What if They Run Out of Juice: Biggest Share-Buyback Queens
What if They Run Out of Juice: Biggest Share-Buyback Queens by Wolf Richter for Wolf Street
Five companies blow $55 billion in Q1 to prop up their own shares.
Apple was once again the biggest share buyback queen of them all: In the first quarter of 2019, it spent a new all-time record of $23.8 billion on buying its own shares, apparently because everyone else was selling them, and someone had to buy.
Over the past four quarters through March 31, Apple spend $75.1 billion on share buybacks to prop up its own shares, according to the latest report by S&P Dow Jones Indices. But Apple’s shares remain 16% below their peak last October. Over the past five years, Apple spent $284 billion on share buybacks.
When a company buys back its own shares, the shares get canceled and disappear, the cash used to buy them gets handed to sellers and is gone, and “stockholder equity” on the balance sheet drops by that amount.
Buybacks are at the core of financial engineering: They lower the share count, and so earnings are divided by a smaller number of shares, which generates a larger earnings-per-share figure, and a lower price-earnings ratio, to bamboozle people who still bother to look at these metrics after 10 years of being told that fundamentals don’t matter.
Share buybacks also cover up the dilutive effects of stock-based compensation plans and stock-based acquisitions of companies that have no earnings, such as startups, that Apple and others constantly gobble up.
Apple still has a rock-solid balance sheet and can afford to blow this kind of money. Other companies are not so lucky; nevertheless, they did blow a ton of money on share buybacks.
In total, companies in the S&P 500 index spent $205.8 billion in Q1, the biggest first quarter ever, the second biggest of any quarter ever, and up 8.9% from Q1 2018, but down 7.7% from the all-time dizzying record in Q4 2018:
Over the past 12 months through March 31, share buybacks jumped 43% from the prior 12-month period, to a record $823 billion. And it’s adding up: Since 2012, share buybacks have totaled $4.03 trillion, which is about the magnitude of Germany’s annual GDP. The chart shows share buybacks for each 12-month period through Q1:
Higher share prices in Q1 than in Q4 – less bang for the buck – and the 7.7% decline in share repurchases in Q1 from Q4 resulted in 20% fewer shares being repurchased in Q1 than in Q4. The share count dropped in aggregate by 0.94% down from a 1.18% drop in Q4.