UPDATE 2-GM shares jump as CEO Barra promises shareholders more cash

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Adds analyst comment, CEO comments on share repurchases, cost-cutting. New headline

By Joseph White

- General Motors GM.N shares jumped Tuesday after the company gave investors an upbeat outlook for 2024 and signaled more capital will be returned to shareholders.

"Consensus is growing that the U.S. economy, the job market and auto sales will continue to be resilient," GM Chief Executive Mary Barra told investors in a letter. GM expects to reduce shares outstanding to below 1 billion, down from about 1.2 billion currently and 1.6 billion at the post-IPO peak, Barra said.

GM shares rose 8.7% in early trading.

Barra highlighted moves to return cash to shareholders, including $12 billion in 2023 through a $10 billion share buyback and a 33% dividend increase.

"We are prioritizing returning cash to our shareholders," Barra said. GM's 2024 forecast calls for $8 billion to $10 billion in free cash flow, nearly all of it generated by GM's internal combustion engine, or ICE, vehicles.

"The ICE machine is up and working again … please proceed to the end of the hallway and fill your buckets!" Evercore ISI analyst Chris McNally wrote in a note.

GM is pinning hopes on strong demand for its combustion trucks and SUVs in North America, cost-cutting and increasing sales of its new generation of electric vehicles after 2023 deliveries fell short of earlier plans. GM expects overall EV sales will rise this year to 10% of the U.S. market from 7% in 2023.

However, Barra said GM will launch plug-in hybrid vehicles in North America, a turn away from a strategy of bypassing hybrid powertrains in that market. U.S. hybrid sales have been rising as consumers balk at high EV prices and recharging infrastructure challenges.

"We know the EV market is not going to grow linearly," CFO Paul Jacobson told analysts. "We are prepared to flex between ICE and EV production."

CRUISE UNIT, CHINA POSE CHALLENGES

Analysts questioned Barra about potential shifts in GM's money-losing EV and self-driving vehicle strategies, as well as declining sales in China.

"We're not going to shy away from making tough calls" to protect profitability, Barra said. "Nothing is off the table."

GM will delay an investor day planned for March until later this year "because of the significant changes that are underway at GM and Cruise," Barra said. GM also wants more time to resolve software development problems that have forced the company to stop selling its new Chevrolet Blazer EV.

GM expects its electric vehicle operations will begin returning variable profit by the second half the year, Jacobson said.

It forecast 2024 adjusted pre-tax profits of $12 billion to $14 billion, compared to $12.4 billion reported for 2023. GM will hold capital spending roughly flat.

The 2024 forecast translates to between $8.50 and $9.50 a share, compared to $7.68 in 2023. Fewer shares due to buybacks adds $1.45 a share to the forecast. That will be offset by higher taxes and interest payments.

Cost-cutting will play a big role in hitting forecasts, as GM expects vehicle prices to drop. GM plans to cut $400 million from marketing spending, on top of $500 million cut last year, Jacobson said. Engineers have cut $200 million from product development costs, Barra said.

For the fourth quarter, GM reported net income rose 5.2% to $2.1 billion on revenues of $43 billion. Adjusted pre-tax profit fell by 54% to $1.8 billion. The decrease reflected the impact of last fall's United Auto Workers' strikes, higher costs at Cruise and a $1.1 billion writedown related to EV battery cells held in inventory, the company said.

Spending at the troubled Cruise robo-taxi unit will be cut by $1 billion. Cruise halted operations after one of its self-driving cars dragged a woman down a San Francisco street.

Barra said GM will "refocus and relaunch Cruise," without disclosing a timetable. Cruise lost $2.7 billion in 2023, not including $500 million in restructuring costs incurred in the fourth quarter as the unit cut staff.

Separately, GM faces deepening challenges in China, once its largest market. Domestic automakers and Tesla are gaining share with electrified vehicles, fresh infotainment technology and aggressive price cutting. GM expects to post a China loss for the current quarter, Jacobson said.

"We have a lot of inventory we are working through in first quarter" in China, he said.


(Reporting by Joe White; Editing by Stephen Coates, Christina Fincher, David Ljunggren and Nick Zieminski)

((Joe.White@thomsonreuters.com;))

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