3 Important Takeaways From GM's Strong Q1

All eyes and ears are on automakers' earnings calls to try and pick up any hints or details about how companies will try to mitigate tariffs. The Trump administration implemented tariffs that included a 25% levy on imported vehicles, and that extends to imported automotive parts in May -- although it does sound like there will be modifications to the tariffs.

With that setting the stage, here were three important takeaways from General Motors' (NYSE: GM) impressive first quarter.

1. Better than expected

Investors knew General Motors had a strong quarter after seeing its sales report, and its financial results didn't disappoint. General Motors reported $2.78 in earnings per share, easily topping analysts' estimates calling for $2.70. Revenue increased to $44.02 billion, also topping analysts' estimates calling for revenue of $42.85 billion.

The bad news is that tariffs are projected to cause immense pain. According to Barron's, analysts forecast the impact of tariffs on GM's profit range to be anywhere between 30% to 100% of operating income -- this is serious business.

2. No crystal ball

Management wishes it had a crystal ball to help predict tariff impacts, but with a lack of certainty on the topic, General Motors opted to pull their prior guidance.

"We believe the future impacts of tariffs could be significant, so we are reassessing our guidance and look forward to sharing more when we have greater clarity," GM CFO Paul Jacobson said during a media call. "The prior guidance can't be relied upon, and we'll come back to the market with clarity as soon as we have it."

The good news is that while potential impacts could be devastating, The Wall Street Journal reported on Monday that the Trump administration is expected to soften the impact of automotive tariffs. The automotive industry could certainly use the relief, as their supply chains are globalized, complex, and take immense time and effort to change so radically to avoid tariffs.

In equally positive news, Jacobson also commented that the automaker believes it can offset between 30% and 50% of the North American tariffs.

3. Eating shares like Pac-Man

One thing General Motors has done extraordinarily well in recent years is buying back its undervalued shares at a high rate. Late in 2023, the company announced a $10 billion buyback, and earlier this year it announced an additional $6 billion authorization. In fact, GM has dramatically reduced its shares outstanding over the past decade, and its stock price, as you can see, has reacted positively.

GM data by YCharts

Now for the bad news: Management noted that GM will complete the accelerated $2 billion repurchase, of the total $6 billion, but then it would suspend further buybacks while tariff uncertainty clouds the near-term financial outlook.

The silver lining here is that GM didn't cut its dividend, which only yields about 1% currently, and in a show of strength actually increased it. While GM's guidance might be unreliable in the face of tariff uncertainty, the midpoint of its free cash flow guidance is $12 billion -- plenty to cover the dividend's roughly $500 million annual payout.

GM could rise above the uncertainty

At the end of the day, tariff uncertainty is a pain and certain to cause headaches throughout the supply chain, potentially putting the U.S. economy into a recession. But casting that aside, General Motors at its core business is doing really well. It's printing cash from selling popular SUVs, full-size trucks, and luxury Cadillacs. While a potential recession would be bad news for automakers and their investors, General Motors is well-positioned in the global auto industry and has a bright future.

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Daniel Miller has positions in General Motors. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.