General Motors CEO Mary Barra says that the company expects its 2017 earnings per share to increase to $6-$6.50, up from its 2016 calendar-year outlook of $5.50-$6.
General Motors (NYSE: GM) today said it expects its 2017 earnings per share – EPS – to increase to $6.00-$6.50, up from its 2016 calendar-year projection of $5.50-$6 on higher revenues. It also predicts it will produce ~$6 billion of automotive-adjusted free cash flow. The GM Board of Directors approved another $5 billion in common stock repurchases under a program announced 9 March 2015. The new authorization, no expiration date, brings the total stock buyback to $14 billion. Chairman and CEO Mary Barra, President Dan Ammann and Executive Vice President and CFO Chuck Stevens shared this outlook with the investors and analysts attending the Deutsche Bank 2017 Global Auto Industry Conference in Detroit at the NAIAS.
GM’s stock value problem is that Wall Street doesn’t share its optimism. Analysts doubt GM can survive the next downturn when it inevitably comes. The last one, The Great Recession in 2008, of course, sent it into bankruptcy. GM stock is currently trading at roughly $37 per share, which is below the $39 high it posted when it emerged from bankruptcy in 2010, and below its post-bankruptcy high of $40 – even though it’s paying a more than four percent annual dividend.
Analysts are concerned about GM’s almost complete reliance on the sales of trucks and SUVs in North America to make money and the Chinese economy. The Brexit mess is also expected to hurt GM’s earnings following the collapse of the British pound – it’s now more like an ounce trading at ~£1.21:$1 – and the Euro is also a rambling wreck at ~€1:$1 following the vote for the UK to exit the EU. (Brexit Automaker Winners, Losers – Predictable and Surprising, ‘Bloody Hell,’ What Does Brexit do to Automakers?, Ahead of Q3 Earnings GM Declares 38-Cent Dividend, GM Stock Price Soars on IPO Frenzy)
During 2015 GM had revenue of $152.4 billion, but it remains dependent on truck sales in the US and profits from its Chinese joint ventures. General Motors posted a record 2015 calendar-year net income of $9.7 billion, or $5.91 per diluted share, up from $2.8 billion, or $1.65 per diluted share in 2014. Earnings per share adjusted for special items was $5.02, up 65% compared to $3.05 in 2014. It’s not as strong as it looks, though – $1.9 billion of the $9.7 billion was a result of tax benefits.
GM share buybacks for its initial authorization of $5 billion were completed in the Q3 of 2016, one quarter earlier than planned. In Q4 of 2016, the company also completed $1 billion of the next $4 billion authorization declared in January 2016. The company expects to meet its repurchase $9 billion of common stock by the end of 2017.
GM also announced today a $1 billion increase to its cost efficiency target, raising it to $6.5 billion through 2018, of which about $4 billion has already been achieved through 2016. The increased goal is based on expected additional savings in material, logistics, manufacturing and general administrative costs.
“We’ve generated consistently strong results the last few years by delivering great vehicles, growing the top-line and driving efficiencies, while at the same time establishing a leading position in shaping the future of transportation,” Barra said. “We’ll stay focused on executing our strategic plan and generating the profitable growth needed to create long-term value for our shareholders.”
GM’s 2017 outlook is based on – what else – an expected strong performance in North America and China, growth of GM Financial, continued cost efficiencies, improvement in South America and an ongoing vehicle launch schedule.
GM anticipates the proportion of its global volume from new or refreshed vehicles – defined as those in production less than 18 months – to grow to 38% in 2017-2020, up from 26% during 2011-2016. Crossovers, trucks and SUVs as a proportion of GM’s global volume of new or refreshed vehicles in 2017-2020 are expected to increase significantly, to 52% – up from 38% during the prior six years. It’s a bet not without risks for an auto company that struggles to sell fuel efficient cars. (See US Auto Sales at 17.5 Million Set New Record in 2016)
GM also reaffirmed its capital allocation framework, introduced in March 2015:
- Reinvesting in the business to achieve a 20%or greater return on invested capital.
- Maintaining an investment-grade balance sheet with a target cash balance of $20 billion.
- Beyond reinvesting in the business and maintaining an investment grade balance sheet, the GM expects to return all available free cash flow to shareholders.
“Success in this business depends to a great degree on where you place your bets,” Stevens said. “We’ll continue to allocate capital where we expect to generate significant margins, while we work to drive business performance that meets our shareholder commitments.”
GM Accomplishments for 2016
- On-track to deliver full-year records for revenue, EBIT-adjusted and EBIT-adjusted margin.
- Expects to achieve full-year earnings per diluted-adjusted share in the high end of its previously-stated range of $5.50-$6.00.
- On-track to achieve more than a 10 percent EBIT-adjusted margin in GM North America for the second straight year.
- On-track to sustain strong equity income in China.
- Generated four-quarter trailing ROIC-adjusted of 30.6% through the third quarter.
- Through the end of 2016, the company has repurchased $6 billion of common stock since March 2015.
- GM’s U.S. retail strategy drove a retail market share increase of 0.5 points for the year, more than any full-line manufacturer.
- GM delivered more segment winners than any other manufacturer in JD Power’s Vehicle Dependability, Initial Quality and APEAL studies in 2016.
- Introduced the 238 mile-per-full-charge Chevrolet Bolt EV, which won the 2017 Motor Trend and 2017 North American Car of the Year awards.
- Formed partnership with Lyft to create an integrated network of on-demand autonomous vehicles in the U.S.
- Acquired Cruise Automation to accelerate autonomous vehicle development.
- Launched Maven car-sharing brand, which is operating in 16 U.S. cities.
- Testing autonomous Chevrolet Bolt EVs on public roads in Scottsdale, Arizona, San Francisco and Warren, Michigan.
