EuroFinance

Sitting on elevated levels of cash and debt balances, US corporations are expanding their share buybacks as the market environment becomes more volatile in 2022. The activity comes after companies repurchased a record $156 billion of shares in the third quarter of 2021, according to the data published by the Federal Reserve

Buying Back Stock

After the coronavirus pandemic struck corporate earnings in 2020, US companies reduced spending on stock buybacks to ensure liquidity. However, as uncertainty receded, treasurers repurchased shares worth $422.7 billion in 2020 and this continued into 2021 as they spent $427 billion in the nine months ending September 2021.

Technology companies, which didn’t reduce their stock purchases in the initial part of 2020, remained at the forefront throughout 2021 with Apple leading the pack as it purchased $20.45 billion worth of shares in Q3 and $20.40 billion in the final quarter of 2021.

In April 2021, the company had announced an increase to its current share repurchase programme from $225 billion to $315 billion, while during 2021; it purchased $82 billion on buybacks.

Following Apple, Alphabet also ramped its share repurchase programme in April 2021 as its board authorised the company to repurchase up to $50 billion of its stock. In the nine months ending September 2021, the company repurchased an aggregate of $36.8 billion of shares while $30.8 billion still remains available for repurchase under its programme. The company is yet to declare its final quarter results.

In September 2021, Microsoft's board approved additional share repurchases of $60 billion after its previous programme which commenced in 2019 ended in November 2021 under which $40 billion worth of shares were retired.

The company continued to spend $6.2 billion on buybacks in the fourth quarter and while heading into 2022, it is left with $56.3 billion out of the $60 billion under its share repurchase program.

In October 2021, social media giant Facebook announced a $50 billion share repurchase plan after buying back $14 billion of stock during the third quarter under the previous programme. Texas-based software firm Oracle also followed suit with a $15 billion cash spend on buybacks in Q3, almost double the amount it spent in the previous quarter. After exhausting its share repurchase limit by November 2021, the company further expanded it by $10 billion in December.

Meanwhile, technology services company Dell, which operated a $1 billion share repurchase programme, relatively smaller than its peers, further expanded it to $5 billion in September. During the nine months ended September 2021, the company retired $240 million of shares via buybacks. The company is yet to declare its final quarter results.

The household products multinational, Procter & Gamble was the only consumer goods company to repurchase $4.75 billion of shares in the fourth quarter, 55% or $1.68 billion higher than the previous quarter. In 2022, the company expects to reduce outstanding shares through share repurchases at a value of $9 to $10 billion.

The global payments giants, Visa and MasterCard boosted share repurchases by 52% and 20% to $4.1 billion and $3.1 billion in the fourth quarter, respectively.

“We significantly stepped up the pace of our stock buybacks during the quarter. We acquired 19.4 million shares for $4.1 billion and our board authorized a new $12 billion stock buyback program in December.” said Vasant Prabhu, CFO at Visa during a January 27th earnings call.

The trend was not only skewed to the large corporations but many mid-sized companies within the S&P 500 also initiated a stock repurchase program with the software solutions company, SAP and equipment rental company, United Rentals allocated $1 billion to share buybacks in 2022.

Rising Cash & Debt

Corporates boosted their share repurchases at a time when cash and debt balances also expanded to record levels during the last two years, giving corporates ample liquidity to finance these stock buybacks. However, the record highs seen in equity markets during 2021 made have repurchases more costly. The solution? Borrow money to pay for the buybacks.

For instance, the semiconductor manufacturer, Broadcom which announced a $10 billion share repurchase programme for 2022 held $12.1 billion in cash & cash equivalents and $39.7 billion in total debt at the end of the fiscal year significantly higher than $5 billion and $32.7 billion at the start of the pandemic. Instead of holding extra cash on its balance sheet, the management has now decided to distribute it to shareholders via stock buybacks.

“It's just a very logical conclusion for us to not just sit on the cash, hoard in some ways, but just return it to you guys [shareholders] as we continue to accumulate cash.” said Hock Tan, CEO at Broadcom during its fourth quarter earnings call.

All non-financial companies in the S&P 500 index held $1.309 trillion in cash and cash equivalents in Q3 2021 as compared to only $909 billion at the beginning of 2020 while total debt liabilities stood at $6.43 trillion compared to $5.68 trillion during the same period, as per data from S&P capital IQ.

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