Daily Management Review

Boosting Share Buybacks, Dividend, GM Raises 2016 Profit Outlook


Boosting Share Buybacks, Dividend, GM Raises 2016 Profit Outlook
In a step that sent its shares up 4.6 percent in premarket trading, General Motors Co said on Wednesday it will return more cash to shareholders by raising its stock buyback program by 80 percent to $9 billion and increasing its dividend.
From a previous 2016 outlook made in October, GM also raised its 2016 earnings per share forecast to $5.25 and $5.75 per share. It was earlier pegged between $5.00 and $5.50 per share.
The company intends to return back to its shareholders a total of $16 billion for the period from 2015 through 2017 and the GM executives have already outlined a plan for the purpose. While increasing dividends through the end of 2016, in March 2015, GM agreed to return a total of $10 billion in share repurchases.
Boosting shares by 4.6 percent to $31.70 per share in the minutes after the company's announcement, investors appeared to cheer GM's plans in premarket trading
On the other hand, following a caution by Ford Motor Co that margins in its North American auto market could hit a plateau at about 9.5 percent even after the Dearborn, Michigan, automaker said it would pay a special dividend of $1 billion, investors were seen selling the company shares.  Ford shares were down about 1 percent in premarket trading, at $12.71.
The side by side announcements of the two automakers at the sidelines of the Detroit Auto show, set up a referendum for investors on which of the two U.S. automakers has the better strategy to weather a cyclical downshift in vehicle sales growth.
The American auto segment has also been facing head winds from increasing costs to meet regulatory demands and technology-driven challenges from self-driving vehicles and car sharing.
The once-bankrupt auto major will have returned to shareholders about $23 billion between 2012 and the end of 2017, or about 90 percent of free cash flow if GM carries out its latest plan, said the Chief Financial Officer of the company, Chuck Stevens.
The company plans to reduce capital spending as a share of revenue below the current 5 percent to 5.5 percent late in this decade, said the GM President Dan Ammann, as it gives more cash back to investors.
However the cuts will not compromise GM's core vehicle business or investments in new ventures such as car sharing or self-driving vehicles, said Chief Executive Officer Mary Barra and Ammann.
The automaker can develop more new models for less money once GM finishes overhauling its vehicle and engine architectures over the next several years Ammann said.
Investors who are worried about the impact from the economic turbulence in China, the automaker's biggest market, were also assured by Barra.
"We still are very strong on China," Barra said.
the Chinese auto market could grow to 35 million vehicles from about 25 million currently in the long term she said.
“It's going to be very volatile,” she said.

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