Capital Markets

The Great Stock Buyback

Stock prices go down, stock repurchases go up.
Stephen TaubJuly 24, 2002

With share prices still plummeting—and the summer heat on—it appears corporate managers have gone fishin’.

Actually, it’s more like bargain hunting. So far this year, publicly traded companies have announced plans to buy back at least $30 billion worth of stock, according to Trim Tabs, a company that specializes in tracking and analyzing stock market liquidity.

Last week alone, 30 companies announced plans to repurchase their stock. The total bill? $18.4 billion.

As a result, planned buybacks in July are expected to come close to the record $53.6 billion set last September, when many finance chiefs and CEOs were determined to reassure investors in the wake of the 9/11 terrorist attacks.

July seems to be a popular month for repurchasing stock. Last year, a record $237.6 billion worth of buybacks were announced, up from about $222 billion the prior year.

A number of high-profile companies have announced buybacks in recent weeks, including PepsiCo, Bank One, Home Depot, Citigroup, AIG, Procter & Gamble, and Pfizer.

“This share repurchase program reflects our great confidence in PepsiCo’s ability to continue generating strong, consistent cash flow,” said Steve Reinemund, PepsiCo’s chairman of the board and chief executive officer, when he announced Pepsi’s plans to repurchase 5 million shares.

Added Reinemund: “The fundamental health and vitality of our businesses allows us to invest in growth opportunities, pay a dividend, and buy back shares, all at the same time.” The PepsiCo plan was launched last Friday.

It was a similar story at The Home Depot when that company’s management launched a buyback plan on July 15.

“We believe strongly in the fundamental strength of The Home Depot,” said Bob Nardelli, chairman and CEO, when the home-improvement retailer announced plans to repurchase its stock. “This repurchase announcement is not only a vote of confidence in our business and our associates, but for our loyal shareholders as well.” Management at Home Depot plans to buy back up to $2 billion of company stock.