GM raises 2016 outlook, adds $4B to stock buyback plan

Melissa Burden
The Detroit News

General Motors Co. said Wednesday it is raising its profit estimates for 2016, is nearly doubling its stock repurchase program and is increasing its quarterly dividend by 6 percent beginning in the first quarter.

GM said its 2016 earnings per share expectations now are between $5.25 and $5.75, up from $5 to $5.50 a share, which the company announced on Oct. 1. The carmaker said the growth is expected through strong product launches, growth in areas such as GM Financial and aftermarket sales, efficiencies and “modest” global auto industry growth. The company also predicts better adjusted earnings before interest and taxes, adjusted margin and adjusted automotive free cash flow in 2016 as it predicts continued strong results in North America and China.

With its increased confidence in earnings, the GM board approved boosting the company’s common stock buyback program to $9 billion through 2017, up from $5 billion through the end of this year. The quarterly dividend also rises by 2 cents to 38 cents a share.

“We expect to sustain strong margins in North America and China and break even in Europe” this year, GM Chairman and CEO Mary Barra told reporters Wednesday.

The moves come as the automaker’s stock price has fallen nearly 11 percent since the end of 2015.

Auto stocks have fallen early this year following a stock market slide in China and over concerns about interest rates rising in the U.S. and the impact that may have on auto sales. That’s despite the U.S. industry setting a new vehicle sales record in 2015 and many analysts predicting sales will be even stronger in 2016.

Itay Michaeli of Citi Research, in an investment note Wednesday, called the news a “clear positive” for GM.

The Detroit automaker’s announcements come in conjunction with the 2016 Deutsche Bank Global Auto Industry Conference in Detroit. The conference coincides with the Detroit auto show.

GM says it has repurchased $3.5 billion of the initial $5 billion stock buyback through the end of 2015 and achieved its 10 percent adjusted margin North America target, a year ahead of its plan.

Barra said GM expects to have double-digit growth in adjusted pretax earnings and adjusted earnings per share for 2015 and remains on track to hit 9 percent to 10 percent pre-tax earnings for the company by early next decade.

Barra, during the investors conference, said the company’s margins improved by 1 percent last year. GM Chief Financial Officer Chuck Stevens said GM earned more than $10 billion in adjusted pre-tax profits in 2015.

“We’ve delivered our commitments in ’14, ’15, and we’ll do the same in 2016,” Stevens said .

The company is set to release full 2015 and fourth quarter results on Feb. 3.

Longer term, GM also expects a “significant reduction” in its longer-term capital expense, Barra said. In the next few years, GM expects capital expense to represent 5 to 5.5 percent of revenue before it drops. The company did not provide an estimated figure of how much less it will spend, but said it expects to spend about $9 billion on capital expense in 2016.

“As societal trends of urbanization and sustainability change the way customers are interacting with automobiles, we intend to make the necessary investments so that we can lead and define the future of personal mobility,” said Barra, adding that the company will announce within weeks more customer focused initiatives around connectivity, electrification and autonomous driving.

GM President Dan Ammann said longer term that the company will use less cash on capital expense as it recognizes a payoff for money it has and is spending now on efficient body architectures and engines.

“This is absolutely not an underinvestment in the business,” Ammann said. “What it is is a payoff of all the technical and engineering work that’s gone into the architectures and powertrains.”

GM’s U.S. sales of nearly 3.1 million last year were the best since 2007 and rose 5 percent from 2014.

The company’s sales with joint ventures in China set a record with 3.61 million sales to retail customers. The company has said it expects further growth in China sales this year.

The company’s stock closed up 18 cents Wednesday at $30.48 per share.

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