International Business Machines Corp. (IBM:US) added $15 billion to its buyback plan as it reduces stock in circulation to increase earnings per share with sales continuing to decline.
The board authorized the funding today along with its quarterly dividend, according to a statement from the world’s largest computer-services provider. With the addition, the company now has $20.6 billion in its repurchase program, and it will request more next October, it said. IBM’s market value is about $199 billion.
Chief Executive Officer Ginni Rometty is rewarding shareholders who held on as the stock fell 7.4 percent this year through yesterday, compared with the 24 percent gain in the Standard & Poor’s 500 Index. With sales dropping, the company is counting on the buyback to help reach its goal of $20 in adjusted earnings a share by 2015, up from $15.25 last year.
“This is one of the biggest tools they have to increase earnings per share if their growth rate is flat,” said Ivan Feinseth, chief investment officer at Tigress Financial Partners, who doesn’t own IBM shares. “If they’re not growing, they can reduce their share count.”
Sales have fallen for six straight quarters, and IBM’s hardware unit reported a loss for the three months that ended in September. At the same time, earnings have continued to climb. In addition to buying back shares, IBM has sold less-profitable businesses, acquired more lucrative software companies and lowered its tax rate.
IBM, based in Armonk, New York, jumped 2.7 percent to $182.12, the biggest gain since Jan. 23.
The funding addition is the biggest IBM has authorized in five years, in proportion to its year-end market value, according to data compiled by Bloomberg. At almost 8 percent of its market value, it’s the second-highest percentage since at least 1995.
The new funding puts IBM on pace to surpass a pledge by Sam Palmisano, Rometty’s predecessor, to spend $50 billion on buybacks from 2011 to 2015. IBM has acquired almost $35 billion worth of shares since the end of 2010, according to data compiled by Bloomberg.
IBM is the worst-performing of billionaire Warren Buffett’s top investments at Berkshire Hathaway Inc. (A:US) Buffett wrote last year in a letter to shareholders that long-term investors like Omaha, Nebraska-based Berkshire should cheer for IBM shares to languish in the short term. A lower price means IBM can repurchase more of its stock, increasing Berkshire’s ownership stake in the company.
Buffett didn’t respond to a request for comment sent to an assistant today. In an interview last week on the “Charlie Rose” show, Buffett said he’s confident in IBM’s prospects.
“They will have record per-share earnings this year,” he said. “That can be disappointing if you expected more. But it is not a bad record, believe me.”
To contact the reporter on this story: Sarah Frier in New York at email@example.com
To contact the editor responsible for this story: Nick Turner at firstname.lastname@example.org