Stock buybacks rise for 9th consecutive quarter

[December 22, 2011]  BOSTON (AP) -- America's biggest corporations rewarded shareholders by spending more money on stock repurchases for the ninth consecutive quarter, to the point that it could significantly pad companies' fourth-quarter per-share earnings, Standard & Poor's said on Wednesday.

Stock buybacks by companies in the S&P 500 index totaled $118 billion in the July-September period. That's up nearly 49 percent from about $80 billion in last year's third quarter. Buybacks rose 8 percent compared with this year's second quarter.

Repurchases have increased each quarter since the second quarter of 2009, when the financial crisis sent buyback spending down to $24 billion. However, they remain below their historic peak in the third quarter of 2007, when repurchases totaled a record $172 billion.

Buybacks reward investors by increasing the value of remaining shares and lifting per-share earnings results. Shares are taken off the market, and earnings are divided among fewer shares.

Repurchases are attractive options now for companies to put their cash reserves to work.

"Companies are awash with cash," S&P analyst Howard Silverblatt said, with reserves among companies in the S&P 500 at about $1 trillion, a record.

Companies have recently been using buybacks to prevent dilution to the value of existing shares resulting from stock options issued through employee compensation programs.

But Silverblatt says the stepped-up buyback activity has now reached the point where it could significantly boost some companies' per-share earnings when fourth-quarter results are announced starting next month.

Nearly one-fifth of the S&P 500 companies now have at least 4 percent fewer shares outstanding than they had at the same point a year ago. That will translate into a 4 percent increase in earnings per share, relative to those companies' earnings in dollar terms.

"And it's earnings per share that drives the market," Silverblatt said.

Wall Street analysts typically measure whether a company's earnings met expectations based on per-share results, rather than earnings in dollar terms.

With lower share counts lifting per-share results, Silverblatt hopes those numbers don't become a substitute for actual earnings growth.

Investors, he said, "need to review the share change, and the impact on EPS, or risk overpaying for the stock."

Many companies are in good position to buy back shares because they've been building up cash reserves exiting the Great Recession, which officially ended in mid-2009.

In the third quarter, shares became less expensive for companies to repurchase as stock prices became depressed. Fears about the European debt crisis and slowing U.S. economic growth sent markets down.

In the latest quarter, information technology companies continued to be the most aggressive at buying back stock. The sector's $23.61 billion total accounted for nearly 20 percent of all buybacks, down from info tech's 22 percent in the second quarter. Intel Corp. was the most active info tech company in the latest quarter, buying back $4.01 billion worth of shares, followed by IBM Corp. with $3.44 billion.

Among all companies, the biggest was Exxon Mobil Corp. with $5.47 billion in third-quarter buybacks, matching the energy company's second quarter total. The second-biggest last quarter was JPMorgan Chase & Co. The bank repurchased $4.43 billion, up from $3.5 billion in the second quarter.

Companies that produce consumer staples like food and household products posted the largest increase in buyback activity among market sectors in the latest quarter, with $14.65 billion for the quarter, up from $11.54 billion in the second quarter.

For the fourth quarter, Silverblatt expects buybacks to continue growing to more than $120 billion.

[Associated Press; By MARK JEWELL]

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