Q3 Balance Sheets Show Healthy Issues

Posted by: Howard Silverblatt on November 26, 2010

I have completed a preliminary Q3 2010 review based on the current S.E.C. filings (finals in mid-December) and the statistics that have emerged are ones of healthier balance sheets with continued cost controls and limited expansion. Third quarter buybacks are running 6.4% ahead of second quarter buybacks, and 129% above the depressed Q3 2009 period. Companies continued to match buybacks with employee share options to limit any earnings dilution due to share count increase. Overall, I found share counts slightly declined, at less than half a percent, which represents normal corporate actions, and not an active attempt at share count reduction (which increases earnings per share). I did note an increase from the second quarter in the number of companies that reduced their shares count by at least 2% during the quarter; however, given the expectation of higher year-end options being exercised, I am withholding interpreting the escalation as a longer-term aggressive move at share count reduction. Capital expenditures appeared to grow at an encouraging 14% rate. However, I still am not seeing an expansion, which leads me to continue my prior belief that the increase is due to required maintenance, which has been building up over the past year-and-half (note this still in review, labor intensive); detailed data typically is given in the annuals, which won’t be filed (in bulk) until late January 2011. Cash has grown significantly (there were some extra cash items, such as sales), easily setting its eighth consecutive quarter of record cash holdings. The level was attainable thanks to another quarter of strong earnings and cash flow, along with the corresponding cost controls that have become the normal standard practice. Cash levels currently represent 10.6% of market value, with Information Technology having more than 16% of their market value in cash. These continued high levels represent a war chest for companies to use for mergers and acquisitions, which I believe will continue to increase in the public sector. Dividends increases continue, with few reductions. I expect the pattern to continue into December, slow down during the first few weeks of 2011, and then, increase again. If congress maintains or only slightly increases the 15% qualified tax rate, we would expect the increases to substantially increase over late January and February.

For December I am planning a buyback press release and dividend report (Out Of The Pit That Covered Me). E-mailed notes will include more specific Q3 stats (and files), a pension update, as well as the normal year-end summaries, charts and tables.

Reader Comments

Ocean Paradise

December 3, 2010 7:28 AM

Hello, Thanks for the information. Rightly stated that balance sheet depicts clear matters. It also helps to know the standings of our earnings and cash flow.

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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