Since the credit crisis, U.S. companies have collected about $940 billion in cash. Per-share profit surged 36% in 2010, the biggest jump since 1988, and companies cut capital expenditures 26% in 2009 to compensate for the ailing economy.
Some of the biggest cash hoarders as of the end of 2010 include Cisco Systems Inc. (Nasdaq: CSCO) with $40.2 billion cash, Microsoft Corp. (Nasdaq: MSFT) with nearly $40 billion and Google Inc. (Nasdaq: GOOG) with nearly $35 billion.
"Machines have the upper hand," Neil Dutta, the economist who wrote the report, told Bloomberg News. "You see this huge pickup in capital spending, but there isn't a meaningful increase in employment; it's being grudgingly pulled along. The consumer is not going to perform the way people expect."
The report states inventory rebuilding, low borrowing costs and tax breaks for equipment buying are encouraging companies to spend, not hire. The lack of hiring will keep consumer spending low, dulling a U.S. economic recovery.
Cummins Inc. (NYSE: CMI) plans to increase capital spending by 79% this year, up to $650 million, but will only increase its U.S. workforce by 15%. Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) also plans to up spending by 79% this year to restock after years of cutbacks, but will only increase U.S. hiring by 12%.
"In terms of priority, it's capex, capex, capex, capex," said Freeport Chief Executive Officer Richard Adkerson.
Many companies also are turning more to temporary staffing for flexibility in employment. And an uncertain outlook for healthcare benefit requirements has led some companies to avoid large staff increases.
Investors Benefit from Company Cash PilesRather than expanding their operations through hiring many companies are instead looking for a more investor-friendly way to dispel their capital.
"Shareholders have raised the bar," Alan Gayle, senior investment strategist at RidgeWorth Capital Management, told Bloomberg. "Companies are going to have to find ways to generate more return. The idea of sitting on idle cash in a zero interest rate environment is increasingly viewed as a nonviable option."
Many executives are using companies' record savings for takeovers, stock buybacks and dividend increases.
Takeovers reached more than $257 billion in 2011's first quarter. Global merger and acquisition activity in 2011 is expected to total more than $3 trillion, compared to $2.8 trillion in 2010.
AT&T Inc. (NYSE: T) announced last week a $39 billion offer for Deutsche Telekom AG's (PINK ADR: DTEGY) T-Mobile, and eBay Inc. (NYSE: EBAY) said yesterday (Monday) it would buy Internet marketing services company GSI Commerce for $2.4 billion.
U.S. companies also are putting the cash back into investors' hands, approving $149.8 billion in share repurchases so far this year. Companies on the Standard & Poor's 500 Index conducted 38% more stock buybacks in 2011's first quarter than the first quarter of 2010. And dividends could hit as high as $31.07 a share in 2013, according to data compiled by Birinyi Associates Inc. and Bloomberg.
"Having this much cash on the balance sheet earning essentially nothing is hurting companies' numbers, it's hurting their return on equity, it's hurting their ability to provide income in the long run for investors," said David Kelley from JPMorgan Chase & Co. (NYSE: JPM). "If they can't find something better to do with it than leave it as cash, the best thing is to return it to shareholders."
Companies that have cut their outstanding shares are performing better than the market. The PowerShare BuyBack Achievers Fund (NYSE: PKW), tracking U.S. companies that have repurchased at least 5% of their stock in the past year, is up 6.3% this year compared to the S&P 500's 4.5% gain.
Cisco Systems announced it would pay a dividend for the first time. ConocoPhillips (NYSE: COP) boosted its dividend in February and added $10 billion to its stock buyback plan. The company plans to increase its dividend by 10% each year.
Investors can expect more profit opportunities as U.S. companies continue their spending sprees through 2011.
"The capital-spending boom will continue this year and into next year," said Robert Baur, chief global economist at Principal Global Investors. "Companies underinvested to such an extent and for so long that there's a great deal of catch-up to be done."
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