ADVERTISEMENT

Canceled Stock Buybacks Mount, and They May Not Return for Years

Canceled Stock Buybacks Mount, and They May Not Return for Years

(Bloomberg) -- However the coronavirus ends up playing out in markets and the economy, the rejection of stock buybacks is beginning to seem like a consequence that will outlive the immediate crisis.

Companies repurchasing their shares served as a reliable prop under the stock market every time there was a dip during the 11-year bull run that just ended. Now the likes of Royal Dutch Shell Plc, Coca-Cola European Partners Plc and retailer Best Buy Co. have joined the list of those halting share buybacks as stockpiling cash becomes the priority.

“Will they ever come back to previous levels?” Emmanuel Cau, a London-based strategist at Barclays Plc, said Monday in a phone interview. “Never say never, but buyback volumes already started to move lower last year as earnings rolled over, so caution is likely to prevail for now.” Cutting repurchases removes another key support to equities, he said.

Defenders of buybacks absorbed something of a body blow last week when U.S. President Donald Trump said he was unhappy with companies that used money saved from his 2017 tax cut to repurchase shares rather than build domestic factories. The comment suggested his distaste for the practice predates the coronavirus outbreak and echoed criticism from Democratic presidential candidates who have long viewed buybacks as a waste and social ill.

“When we did a big tax cut and when they took the money and did buybacks, that’s not building a hangar, that’s not buying aircraft, that’s not doing the kind of things that I want them to do,” Trump said on Friday. “We didn’t think we would have had to restrict it because we thought they would have known better. But they didn’t know better, in some cases.”

Trump said he would support a prohibition on buybacks for companies that receive government aid. The five biggest U.S. airlines -- prime targets for bailout funds -- spent 96% of their free cash flow on repurchases over the last decade, money that could have been used to build rainy-day funds. Overall buybacks started to slow in the first couple of months of the year in the U.S., when they were $122 billion in January and February, down 46% from a year earlier in the slowest start to the year since 2009.

While some viewed share repurchases as one of the driving forces behind the bull market, the practice was constantly criticized, particularly in populist circles. Companies were simply inflating their stock prices inorganically, using cheap money in the process, so the argument went, exacerbating wealth inequality as the ultra-rich cashed out.

Of course, for every trend there are exceptions: Softbank Group Corp. pledged Monday to use $18 billion of a planned $41 billion in asset sales intended to shore up the company’s market value. Turkish Airlines will forge ahead with a buyback after gaining shareholder approval and Russia’s biggest oil producer Rosneft PJSC said the crude price slump makes the practice attractive.

Here’s a look by industry at some of the biggest companies that announced they’re suspending share buybacks or dividends, another way they’re looking to preserve cash in the midst of the unknown:


Oil & Gas

While the coronavirus is striking all sectors, oil companies are also dealing with the Saudi-Russia price war that has driven crude prices to the lowest levels in almost two decades. Royal Dutch Shell Plc on Monday canceled the next tranche of its buyback. Among Europe’s most prolific buyers of its own shares, Shell said completion of its repurchasing program is dependent on the market and not likely to be feasible before the end of the year. Others include France’s Total SA, Norway’s Equinor ASA and Italy’s Eni SpA, as well as ConocoPhillips. Occidental Petroleum Corp. cut its dividend for the first time in 30 years.

Banks

Eight giant U.S. banks including JPMorgan Chase & Co. and Bank of America Corp. this month agreed to stop buying back their own shares through the second quarter. They had planned a combined $119 billion in buybacks for the four quarters after the Federal Reserve’s stress tests last June. The move is meant to preserve capital to support lending -- and perhaps to avoid criticism similar to the 2008 financial crisis, when banks were slower to suspend dividends and buybacks, leading to government bailouts as the housing meltdown piled up. Elsewhere, HSBC Holdings Plc suspended share buybacks for 2020 and 2021 as a part of its grand overhaul announced last month.

