IBM to Spend $5 Billion More on Stock Buyback

By Dena Cassella October 27, 2009

IBM Corp. has boosted its stock buyback program by $5 billion, a sign of the company’s ability to spit out cash despite the fact the recession has choked off revenue growth.

The announcement Tuesday brings IBM’s pot for stock repurchases to $9.2 billion, and the company, based in Armonk, N.Y., plans to ask for more at a board meeting in April 2010. IBM said it has spent $73 billion on dividends and buybacks since 2003.

Buybacks are one lever companies pull to meet earnings targets, since they increase earnings per share by reducing the number of shares outstanding. IBM has set aggressive earnings targets, and twice this year raised its profit forecast for 2009, surprising investors since revenue has fallen since last year. IBM has said it sees corporate spending on technology “stabilizing.” One way IBM wrings more profit despite lower sales is by using software to automate certain tasks done by humans and focusing on projects like the “smart” power grid that can carry higher profit margins than other services work.

IBM’s current forecasts call for earnings per share of at least $9.85 this year, and the company has maintained that it is “well ahead” of its pace for 2010 earnings of $10 to $11 per share.

IBM ended the third quarter with $11.5 billion in cash. Free cash flow, a sign of a company’s ability to generate more cash, was $3.4 billion, up $1.3 billion from a year ago. Revenue in the past nine months is down nearly 11 percent from a year ago.

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