Look Who Didn't Miss the Rally

08/31/2009 9:09 am EST

Focus: MARKETS

David Fried

Editor, The Buyback Letter

David Fried, editor of The Buyback Letter, writes that many S&P 500 companies pared repurchases just when their shares were at their cheapest. But some kept on buying.

According to Standard & Poor’s, companies in the S&P 500 index elected to preserve cash and bought back just $30.8 billion in stock in the first quarter of 2009, down 73% from the $113.9 billion spent a year before. This decline in repurchasing came even though stocks looked like bargains at the time. It was the fifth consecutive quarter of buyback declines. In March, the S&P 500 hit its lowest level in more than a decade. In the first quarter of the year, buybacks fell across all sectors, with utilities and telecommunications only making token purchases, S&P said. Some companies simply lack the financial flexibility to buy back, while others have decided to maintain their dividend programs at the expense of their buyback plans. (Figures are not yet available for the 2nd quarter.)

So who were the biggest repurchasers during the first quarter? As usual, Exxon Mobil (NYSE: XOM) perched at the top, with a whopping $7.8 billion in buybacks, followed by Amgen (Nasdaq: AMGN) with $1.9 billion. IBM (NYSE: IBM) spent $1.7 billion, Philip Morris (NYSE: PM) spent $1.37 billion, and Oracle (Nasdaq: ORCL) spent $1.36 billion.

A few other companies recently issued share repurchase programs or expanded their existing programs. The big kahuna is Wal-Mart (NYSE: WMT), with a $15 billion program announced in early June. Wal-Mart has repurchased about $21 billion worth of its shares over the past five years. Others joined the pack in June as well, including Medtronic (NYSE: MDT) with 60,000 shares, Autozone (NYSE: AZO) with $500 million, Watson Wyatt Worldwide (NYSE: WW) with 750,000 shares, Alaska Air Group (NYSE: ALK) with $50 million, and Supervalu (NYSE: SVU) with $70 million.

Also notable was Travelers (NYSE: TRV), the insurer added to the Dow Jones Industrial Average in early June. The company has remained profitable through the credit crisis, and became the first insurer in the benchmark index since American International Group (NYSE: AIG) was removed in September. Travelers’ CFO said it has resumed buybacks “as market tone improved,” and expects to repurchase $1.75 billion this year.

In July, specialty drug and medical device maker Baxter International (NYSE: BAX) not only declared a quarterly dividend, but authorized a new $2 billion buyback plan. Baxter had authorized a $2 billion buyback in March 2008, and has less than $300 million remaining on it, so the new plan will piggyback onto that. Others who announced buybacks in July included Tidewater (NYSE: TDW), which provides water transportation for the petroleum industry [and] authorized $200 million [for buybacks] and cigarette maker Lorillard (NYSE: LO), which approved a new $750 million plan.

July’s big kahuna was Intel (Nasdaq: INTC), the world’s largest chipmaker, which announced it plans to sell $1.5 billion in debt and use the money to repurchase its shares—taking advantage of favorable market conditions to do so. (Intel, by the way, is expecting a good year, with second-quarter sales beating analysts’ estimates and third-quarter revenue and profit expected to exceed projections.)

You might recall that Microsoft (Nasdaq: MSFT), back in May, did something similar, with the first bond offering in its history. It sold $3.75 billion, with the money earmarked for acquisitions, capital expenditures, and buybacks.

Even with all that announced activity, there have been some companies that announced they will not be buying back at the moment. General Electric (NYSE: GE) and Alcoa (NYSE: AA) have said they are canceling buyback plans to preserve cash, and Xerox (NYSE: XRX) will forgo share buybacks this year to focus on paying down debt and building up cash. The company already cut its debt by $347 million in the first half of 2009.

So it appears that many companies were as scared of the economy as most individuals were during the first quarter, and cut their repurchasing considerably. This is not surprising, and for many of them, it was a wise move, and will enable them to ride out the economic storm with a chance to emerge stronger.

Subscribe to The Buyback Letter here…

Related Articles on MARKETS