Nike splashes its cash on more buybacks
NEW YORK (MarketWatch) --
The Beaverton, Ore.-based company (NKE) said in a statement that the program is a "prudent use of our cash" and noted that it has bought back $10 billion of stock in the past decade.
Following the announcement, Nike's share price was moving fractionally either side of $97.50, valuing the company at just over $44 billion.
The new buyback will start once Nike completes a $5 billion repurchase plan at the end of its fiscal second quarter 2013. The company's quarterly dividend payout has been 36 cents a share since it raised the amount by 16% in November, its 10th straight year of a dividend increase.
"This new share repurchase program demonstrates our continued confidence in Nike's strategy to generate long-term profitable growth and strong cash flow, and reflects our commitment to delivering value to our shareholders," Mike Parker, Nike's president and chief executive, said in a statement.
A Nike spokesperson said the company had no comment beyond its statement.
The move comes after Nike said in late June that its fiscal fourth-quarter profit fell 7.6% to $1.17 a share, and the stock is down from its early-May record high of $114.81 a share.
In late May, Nike said it plans to sell its Cole Haan and Umbro brands to focus on driving growth on the remaining brands such as Nike and Converse.
Nike's buyback program reflects how the biggest companies are operating in today's uncertain market, with cash holdings near all-time highs and buybacks at near record levels. And with earnings growth estimates vastly outstripping revenue estimates, buybacks are one way for companies to try to grow profits in a low-sales environment.
In the second quarter, the latest for which figures are available, companies on the S&P 500 Index (SPX) spent almost $112 billion on buybacks, up 2.3% from the year-ago period and close to the record seen in 2011's third quarter, according to S&P Capital IQ.
Consumer discretionary firms including Nike were the third-largest sector involved in buybacks, making up 15.5% of all repurchases during the quarter. The number of shares outstanding in the sector fell 2.3% year-on-year, a sign that the recent buybacks have teeth, said Alec Young, global equity strategist at S&P Capital IQ.
In a sluggish economy, with sales growth in the single-digits at best, buybacks are one way to boost profit per share because there are fewer share, noted Young. Analysts estimate 11% earnings growth for the S&P 500 next year, but revenue growth in the mid-single digits, he said.
"As the topline weakens, buybacks become critical in keeping up the bottom line," said Young.
And while not commenting directly on Nike, Young said that S&P 500 balance sheets also suggest there's much more room for buybacks.
In the second quarter, S&P 500 companies -- excluding financials, utilities and transport -- held $985 billion in cash, said Young. That's only slightly lower than the record $1.027 trillion seen last year and is about 9% of the index's total value.
Once the regulatory and tax picture clarifies, said Young, companies should be willing to put that money to use in the markets, either through more buybacks, higher dividends or M&A deals.
"I think 2013 to 2014 could see some of the most exciting cash disbursement growth we've ever seen on the S&P 500," he said.