Airlines

With aircraft grounded across the world and leisure travel practically frozen, most airlines are focused on survival. Hours after Trump said he wants a ban on share repurchases for companies receiving federal aid, Delta Air Lines Inc. suspended its dividend and share repurchase program. In Europe, Ryanair Holdings Plc said last week it will defer all share buybacks and freeze recruitment, also grounding the majority of its fleet. Deutsche Lufthansa AG also suspended its dividend, while Finland’s Finnair Oyj withdrew an earlier dividend proposal.

Relatedly, airplane maker Boeing Co. suspended its dividend and share repurchases, with Chief Executive Officer Dave Calhoun and Chairman Larry Kellner also forgoing all pay until the end of the year. The firm is seeking a lifeline from the government after the pandemic exacerbated the company’s problems that were already mounting after two deadly crashes of the 737 Max jet. Rival Airbus SE, which has generally fared better, also withheld its dividend and tore up its earnings guidance on Monday.

Retailers

With the spread of the coronavirus keeping shoppers at home, retailers are closing stores at an accelerating rate. Fashion retailer Nordstrom Inc. suspended share repurchases last week and withdrew its forecast. Electronics retailer Best Buy did the same a few days later. Spain’s Industria de Diseno Textil SA, the owner of the Zara clothing chain, said it had postponed a decision on its dividend due to the impact of the coronavirus. Rival Hennes & Mauritz AB on Monday canceled its planned dividend. Kingfisher Plc, which is keeping its home-improvement stores in the U.K. open, also scrapped its final dividend for the year.

McDonald’s Corp. stopped share repurchases several weeks ago to maintain maximum financial flexibility, yet has said it has no plans to change its dividend payout.

Tech

While some technology companies -- such as videoconferencing maker Zoom Video Communications Inc., which has more than doubled in value this year -- are thriving amid the calamity, others have been less fortunate. For one, serving the travel industry is a bad place to be right now. Sabre Corp., which provides systems used by travel agents to book flights, hotels and car rentals, said last week it will suspend its share repurchase program and any dividend payouts occurring after the March 30 payment. U.K. accounting-software provider Sage Group Plc, whose clients are largely small and medium-sized businesses, also canceled its buyback.

Media

Pearson Plc, which provides university textbooks in print and digital form, paused its share buyback on Monday, after forecasting its earnings will be hit by test center closures. Remote learning could be an offset, though only a long shutdown would help, given educators can use email and free video-conferencing for now, according to Bloomberg Intelligence analyst John Davies. U.K. broadcaster ITV Plc canceled its 2019 dividend and abandoned its revenue outlook for 2020 after advertisers pulled out and restrictions on movement forced it to pause work on new shows.

Carmakers

Most automakers, already facing sputtering demand for cars and a big cash drain from the shift to electric vehicles, haven’t been big share repurchasers lately. But they’ve been hacking away at dividends, with Ford Motor Co. suspending its payout last week and BMW AG reducing the size of its annual distribution. French car-rental company Europcar Mobility Group on Monday cancelled the planned annual dividend payment.

Miners

While the mining sector has felt the market pain more than most as metals have slumped, many of the major firms have avoided cutting dividends or buybacks, with the exception of copper giant Freeport-McMoRan Inc. suspended its quarterly dividend Monday. Going further, analysts at Goldman Sachs said last week that the mining sector’s de-rating may provide some companies with opportunities to act counter-cyclically and carry out share buybacks or takeovers. With many of the largest miners heavily exposed to China, which is seemingly on its way to recovery, the firms may be banking on further stimulus and infrastructure projects.

Telecoms

Carriers have been relative winners in the recent sell-off, thanks to their defensive traits and surging demand for data as workers worldwide shift to living-room offices and children learn remotely. Yet the sector hasn’t been immune either. AT&T Inc. said Friday it’s canceling an accelerated plan to buy back $4 billion of shares. Meanwhile, Japan’s SoftBank Group Corp. on Monday unveiled an unprecedented $41 billion plan to sell off assets, part of which would go toward a new share buyback plan.

©2020 Bloomberg L.P.