Southfield: General Motors (GM) predicted profit will rise more than analysts estimate in 2017 after meeting the high end of last year’s targets, enabling the largest US automaker to buy back an additional $5 billion in shares.
Net income should increase to between $6 and $6.50 a share for 2017, Chief Executive Officer Mary Barra said on Tuesday at an analyst conference in Detroit. GM met the top of its guidance for 2016, which was $6 a share, and growth in the US and China will boost results going forward, she said. The company’s stock rose.
"It’s very good guidance given a US market that is plateaued,” said David Whiston, an analyst for Morningstar Inc. "It also shows that GM is finally getting the scale a firm its size should and that they are not done making the company better.”
Separately, Standard & Poor’s lifted GM’s credit rating one level on Tuesday to BBB, the second step above junk. The Detroit-based company should be able to maintain strong cash flow and steady profitability this year and next even as global auto demand slows, Nishit Madlani, an S&P credit analyst, wrote in a statement.
GM’s 2017 forecast exceeded the $5.73 a share average estimate in a Bloomberg survey of analysts, sending shares up 3.7 per cent at the close in New York.
Several of GM’s largest suppliers also gained on Tuesday following a series of bullish forecasts for the year, including Visteon, Lear and Dana. The 20-member Bloomberg Americas Auto Parts & Equipment Index climbed 2.3 per cent at the close in New York.
After the market close, Ford Motor said it will pay an additional $200 million to shareholders beyond its regular first-quarter dividend and that its 2016 tax rate will be higher than previously forecast. The company said it will pay its regular dividend of 15 cents a share, plus the cash, bringing the total to 20 cents a share.
GM is finding ways to boost revenue and profit by introducing new models, trimming costs and cashing in on a global shift to larger, more expensive vehicles. The automaker predicted on Tuesday that new trucks and sport utility vehicles will comprise 52 per cent of its sales between now and 2020, up from 38 per cent over the past five years.
The Chevrolet Equinox and GMC Terrain SUVs on stage at this week’s North American International Auto Show in Detroit have been completely redesigned for this year, along with the midsize Chevy Traverse.
Barra said GM is adding $1 billion more in reductions to its cost-cutting plans. GM has already achieved about $4 billion of its previously announced target $5.5 billion through 2018.
Profit margins and earnings before interest and taxes and revenue will improve from last year, while free cash flow should be about $6 billion in 2017, in line with last year, according to the company.
After a strong 2016 for the North American market, "we see more of the same favorable environment,” GM President Dan Ammann said. The positive sentiment is in line with Nissan Motor Co. Chairman Carlos Ghosn saying on Monday that US auto sales may grow this year. About two months ago, his co-chief executive officer said the market had peaked.
GM expects its return on invested capital to be greater than 25 per cent this year, Chief Financial Officer Chuck Stevens said. He’s maintained an annual target of 20 per cent. The company could stay profitable even if auto demand fell by 25 per cent, he said.
The new share buyback programme is in addition to a $9 billion stock repurchase programme the company announced in 2015. GM expects the earlier plan to be completed by the end of this year.