Friday, July 31, 2015

Buybacks Exposed: Bottom Line Revenues

Wall Street CEOs use a lot of tricks to keep their stock price high. They do this for many reasons and most of them are not good for shareholders. In this follow the leader game, buybacks hold center court. When companies buyback their shares, they are implying that the value is too low or in the near-term future, they expect something good like a new gismo, a big sale or maybe even a merger. However, in the recent trend by CEOs, it is to cover shortfalls in bottom line revenues with declining sales. You see, dear reader, if there are less shares available, the division of earnings looks better. The quarterly earnings number can always be manipulated by changing a date of receivables to include it in the recent quarter if needed, however there is no way to hide declining sales and revenues even though many COOs have used many tricks like Pro Format accounting schemes.
the darling of Wall St. and investors has used buybacks to make their stock appear better. They have brought back 10% of their shares and still, the total bottom line is shrinking.
Many others are following their lead. Bed, Bath and Beyond could argue for the poster-child photo. Somehow, they have fooled the public, but a closer look shows that the bottom line revenues have declined quartet-after-quarter. They are not alone. Big Blue has fallen six quarters in a row as well as Proctor and Gamble, DuPont and many more.
Caterpillar in its conference call, tries to imply that things will pick up and this is only temporary, but iron ore, gold and mining in general, speak a different language. Starbucks is the latest to play this game. I guess people are tired of $3.00 per cup of coffee with no refills.
The banking industry wrote the playbook in this category. They have a major influence in the media and among analysts. They use this and other techniques to keep their share price high like putting the spin on stress tests. They pass and they claim greater capitalization, however they know that their exposure to the derivative market could collapse the global market and bankrupt their company. They smile like all is well as they buyback their shares. The CEOs can't wait to use their warrants to become not only a millionaire, but a billionaire.
Old Technique
was cost cutting which generally meant, jobs. Qualcomm is old school in this game. Recently, they announced a 15% layoff in employment. Think about that? If your business is growing, do you layoff people? This is never a good sign and it points to the saturation in cell phone market.
DuPont uses both buybacks and job cuts to perform magic for their shareholders with a dividend mention for icing on the cake. Keep in mind, dear readers that dividends are usually last to go, but they signal the crash is happening and the boat is taking in water. Not good.
Bottom Line:
Then, when you add up all the signs and the bottom line is falling, this message means that you are trapped under water and at the mercy of the market. In addition, other factors to get your share price back to neutral. This present declining stock market is reflecting the future outlook and it isn't pretty. If you recall my 2015 forecast, I predicted this scenario at the end of the first quarter. I was a little early, which is better than late.