(Bloomberg) — General Motors Co. offered a response to critics of its unsteady push into electric vehicles and self-driving: Showering shareholders with cash.
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The automaker on Wednesday announced its biggest-ever stock buyback plan — $10 billion in total — as Chief Executive Officer Mary Barra promised better days are ahead. GM also boosted its dividend 33% and reinstated earnings guidance after accounting for costs of its new labor contract.
The Detroit-based manufacturer is returning billions to investors despite high interest rates that are threatening car sales and capital burdens from its EV effort, which has yet to show significant results. GM is trying to prove it can generate huge amounts of cash while still investing in technology, hoping to lift a stock that trades lower today than when Barra took over in early 2014.
Read More: Mary Barra’s $280 Billion Goal Is Proving a Stretch for GM
The announcements Wednesday sent GM’s shares soaring 12% to $32.29 shortly after the market opened in New York, the biggest intraday gain since April 2020. The stock fell 14% this year through Tuesday, compared with a 19% increase in the S&P 500 Index.
By returning more money to shareholders — including buying back about a quarter of the company’s market value — GM is effectively telling investors that it’s going to be more of a value play than a growth investment. While revenue is rising this year, GM is getting its growth from its legacy business of gas-powered automobiles. EV sales have been minimal and its robotaxi business is troubled.
“We have confidence in the cash generation of this company,” Barra said on Bloomberg TV. “We’re demonstrating the confidence that we and the board have that we’re executing the strategy and we’re going to see growth and strong margins.”
GM said costs from the new labor contract amount to about $575 a vehicle. While rival Ford Motor Co. has pegged the per-car cost of its United Auto Workers deal at about $850 to $900, GM is the first of the legacy Detroit automakers — which also includes Stellantis NV — to offer a detailed breakdown of the expected impact of the contract.
Barra pledged to “fully offset” added labor expenses and other outlays through greater efficiencies and largely unspecified cuts to fixed and variable costs in next year’s budget. She expects GM to lower its costs without resorting to job cuts, particularly after the company’s recent efforts to trim headcount.
“We believe with what we did, in the voluntary separation program earlier this year, we’re well-situated there,” Barra said in an interview. “Of course we give our leaders the broad responsibility and autonomy to be able to right-size their business. But we don’t have anything planned, like a major layoff.”
Dividend Boost
GM will raise the quarterly dividend 3 cents a share to 12 cents beginning in 2024.
Under the advanced share repurchase plan, GM will pay $10 billion to a group of executing banks and immediately receive and retire $6.8 billion worth of common stock. The company had approximately 1.37 billion shares of common stock outstanding prior to the buyback.
The total number of shares repurchased will be based upon final settlement and the daily volume-weighted average prices of GM common stock during the term of the program, which will conclude in the fourth-quarter of 2024. The repurchase program will be executed by Bank of America Corp., Goldman Sachs Group Inc., Barclays Bank PLC and Citigroup Inc.
GM will have $1.4 billion of capacity remaining under its share repurchase authorization for additional buybacks.
The buyback plan is opportunistic given the recent slide in GM’s share price, RBC analyst Tom Narayan said in a note. Still, investors remain largely focused on expectations for 2024, he said.
Read More: GM Gains on Dividend Boost, ‘Substantial’ Buyback
The size of the repurchase effort may rankle the UAW, whose president, Shawn Fain, has criticized GM for buying back shares over the past decade while offering smaller raises to its hourly employees.
The automaker reinstated 2023 earnings guidance to levels modestly below what it gave before a six-week UAW strike cut into profits. GM said net income will now be between $9.1 billion and $9.7 billion, compared with a previous range of as much as $10.7 billion. During the strike, the company withdrew guidance.
Earnings per share will be $6.52 to $7.02 including the estimated impact of the buyback. That compares to a previous forecast for $6.54 to $7.54 a share.
Not counting the costs of the buyback program, GM’s adjusted EPS guidance is between $7.20 and $7.70 a share, down from a top estimate of $8.15.
GM said the new UAW contract — which gives workers minimum 25% raises along with cost-of-living allowances and other improved benefits — will add $9.3 billion in expenses over the 4-year, 8-month term, with new labor expenses peaking at $2.5 billion in 2027.
To help offset the impact, the company said it will reduce fixed costs by $2 billion next year, achieving new efficiencies in design, engineering, manufacturing, marketing and distribution of its models and replacing some of its older SUVs with more profitable versions of those models.
What Bloomberg Intelligence Says:
“The move to offset the effects of higher costs from the new UAW contract adds confusion to GM’s electrification strategy and is out of step with the practice of conserving cash when demand is uncertain.”
— Kevin Tynan, transportation analyst
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GM also inked a new delayed-draw term loan agreement that allows it to borrow four term loans that can’t exceed the amount of $3 billion, according to a filing. GM expects to use proceeds to finance working capital needs and for general corporate and entity purposes, including to enable it to make valuable transfers to any of its subsidiaries in connection with the operation of their respective businesses. The loan agreement expires in a year, meaning GM will have to issue new debt in the investment grade market in order to refinance.
Its stock has struggled in part because investors saw the strike resulting in higher labor costs. But there’s also an existential issue for GM and other legacy automakers. The internal combustion vehicle business is seen as being in a slow long-term decline, while none of the old-line carmakers have successfully sold EVs at large enough volume to keep up with Tesla Inc.
