Conference Call Indicator: More Dividends, Mergers Ahead
Companies are looking for ways to spend their mountains of cash—whether in dividends or acquisitions, according to a CNBC analysis of recent conference calls following earnings results.
Corporate executives, who tend to be more candid in conference calls about their outlook as they face tough questioning by analysts, also are preoccupied with the slowdown in the global economy.
From Apple to Coca-Cola , the conference calls of the biggest companies in the world show some common themes.
“Cash” was uttered 98 times by an executive or analyst during the eleven calls monitored, followed by “dividend” and “acquisitions” mentioned nearly 50 times apiece.
The biggest worries were overwhelmingly Europe—mentioned 70 times—and China—spoken 68 times—as executives did their best to predict what will happen to their sales in those slowing regions.
“Large companies are all sitting on a huge amount of cash and they are going to use that cash for dividends and acquisitions,” said Michael Murphy of hedge fund, Rosecliff Capital. “We might be staring at a new leg up in the market based on the strength of corporate balance sheets. The recovery may surprise a lot of skeptics to the upside.”
Worries about the slowing economy both in the US and abroad have kept a lid on stock market gains since earnings seasonbegan, despite the fact that 73 percent of the companies that have reported have exceeded analysts’ estimates, according Thomson Reuters. If companies begin to deploy capital in order to enhance returns in this slowing global environment, it could change the game.
“I always go back to dividends, small bolt-on acquisitions and buybacks,” said Jeff Immelt, CEO of General Electric to analysts on April 20. “We'll pull all three levers, I think, as we have surplus cash.”
So far, investors have been focusing on momentum and risk assets this year, with the iShares Dow Jones Select Dividend ETF underperforming the overall market. That may change if more companies follow Immelt’s lead and they seem to indicate they will on these conference calls. (Note: Full company transcripts can be found on SeekingAlpha.com.)
“We have a healthy cash balance, I had mentioned a minute ago, and we still believe that it's an incredible strategic asset for us,” said Patrick Pichette, Google’s chief financial officer, during Q&A with analysts April 12. “You saw it last year when we decided to make the purchase of MMI (Motorola Mobility), and we continue to monitor this cash balance. And for the time being, we really believe that, that strategic asset has a ton of value. So we'll continue to monitor it.”
Microsoft , a Google competitor in software for tablets, announced its own device partnership deal Mondaysaying it would invest $300 million in a new partnership that will sell Barnes & Noble’s Nook e-reader/tablet.
But China and Europe still remain the biggest worries and they could derail any plans by corporate boards to deploy the cash hoards they are clinging too for safety.
“The environment is not healthy, particularly in Europe in terms of consumer sentiment, but our business is able to continue to invest and also ensure that we generate value for our customers in Europe,” said Muhtar Kent, Coca-Cola CEO, during a call with investors on April 17.
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