Capital Markets

Buybacks Surged in the Second Quarter

Continued the torrid pace from the first three months of the year.
Stephen TaubSeptember 19, 2005

In the second quarter, companies in the Standard & Poor’s 500 repurchased $81 billion of their stock, up 92 percent from the second quarter of 2004. That continues the torrid pace of the first quarter, when buybacks climbed 91 percent compared with the prior-year period.

“S&P 500 companies are finally starting to spend a significant portion of their record levels of cash,” said the firm’s equity market analyst Howard Silverblatt, in a press release.

Standard & Poor’s attributed the increase in buybacks, in part, to companies looking to reduce share count after employees exercise stock options. Many companies, S&P also observed use stock for mergers and acquisitions, which have been picking up of late.

Companies also buy back their shares to reduce the total share count. Generally, wrote Silverblatt, this has the effect of “directly enhancing shareholder equity and increasing their earnings per share value.” (A new report from McKinsey, we noted in the CFO Blog, maintains that although a repurchase reduces the number of outstanding shares and increases EPS, it doesn’t necessarily raise the share price.)

According to Standard & Poor’s, the second quarter saw a 33 percent increase in the number of S&P 500 companies that significantly reduced their share count; 36 percent fewer companies significantly increased their share count.