The company suspended its full-year financial guidance after it reached a tentative deal with the United Automobile Workers (UAW), as it needed to figure out just how much the walkout cost – and what the new 4.5-year deal will cost. Officials figured out the strike cost GM $1.1 billion, which was not enough to derail the company’s profitability for 2023.
After announcing the reinstatement of its full-year 2023 earnings guidance, a $10 billion accelerated share repurchase (ASR) program, and its intention to increase its common stock dividend by 33% beginning the first quarter of 2024 – from 9 cents to 12 cents a quarter – the stock started moving.
The company’s stock jumped more than 6% in pre-market trading after closing Tuesday at $28.89 a share. It was trading at $30.75 within an hour of the release of the news, at about 6:30 a.m. EST. It has continued to rally since then, opening the day at $31.87 and rising into the low $32 range, good for an 11% bump.
What’s All the Fuss?
The automaker now predicts full-year adjusted profits in the region of $11.7 billion to $12.7 billion, down from its prior forecast of $12 billion to $14 billion. Diluted earnings, GM said, would likely come in between $7.20 and $7.70 per share, compared to its prior range of between $7.15 and $8.15 per share.
“GM will deliver very strong profits in 2023 thanks to an exceptional portfolio of vehicles that customers love and our operating discipline,” said GM Chair and CEO Mary Barra in a statement. She also noted the company’s adjusting its 2024 budget to ensure it remains in the black.
“We are finalizing a 2024 budget that will fully offset the incremental costs of our new labor agreements and 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 added. “With this clear path forward, and our strong balance sheet, we will return significant capital to shareholders.”
Before pulling its guidance – a move mirrored by Ford Motor Co. – the company had revised it upward twice already earlier in the year. Knowing the company would remain firmly in the black for 2023 despite the $1.1 billion hit to its bottom line was only part of the reason for the market’s exuberance. The other part, which is what set off the run on GM stock, was the plan for the $10 billion share repurchase program.
Executing the Plan
GM’s plan is to retire $6.8 billion of common stock. This shouldn’t be a problem, as the automaker has 1.37 billion shares outstanding. The company is shoring up its debt profile as well.
The automaker is canceling a $6 billion revolving credit facility it entered in October. It plans to enter into a new, 364-day $3 billion committed credit facility put together by the banks executing the ASR acting.
Bank of America, N.A., Goldman Sachs & Co. LLC, Barclays Bank PLC, and Citibank, N.A. will implement the plan. Additionally, GM will have $1.4 billion of capacity remaining under its share repurchase authorization separate from the ASR for additional, opportunistic share repurchases.
What This Means for the UAW
There was no detail on what adjustments were made, but the company did reveal the new deal will add $500 to the cost of new vehicles in 2024. Over the life of the 4.5-year deal, it will have an average impact of $575 per vehicle. The total cost of the new deal is $9.3 billion. Ford estimated the new deal could add as much as $900 per vehicle.
What To Expect in the Year Ahead
Although there was much speculation on the potential impact of the strike to the auto industry, the largest of the three Detroit-area automakers seems to have come out on top this year. Notably, GM twice raised its full-year earnings guidance prior to the union walkout in late September. The rest of GM’s full-year guidance includes:
- Net income attributable to stockholders of $9.1 billion to $9.7 billion, compared to the previous outlook of $9.3 billion to $10.7 billion
- Earnings before interest and taxes (EBIT)-adjusted of $11.7 billion to $12.7 billion, compared to the previous outlook of $12 billion to $14 billion
- Earnings per share (EPS)-diluted in the $6.52 to $7.02 range, including the estimated impact of the ASR, compared to the previous outlook of $6.54 to $7.54
- EPS-diluted-adjusted in the $7.20 to $7.70 range including the ASR, compared to the previous outlook of $7.15 to $8.15
- Net automotive cash provided by operating activities of $19.5 billion to $21 billion, compared to the previous outlook of $17.4 billion to $20.4 billion
- Adjusted automotive free cash flow of $10.5 billion to $11.5 billion, compared to the previous outlook of $7 billion to $9 billion
GM now anticipates full-year 2023 capital spending to be $11.0 billion to $11.5 billion. This is at the low end of its prior guidance range of $11 billion to $12 billion, driven by the previously announced retiming of certain product programs and more capital-efficient investment.
