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Does Earnings and Sales Growth Lead to More Share Repurchasing?

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Is there a link?

In this part of our series, we’ll look at our selected technology companies in terms of growth in earnings and sales. Then we’ll try to determine if there’s any correlation between these metrics and the growth of buyback programs.

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Apple

Apple’s (AAPL) net sales increased from $170.9 billion in 2013 to $182.79 billion in 2014, an increase of 6.95% on a YoY (year-over year) basis. AAPL EPS (earnings per share) increased by 13.55%, from $5.68 per diluted share in 2013 to $6.45 per diluted share in 2014.

In 2013, AAPL bought back shares worth $26.82 billion. In 2014, that increased to $56.96 billion, up 112% YoY.

IBM

IBM’s net sales decreased from $98.37 billion in 2013 to $92.79 billion in 2014, a YoY loss of 5.6%. The company’s EPS fell by 0.66%, from $16.64 per diluted share in 2013 to $16.53 per diluted share in 2014.

IBM (IBM) bought back shares worth $13.99 billion in 2013. In 2014, that figure fell to $13.39 billion, a YoY decrease of 4.28%.

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Oracle

Oracle’s (ORCL) net sales grew from $34.73 billion in 2013 to $37.41 billion in 2014, a YoY increase of 7.71%. As well, ORCL EPS increased by 26.43%, from $127.77 per diluted share in 2013 to $161.55 per diluted share in 2014.

ORCL repurchased shares worth $10.74 billion in 2013. In 2014, that figure shrank to $8.09 billion, a YoY decrease of 24.67%.

Intel

Intel’s (INTC) net sales grew from $52.73 billion in 2013 to $55.9 billion in 2014, a YoY increase of 6%. The company’s EPS also increased by 22.22%, up from $1.89 per diluted share in 2013 to $2.31 per diluted share 2014.

INTC bought back shares worth $1.852 billion in 2013. In striking contrast, it repurchased $11 billion in 2014.

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Microsoft

Microsoft’s (MSFT) net sales increased from $77.84 billion in 2013 to $86.83 billion in 2014. That’s an increase of 11.54% on a YoY basis. The company’s EPS increased by 1.93%, up from $2.58 per diluted share in 2013 to $2.63 per diluted share in 2014.

MSFT repurchased shares worth $5.682 billion in 2013. In 2014, it bought back $6.9 billion worth of its own shares, an increase of 21.43% on a YoY basis.

Yahoo!

Yahoo! (YHOO) saw net sales decrease 6.02% YoY, from $4.98 billion in 2013 to $4.681 billion in 2014. Meanwhile, the company’s EPS increased by 131.25%, up from $3.280 per diluted share in 2013 to $7.45 per diluted share 2014.

YHOO bought back shares worth $3.71 billion in 2013. In 2014, it increased that figure by 6.19% YoY to $3.94 billion.

Based on the chart above, you’ll note that Apple was the only firm to increase its share repurchasing activity when both revenues and EPS were on the rise. In contrast, ORCL, INTL, and MSFT didn’t buy back more shares based on increased revenues and earnings.

IBM has in fact been decreasing the degree of its share repurchasing activity since 2014, as the number of shares outstanding is now below $1 billion.

Taken as a whole, all of these firms make up ~38% of the Technology Select Sector SPDR Fund (XLK).

The final article in this series compares the shareholder benefits of organic growth with the benefits of share buyback programs.

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