Trader Talk

Apple has been a buyback monster

David Gray | Reuters

My colleague Juan Aruego, who has been tracking earnings at CNBC for many years, this morning called my attention to a little-noticed item on earnings call: the company's share count fell 66.3 million shares during the quarter. At Tuesday's closing price, Juan told me, that is a $9.8 billion drop in market cap.

It's a very important point. Apple is part of an elite group I call "buyback monsters," companies that have been aggressively buying back stock for years. Apple's shares outstanding topped out in 2013 at roughly 6.6 billion shares. Since then it has been down every year and now stands at 5.2 billion.

That is a reduction of 21 percent in shares outstanding since 2013. What's that mean? It means all other things being equal, the company's earnings per share are 21 percent higher than they would have been had it not done the buybacks.

But that's only since 2013 ... there are companies that have been doing this much longer. IBM's shares outstanding topped out at 2.3 billion way back in 1995, it's been going down almost every year since then, and now stands at 939 million shares.

Think about that. That's a 60 percent reduction in shares outstanding in a little more than 20 years.

Same with Exxon Mobil. After the Mobil acquisition in 1999, shares outstanding topped out at just shy of 7 billion in 2000 and have been going almost steadily downhill since. There's now 4.2 billion shares outstanding, a reduction of 40 percent since 2000.

Other big names have gotten more aggressive only recently. , for example, dramatically cut its shares outstanding from 10.0 billion shares to 8.7 billion in 2016, a 13 percent reduction.

has reduced its share count by 39 percent since 2000. has lowered its share count by 25 percent since 2010.

I could go on, but you get the point.

Is there anything wrong with this? No, but it does lead to charges that companies are spending more money on "financial engineering" than on capital spending. It certainly does indicate that companies are at a loss on how to improve their top line, which is what will ultimately improve the bottom line. It leads to frequent complaints by analysts about the "quality" of earnings.

One final point: while all this "financial engineering" helps boost earnings and stock prices, it also serves to reduce the weight in the various indexes, particularly the . In an era where indexing rules, it means Exxon Mobil and IBM are not nearly as influential as they used to be.