GM Shares Surge Over 10% After Announcing $10 Billion Buyback, Raising Dividend By 33%, Updating 2023 Guidance

General Motors shares are surging more than 10% in the pre-market session on Wednesday after the company said it is set to boost its quarterly dividend by 33% to 12 cents per share in the coming year.

Additionally, the company is launching a swift $10 billion share buyback, according to CNBC. “GM will immediately receive and retire $6.8 billion worth of its common stock,” the report said. 

In its 2023 projections, it has also reincorporated expectations, factoring in an anticipated impact of $1.1 billion in EBIT-adjusted earnings due to approximately six weeks of labor strikes by the United Auto Workers union in the U.S.

“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,” CEO Mary Barra said in a statement. 

GM’s new 2023 guidance 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.

Before the UAW strikes, CFO Paul Jacobson indicated the company was on course to meet the higher end of its earnings forecast. However, new U.S. and Canadian labor agreements are now set to raise costs by $9.3 billion, adding roughly $575 to each vehicle’s cost, primarily due to the UAW deal expiring in April 2028, the report says.

Recall, in late October, GM agreed to a deal that included 25% hourly pay raises plus cost-of-living allowances over the more-than-four-year contract.

CNBC reported that, to mitigate these costs, GM plans to reduce 2023 capital spending to $11.0-$11.5 billion, down from the previously expected $11-$12 billion, by delaying certain new products and investments, especially in EVs.

CEO Barra expressed disappointment in this year’s production of Ultium EVs but remains optimistic about increased production and improved EV margins. Despite recent challenges, GM’s long-term EV profitability goals remain unchanged, aiming for low to mid-single-digit EBIT-adjusted margins by 2025, ahead of its 2035 target to exclusively offer electric vehicles.

Regarding the company’s autonomous driving unit, Cruise, GM said it is “addressing challenges” in the segment. Recall, just days ago we wrote that the automaker would likely be slashing its spending on the initiative after a pedestrian accident last month that led the company to suspend its testing.

The spending cuts have people questioning the economics of Cruise as a business. GM had bought out Softbank’s minority share in the segment for $2.1 billion last year and now owns 80% of Cruise. It has invested “billions” in total into the company.

“These strategies are designed to keep our margins and free cash flow strong, and we are well-positioned as we head into 2024. 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,” Barra concluded.