One of Tuesday's biggest winners was auto giant General Motors (NYSE:GM), which saw its shares rise more than 3.7% and also set a new 52-week high. The company announced some very positive news, detailed below, regarding 2017 earnings per share, cost controls, and capital returns. Investors should love what they heard, especially considering a dividend hike should also be coming soon. Here are the key points from the company's announcement:
- Announces 2017 EPS diluted-adjusted outlook of $6.00-6.50.
- Expects to maintain or improve EBIT-adjusted and EBIT-adjusted margin.
- Authorizes additional $5 billion for share repurchases.
- Increases cost efficiency target to $6.5 billion through 2018.
The earnings per share forecast was definitely seen as a surprise, given analysts were expecting a decline to $5.72 from the current 2016 expectation of $6.01. The cost efficiency target was raised by $1 billion, which is a key part of the company's plan to generate $6 billion of automotive-adjusted free cash flow this year. When it comes to buybacks, here's the overall update:
Share buybacks for the program's initial authorization of $5 billion were completed in the third quarter of 2016, one quarter earlier than planned. In the fourth quarter of 2016, the company also completed $1 billion of the next $4 billion authorization declared in January 2016. The company expects to meet its prior commitment to repurchase $9 billion of common stock by the end of 2017.
With a market cap at Tuesday's close of about $56.5 billion, the additional $5 billion represents almost 9% of outstanding shares, not including any potential dilutive securities that offset (like share-based executive compensation). If you look at the company's 10-Q filings, General Motors has already done a nice job in recent years of reducing the number of shares outstanding. The Q3 2016 filing showed about 1.524 billion shares outstanding, down from 1.607 billion roughly two years earlier, a decrease of more than 5.1%.
The one item that wasn't really mentioned in the press release was something a lot of investors care strongly about: the dividend. Since the company restarted its cash payouts to shareholders a few years ago, the dividend has gone from $0.30 a share per quarter to $0.38. The next payout will be declared in a couple of weeks, and I'm guessing most investors are expecting a raise. It would not surprise me to see the company match last year's two cent raise, at least, putting the quarterly payout at $0.40 per share. That's good for a 4.28% annual yield currently, much better than you'll do in US government bonds right now.
Tuesday was a great day for investors in General Motors. The company announced a much better than expected profit forecast for 2017, while also announcing more cost efficiency gains and an additional $5 billion buyback. With buybacks flowing at a solid pace, the reduction in the outstanding share count should fuel another dividend raise in the next couple of weeks. Right now, the auto giant seems to be firing on all cylinders.
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