Cash Rich Companies Choosing Stock Repurchases Rather Than Dividend Hikes - Part XXI

Includes: INFA, PMC
by: The Value Investor

This week, I will run you through the most important buyback announcements for the week of July 2nd till July 6th of 2012, which turned out to be a very quiet week in terms of buyback activity.

While consumers and governments across the world are strapped for cash, corporations have plenty. Rather than signal long-term trust and pay more generous long-term oriented dividends, many of them have adopted share repurchases to buy back their own stock. Investors welcome these announcements, as they boost earnings per share and provide a lot of support for the share price during the repurchase periods.

Informatica (NASDAQ:INFA) the provider of enterprise data integration and quality software systems, announced a $100 million increase of its current stock repurchase program. In total, the company has about $147 million authorized for stock repurchases, sufficient to repurchase approximately 4.3% of its shares outstanding. Yet the announcement of the program does little to soften the pain for shareholders. Shares in Informatica fell 27.6% on Friday after the company warned that weak demand in Europe has caused an unexpected drop in quarterly sales and profits. The company admitted that it did not adapt as rapidly as it should have to a downturn in demand, especially in Europe. The company announced quarterly sales between $188 million and $190 million, far below analysts estimates of $217 million. Shares ended Friday around $31 per share, marking year to date losses of 15% after peaking around $54 per share in the beginning of April.

PharMerica Corporation (NYSE:PMC) the provider of institutional pharmacies services and hospital pharmacy management announced a $25 million increase of its share repurchase program. The extension of the current program will be sufficient to retire about 7.6% of its current shares outstanding. "We remain confident in PharMerica's long term growth prospects", according to CEO Weishar. He also states that after the termination of the tender offer for PharMerica's shares, management sees the stock as being undervalued. According to Weishar, the buyback represents "a unique opportunity to drive shareholder value".

Shares which will be repurchased will not be immediately cancelled, yet they will be held as treasury shares allowing the company to re-sell them at any time. Shares of PharMerica ended the week 2.7% higher after having lost 27% year to date. Shares were hit hard after the company issued a disappointing outlook for the full year 2012 prospects as early as February this year.

During the last holiday week, repurchase activity dropped to very low levels, as many corporations did not schedule any announcements for the week. Total announced deal size came in just at $125 million, making it a rather inactive week in terms of buyback activity.

Cash-rich companies still refuse to significantly raise long-term dividends. Rather, they use one-time repurchase agreements with far less signaling power as a dispersion tool of excess cash to their shareholders

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.