New tax on buybacks is weeks away, but finance chiefs aren’t too worried

U.S. companies have spent hundreds of billions of dollars on these deals in recent quarters, which is a good use of capital, shows confidence in plans and helps reduce share counts, which boosts share prices. I explain that it is possible.

S&P 500 companies spent $210 billion on share buybacks in the third quarter, down about 10% from a year ago, according to preliminary data from S&P Dow Jones Indices, a division of the ratings agency.

S&P Global Ltd.

the company spent about $220 billion It was up 10.5% in the second quarter and $281 billion in the first quarter, up nearly 58% year over year.

Combined, the S&P 500 companies would pay $1.93 billion in taxes if the tax was implemented in the third quarter, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. , the operating profit would have been lost by about 0.45%.

Recently, major energy companies such as

Exxon

Mobil Corporation, Home Improvement Retailer

Lowes

Telecommunications and payment technology company

master Card Ltd.

Despite the new tax, we have expanded our programs or announced new programs to buy back our own shares.

“We don’t like taxes. Nobody likes it,” Chief Financial Officer Michael Mullican said.

Academy Sports & Outdoors Ltd,

Retailer of sporting goods and outdoor recreation. “But it’s not so important as to shake our thinking.”

Katy, Texas-based Academy Sports & Outdoors has about $400 million remaining under existing buyback approvals and has no plans to accelerate the buyback due to taxes, Mullican said.

For Bolingbrook, Illinois

ultra beauty Ltd,

For beauty product makers, the tax impact will be minimal, said financial chief Scott Settersten. The company’s board of directors approved a new buyback program in March that would allow Ulta Beauty to buy back up to $2 billion in shares.

The company repurchased 340,000 shares in the third quarter for $137.5 million, leaving $1.4 billion in repurchase plans. “The 1% is not going to change our approach for the foreseeable future,” Settersten said. “For us, it makes no sense.”

car sales company executive

sonic car Ltd,

internet retailers

overstock.com Ltd.

and burrito chain

Chipotle Mexican Grill Ltd.

He also said he doesn’t think taxes will change his share buyback strategy.

“It won’t stop us. announced the program and will run until December 31, 2023. In case of overstock when deciding whether to buy back what remains under the program. It feels like another calculation of ‘whether it’s a good idea to buy back shares,'” he said. Exxon and Lowe’s did not immediately respond to requests for comment. Mastercard declined to comment.

The new tax, which applies to publicly traded companies, was part of a climate, health and tax law called the Inflation Reduction Act passed over the summer. At 1% of a stock’s fair market value, it is projected to generate $74 billion in federal revenue over a decade, according to projections from the Joint Taxation Commission, which provides Congress with a bipartisan analysis of tax law.If it went into effect last year, the tax would Raised approximately $8.4 billion It will be taxed on buybacks from the largest publicly traded companies in the United States. This means that the total shares repurchased minus the new shares issued during the year.

S&P’s Silverblatt said the tax will not affect some companies’ share buyback plans, while others will find reasons to accelerate their share buybacks. This could lead to more share buybacks before the tax goes into effect, he said.

bank finance Ltd.

Burr Ridge, Illinois-based bank holding company is likely to buy back its shares in the fourth quarter. “Because of the sales tax, it will be a bit expensive to buy back shares starting next year,” said the CEO.

F. Morgan Gassior in a call with analysts on Oct. 31. “So we expect a reasonable amount of activity in the fourth quarter, but maybe not as much. [to] On par with Q3, but still healthy. ”

In October, the company’s board of directors increased the number of shares authorized for repurchases by 300,000 and extended the deadline for repurchase approval by two months to late April. BankFinancial bought back more than 231,000 of his shares in the third quarter, according to regulatory filings. “Given the sales tax coming in 2023, it makes economic sense to do more in 2022,” Gassior said by phone. Neither Gasior nor his BankFinancial responded to requests for comment.

The U.S. Securities and Exchange Commission reopened the comment period on the proposed share buyback rule earlier this week, citing the introduction of taxes. The proposed rule, first introduced in December 2021, aims to improve disclosures about companies’ share buyback programs to “reduce information asymmetries” between companies and investors, it said. SEC Chairman Gary Gensler said last year.

write to jennifer williams alvarez jennifer.williams-alvarez@wsj.com