March 16, 2020 / 6:34 PM / 12 days ago

Corporate cash cows boost share buy-backs even as most retrench

NEW YORK, March 16 (Reuters) - A few of corporate America’s top cash generators are ramping up share buy-backs, even as most companies have suspended them or are winding them down as they brace for an economic downturn driven by the global coronavirus outbreak.

Business software giant Oracle Corp, energy drinks maker Monster Beverage Corp, private equity firm Apollo Global Management Inc, frozen foods company Nomad Foods Ltd and real estate investment trust Prologis Inc are among the companies that said in recent days they were initiating or boosting share repurchase programs.

Some of them cited the market rout fueled by the coronavirus healthcare crisis as grounds for doing so. The S&P 500 Index has lost more than a quarter of its value in the last four weeks, as investors fret about the economic impact of the pandemic.

“We think it’s an incredible deal. (Our stock) has basically gone on clearance sale in the past few days,” Oracle Chief Executive Safra Catz said in an earnings call last week after announcing $15 billion in share buy-backs.

Such a move can support a company’s stock in a wider market sell-off. Oracle, Monster, Nomad and Prologis have outperformed the benchmark S&P 500 Index so far in 2020.

Share buy-backs, however, also deplete cash that could see companies through should their business suffer substantially in the turmoil. Even when the solvency of these companies is not at risk, the buy-backs can limit their ability to mitigate the impact of the downturn on their employees and businesses in some cases, analysts said.

“Companies like Apollo which are flush with cash can afford buy-backs right now. But, overall, companies need to be careful. We are in a period where cash is king and companies need to position themselves for an indefinite period of uncertainty,” said Patrick Healey, founder and president of financial advisory firm Caliber Financial Partners.

Some companies went the opposite direction last week, cutting down on or suspending share buy-backs. A financial services industry group said on Sunday that the biggest U.S. banks would stop buying back their own shares, and will instead use that capital to lend to individuals and businesses affected by the coronavirus.

Share buy-backs had been prevalent in the banking sector, with more than 20 banks announcing buy-back plans since late February, more than twice the number of announcements in the prior-year period, according to S&P Global Market Intelligence.

Booking website operator Expedia Group Inc, which has suffered as travelers stay at home to protect themselves from the spread of the coronavirus, said last week it would suspend share repurchases as it tried to save $300 million to$500 million in costs by the end of the year.

Companies in the S&P 500 Index spent roughly a combined $1.5 trillion to buy back their own stock in 2018 and 2019 and still have cash in the bank for more, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, who tracks U.S. share buybacks.

“I do think companies see this as a good time to buy shares. It’s just a question of whether or not they can do it,” Silverblatt said.

He noted that companies that had expressed a willingness to exercise stock options in the early days of the market sell-off in order to fulfill existing share repurchase programs have shown greater restraint in recent days. (Reporting by Joshua Franklin in New York; Eidting by Greg Roumeliotis and Dan Grebler)

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