Under Barra, GM has achieved record profits but trouble at its battery pack facilities has kept EV production in the low thousands, while Tesla’s annual sales approach 1.8 million vehicles. GM’s Ultium battery pack was supposed to enable the company to make multiple types of electric cars off the same platform and beat competitors to market with a panoply of vehicles.
Barra said GM should have its electric battery and vehicle production issues fixed by mid-2024. EVs are a big piece of the automaker’s strategy to double sales to $280 billion by 2030.
“Although I am disappointed with our Ultium-based EV production in 2023 due to difficulties with battery module assembly, we have made substantial improvements both to the process and to the organization responsible for this work,” Barra said in a shareholder letter. “In 2024, we expect significantly higher Ultium EV production and significantly improved EV margins.”
Cruise Cuts
GM is also cutting spending on Cruise LLC, its San Francisco-based self-driving car unit. The robotaxi company last month suspended operations after one of its vehicles dragged a pedestrian for 20 feet. The unit’s CEO, Kyle Vogt, stepped down abruptly earlier this month.
Read More: Cruise CEO Vogt Resigns at GM’s Troubled Self-Driving Car Unit
Cruise was costing the company $700 million a quarter before GM grounded its fleet and pulled back its growth strategy. GM Chief Financial Officer Paul Jacobson said on a conference call Wednesday that spending on Cruise would decline by hundreds of millions of dollars.
Cruise is cutting back its presence to one city from three previously, laying off workers and focusing on making sure the technology is safe.
–With assistance from Jonathan Ferro, Catherine Larkin, Shelly Banjo and Josyana Joshua.
(Updates to recast first paragraph, add CEO comment in the sixth paragraph)
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
Dollarama Inc.’s food aisles may have expanded far beyond sweet treats or piles of gum by the checkout counter in recent years, but its chief executive maintains his company is “not in the grocery business,” even if it’s keeping an eye on the sector.
“It’s just one small part of our store,” Neil Rossy told analysts on a Wednesday call, where he was questioned about the company’s food merchandise and rivals playing in the same space.
“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there.”
Over the last decade and as consumers have more recently sought deals, Dollarama’s food merchandise has expanded to include bread and pantry staples like cereal, rice and pasta sold at prices on par or below supermarkets.
However, the competition in the discount segment of the market Dollarama operates in intensified recently when the country’s biggest grocery chain began piloting a new ultra-discount store.
The No Name stores being tested by Loblaw Cos. Ltd. in Windsor, St. Catharines and Brockville, Ont., are billed as 20 per cent cheaper than discount retail competitors including No Frills. The grocery giant is able to offer such cost savings by relying on a smaller store footprint, fewer chilled products and a hearty range of No Name merchandise.
Though Rossy brushed off notions that his company is a supermarket challenger, grocers aren’t off his radar.
“All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he said.
Rossy declined to reveal how much of the chain’s sales would overlap with Loblaw or the food category, arguing the vast variety of items Dollarama sells is its strength rather than its grocery products alone.
“What makes Dollarama Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” he said.
The breadth of Dollarama’s offerings helped carry the company to a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year as its sales rose 7.4 per cent.
The retailer said Wednesday the profit amounted to $1.02 per diluted share for the 13-week period ended July 28, up from 86 cents per diluted share a year earlier.
The period the quarter covers includes the start of summer, when Rossy said the weather was “terrible.”
“The weather got slightly better towards the end of the summer and our sales certainly increased, but not enough to make up for the season’s horrible start,” he said.
Sales totalled $1.56 billion for the quarter, up from $1.46 billion in the same quarter last year.
Comparable store sales, a key metric for retailers, increased 4.7 per cent, while the average transaction was down2.2 per cent and traffic was up seven per cent, RBC analyst Irene Nattel pointed out.
She told investors in a note that the numbers reflect “solid demand as cautious consumers focus on core consumables and everyday essentials.”
Analysts have attributed such behaviour to interest rates that have been slow to drop and high prices of key consumer goods, which are weighing on household budgets.
To cope, many Canadians have spent more time seeking deals, trading down to more affordable brands and forgoing small luxuries they would treat themselves to in better economic times.
“When people feel squeezed, they tend to shy away from discretionary, focus on the basics,” Rossy said. “When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”
The current economic situation has drawn in not just the average Canadian looking to save a buck or two, but also wealthier consumers.
“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama generally or who enjoy shopping at a Dollarama but have the luxury of not having to worry about the price in some other store that they happen to be standing in that has those goods,” Rossy said.
“Well, when times are tougher, they’ll consider the extra five minutes to go to the store next door.”
This report by The Canadian Press was first published Sept. 11, 2024.
TORONTO – The U.S. Consumer Financial Protection Bureau has ordered TD Bank Group to pay US$28 million for repeatedly sharing inaccurate, negative information about its customers to consumer reporting companies.
The agency says TD has to pay US$7.76 million in total to tens of thousands of victims of its illegal actions, along with a US$20 million civil penalty.
It says TD shared information that contained systemic errors about credit card and bank deposit accounts to consumer reporting companies, which can include credit reports as well as screening reports for tenants and employees and other background checks.
CFPB director Rohit Chopra says in a statement that TD threatened the consumer reports of customers with fraudulent information then “barely lifted a finger to fix it,” and that regulators will need to “focus major attention” on TD Bank to change its course.
TD says in a statement it self-identified these issues and proactively worked to improve its practices, and that it is committed to delivering on its responsibilities to its customers.
The bank also faces scrutiny in the U.S. over its anti-money laundering program where it expects to pay more than US$3 billion in monetary penalties to resolve.
This report by The Canadian Press was first published Sept. 11, 2024.
