Posted by: Howard Silverblatt on April 27, 2010
Global Sales - Initial numbers show foreign sales are running 46.97% of full sales, slightly down from the 47.94% of 2008. Foreign income taxes paid are again ahead of U.S. Federal income taxes but at a lower rate: Foreign is 52.4%, down from 55.8% in 2008. Preliminary stats sometime in May, with the full report in June/July.
Buybacks – Expect buyback base (covering employee options) to be tied to market, with 2010 buybacks topping cash dividends. Share count reduction is bold, either issues will need to be true believers (XOM is the poster child – 38 consecutive quarters of share count reduction) or in a ‘situation’ in which they wish to support their stock. So far few SCR issues. Initial numbers in May, final, with release in June.
Cash – Q4,’09 set another new record, but still expect companies to start spending more on M&A, CapX, even a little more on dividends - buybacks are a wait and see (more announcements, but waiting for the trades). Initial cash values coming in lower than record setting Q4,’09. Regardless, current levels are near 10% of market value, and represent 74 weeks of estimated 2010 operating income.
CapEx - All signs point to an improvement, after a 2009 preliminary 22% decline, but no stats to report as of yet. An accelerated depreciation schedule would help, but only if it had much higher limits. Stimulus funds have expiration dates, so use it or loose it may push some spending.
Dividends – Great start, with IBM increasing 18% today, as it became the third major issue of the four I was watching to increase this month (JNJ * PG increased earlier this month, and XOM is still open). MTD there has been 18 increases and no decreases; YTD it is 96 increases with just 2 decreases, vs. 70 increases and 59 decreases for the four months ending April 2009. Even more dramatic is the dollar change -> $7.6 billion has been added to dividend investors pocket YTD, compared to $40 billion that was removed last year. Expect full year to show a 5.6% increase, BUT if strong increases continue, the estimate will go up. Also, left unchanged by Congress, qualified dividends will be taxed at 38.5% starting in 2011, compared to the current 15% rate. If past tax changes are any indications, companies could change their Q4 payments to qualify for the lower rate - it’s not what you make, but what you keep. The 5 quarters of 2010 vs. the 3 of 2011 would also set-up for some difficult screens.
Pensions & OPEB - Another year older, another 2 years further away from retirement. Initial reports show S&P 500 assets are up 15%, but obligations are up 10%, partially due to lower discount rates. Last year’s $308 billion record shortfall is now coming in at $256 billion. Recognition of past losses limits paper gains. Companies again have to add additional cash to pensions (as they lobby Washington for a postponement); infusions appear to be due more to ERISA than GAAP. OPEB slight improvement, but remains massively underfunded. Improvement may be due to fewer covered workers and continued conversion to Part D. Telecom the most underfunded (T, VZ), as well companies with represented workers (GE, BA,…). So far JPM is the only issue to be over funded in both pensions & OPEB. Plan full report in June. The Q1 tax accounting charge reversal under the Health Care bill for T, BA, CAT, DE, MMM,…appears to me to be fair -> prior treatment was double-dipping (max $4,750 @ 28% = $1,330 tax free subsidy, but full $4,750 deductable; $1330 remains tax free under the bill). If the government (companies, labor -> OPEB is not as popular outside of represented workers) wants to give higher subsides then they could change the limits. Note the charge is to the posted value of future benefits (non-cash), which reverses the prior impact of incorporating the benefit.