VOL. 7 | NO. 23 | Saturday, May 31, 2014
EMPHASIS Public Companies
FedEx, International Paper Join Buyback Trend
By Bill Dries
Recent stock repurchases by major U.S. corporations since the recession are a financial fact of life and the city’s best known publicly-held companies are no exception to the practice that can have multiple motives as well as multiple effects.
Companies could repurchase outstanding shares to reduce the number on the market. It also can be done to use the rise in stock prices from the repurchase to meet capital needs or reward shareholders with increased dividends, especially if the company’s outlook suggests slow to no economic growth.
In 2013, the companies and corporations on Standard & Poor’s 500-stock index spent a total of $477 billion buying back their own shares. It is a 29 percent increase from 2012 and the highest dollar amount since a peak in 2002.
Memphis-based International Paper announced in September a share repurchase program with a goal of buying up to $1.5 billion of the company’s common stock.
The repurchase program will be open market repurchases, the most common method of buybacks, through 2015.
The announcement started IP’s first stock buyback since the recession, which has been a busy period of reorganization and reconfiguration for the global company that came right behind International Paper’s acquisition of Austin, Texas-based Temple-Inland.
In January, FedEx Corp. sold $2 billion in bonds for its stock buybacks, which were announced in 2013.
FedEx expected to complete the buybacks by the end of May as it completed the end of its fiscal year.
For FedEx, the buyback of 32 million shares starting with the authorization in October is the biggest in the company’s history. It is the equivalent of 10 percent of the outstanding FedEx shares.
The announcement surprised some analysts who saw it as a sign of confidence by the company that it would meet terms of its $1.7 billion restructuring first announced in June 2012 with details coming that October.
Others focused on the dividends the FedEx board has announced for its shareholders after several quarters of CEO and founder Fred Smith consistently talking about slow growth internationally, especially in China and Europe, where he had previously been more optimistic.
“So as long as we can see that modernizing the fleet and Ground growth continue to improve our returns we are going to keep investing in them, FedEx Chief Financial Officer Alan Graf said in a December earnings call, referring to Ground growth of three to four hubs over the next couple of years and the switch of 777 aircraft to the FedEx international network with MD11s being used in the U.S. air network.
In March, Graf told analysts that as of Feb. 28, FedEx has 15.2 million shares remaining under its current authorization and would make more purchases, but had “no specific timeframe for completion.”