General Motors Co. (IW 500/3) predicted profit will rise more than analysts estimate in 2017 after meeting the high end of last year’s targets, enabling the largest U.S. automaker to buy back an additional $5 billion in shares.
Net income should increase to between $6 and $6.50 a share for 2017, CEO Mary Barra said January 10 at an analyst conference in Detroit. She said GM met the top of its guidance for 2016, which was $6 a share, and that stronger global revenue and growth in the U.S. and China will boost results going forward. The company’s stock rose.
“We had a great year in 2016 in every respect,” Barra said. “Our overall financial outlook for 2017 is based on expected strong performance in North America and China, strong growth at GM Financial, continued cost efficiency and improvement in South America.”
Even as global auto sales growth slows, GM is finding ways to boost revenue and profit by introducing new models and trimming costs. GM expects to cash in on a global customer shift to larger, more expensive vehicles. The automaker predicted Tuesday that new trucks and sport utility vehicles will comprise 52% of its sales between now and 2020, up from 38% over the past five years.
The Chevrolet Equinox and GMC Terrain SUVs are on stage at this week’s North American International Auto Show in Detroit and have been completely redesigned for this year, along with the midsize Chevy Traverse.
GM’s 2017 forecast exceeded the $5.73 a share average estimate in a Bloomberg survey of analysts, sending shares up as much as 6%. They rose 4.2% to $37.52 as of 2:07 p.m. on January 10 in New York trading.
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.
GM expects its return on invested capital to be greater than 25% this year, CFO Chuck Stevens said. He’s maintained an annual target of 20%. The company could stay profitable even if auto demand fell by 25%, he said.
The new share buyback program is in addition to a $9 billion stock repurchase program the company announced in 2015. GM expects the earlier plan to be completed by the end of this year.
By David Welch