Weeks
before the Republican-led Congress moved toward final passage of its
corporate tax cut bill, major companies had already begun a surge of
stock buybacks — confirming critics’ fears that the windfall of
lower rates will be used for self-enrichment rather than job growth.
Home
Depot led the buyback splurge, pocketing $15 billion. On an earnings
call held earlier this month, the company’s CFO Carol Tomé quietly
admitted the strategy, when asked about the impact of tax reform on
the firm:
It
really all depends on if it happens and when it happens and how we
would spend it. Cash is fungible. Right now, we’re thinking it
might not happen until 2019, so obviously we are using internally
generated cash in 2018 to invest in the business and return capital
to our shareholders. If it were to happen in 2019, we might use the
tax — cash tax savings to invest in the business and then use —
generated cash to back buy [sic] shares, it’s all fungible. The
point is, we’re going to generate a lot, we may get some from tax
reform and we will use it. We will invest back in the business, and
we will return it our shareholders.
By
“return is to our shareholders,” she is referring to a buyback,
which drives up the price of a stock and can come with dividends as
well. Typically, executives hold much of their wealth in company
stock, and their compensation is tied to the performance of the
shares.
Other
corporations are expected to use the windfall to increase mergers and
acquisitions (M&A) or invest in automation. “Industry
executives have been eagerly anticipating tax reform in earnings
calls, interviews and casual conversation all year. Multiple CEOs
have projected major M&A activity will follow if any kind of
corporate rate reduction is finalized, further accelerating the rapid
pace of consolidation in the industry,” wrote one industry
publication about how waste companies are anticipating tax reform.
But the
House Republicans who wrote and passed the tax bill on Tuesday have
ignored these warnings. In interviews with The Intercept, members
suggested that stock buybacks, as well as M&A, will either be
rare or not that harmful to the economy.
Full
report:
Comments
Post a Comment