Saturday, August 11, 2007

Proof Buybacks Impact Earnings Per Share

Following is a review of a portion of the most recent quarterly financial results for 3M (MMM), Anheuser-Busch (BUD) and Automatic Data Processing (ADP).

As noted in the table, Anheuser-Busch reported a 2.3% increase in 2nd quarter operating earnings versus the same period a year earlier. Earnings per share growth increased 7.32%. A portion of this increase was the result of a 1.53% decline in the number of fully diluted shares outstanding at the end of June.

(click on table for larger image)

EPS versus operatin earnings

3M and Automatic Data Processing also saw declines in share count. This share count reduction also enhanced Earnings Per Share for the quarter.

Looking at the absolute dollar figures is only one aspect of the evaluation of a stock. The reported financial results simply report the operating results achieved in the past. One criteria that impacts the future performance of a company's stock is how well the company operates relative to expectations. A good business isn't necessarily a good investment.

In the case of Anheuser-Busch, in the 2nd quarter 10-Q, the company indicated:
...all of the company's business segments reported improved earnings in the second quarter and Anheuser-Busch is on track to deliver accelerating earnings growth in the second half of the year.
An investor could be rewarded if they can place a dollar figure on BUD's improving performance as noted above.

The article, Earnings Drive Businesses, But Expectations Drive Stock Prices, by Brian Luster and Steven Abernathy, provides insight into the application and evaluation of a company's future expectations.


1 comment:

Dividend Tree said...

David: On this subject, I referenced and linked your article in my post at Dividend Tree. I hope it is OK with you.

Best Regards,
DT