buyback

Case Study In summer 2006, Exxon Mobil Corporation reported quarterly net income of $10.36 billion, a 36% increase from the previous year's same quarter. On a per-share basis, a measure of more interest to the firm's shareholders, earnings increased from $1.20 to $1.72, or 43%. The larger increase in per-share earnings compared to overall earnings was primarily due to the decline in outstanding shares resulting from the company's continuing program of share buybacks. At the time of the earnings announcement, Exxon Mobil said it would spend $7 billion on additional share buybacks in the coming quarter, an increase from the $6 billion in share buybacks during the quarter of the earnings announcement. At a market price of about $70 per share, the $7 billion buyback would result in an additional reduction of 100 million shares outstanding. Buybacks benefit per-share earnings by spreading net income over fewer shares. In the case of Exxon Mobil, the firm had accumulated a stockpile of nearly $40 billion in cash, so expending funds to repurchase its own shares was not a problem.