After all of the labor and economic turmoil of recent months which has punished General Motors stock, the company gave investors some good news.
Financial Guidance Reinstated
Ahead of GM’s business update, which starts at 8 a.m. Eastern time, the company reinstated 2023 financial guidance, plans to increase its dividend, and is returning additional cash to shareholders via a big stock buyback.
All three are positives. GM shares were up 6.3% in premarket trading at $30.71 a share, while S&P 500 and Dow Jones Industrial Average futures were both up about 0.3%.
Coming into Wednesday’s trading, GM shares were down about 25% since the start of July, when labor issues started to weigh on investor sentiment. The S&P 500 was up about 2% over the same span. Recent declines have left shares trading at similar levels they were at as far back as 2013.
UAW members ratified a new labor deal in mid-November. Labor peace has helped a little. Shares are up about $1.50 since GM reached a tentative agreement at the end of October. That still leaves them down about 27% over the past 12 months.
Investors are feeling better on Wednesday, for good reason. For starters, there is more cash for shareholders. GM’s quarterly dividend will increase to 12 cents from 9 cents. That will give the stock a dividend yield of about 1.7%. That is lower than Ford Motor stock’s dividend yield of about 5.8%, but GM has traditionally preferred share buybacks to dividends.
General Motors Announces Share Repurchase
General Motors (GM) made a significant announcement on Wednesday by revealing plans for a $10 billion accelerated share repurchase. This move is particularly noteworthy considering that GM's market capitalization is approximately $40 billion, meaning the company intends to buy back a staggering 25% of its own shares.
Revised Guidance for Operating Profit
In addition to the share repurchase, GM also provided updated guidance for its expected operating profit in 2023. The company now anticipates generating between $11.7 billion and $12.7 billion in operating profit, a slight adjustment from the previous outlook of $12 billion to $14 billion. Wall Street analysts have projected a figure of $12.2 billion, which falls squarely within the new estimated range.
Improved Free Cash Flow Projection
GM has also revised its free cash flow guidance upward. The company now expects a range of $10.5 billion to $11.5 billion, compared to the previous guidance of $7 billion to $9 billion. This optimistic forecast may be attributed to better working capital controls or lower capital spending. Analysts on Wall Street had projected a lower figure of $7.8 billion.
What Investors Should Keep in Mind
During the 8 a.m. investors' meeting, management will likely address inquiries regarding free cash flow and provide updates on GM's electric vehicle (EV) initiatives, as well as its self-driving robotaxi unit, Cruise. GM has been investing billions each year into scaling its robotaxi business, but the company recently faced setbacks when California suspended Cruise's license to operate self-driving taxis following an accident.
Despite some remaining uncertainties surrounding Cruise and the potential sales performance of new EV models like the Chevy Equinox, GM's Wednesday announcement brings positive news for investors.