Today's Wall Street Journal has a front page article about the record amounts of share repurchases and how they are upwardly biasing reported earnings per share. By reducing the share count some companies are making the growth in earnings per share look real good despite much more meager growth in absolute earnings. The WSJ references a study by Standard & Poor's Howard Silverblatt. Of course, Howard already discussed all this two weeks ago on MoneyMasters. I suggest taking a look if you haven't yet seen the video.
Furthermore, Howard and I also pointed out that an increasing proportion of net income is being generated from interest rather than operations. While it's nice to get a boost from interest income, investors should worry when industrial companies aren't producing more from operations. After all, these are not investment companies. If you like interest income, it's much cheaper and more efficient for you to generate it yourself by purchasing CDs and the like than to have a corporation do it for you.
The WSJ also pointed out that despite all these buybacks, some companies aren't even reducing their share count. This is because their executives are exercising stock options, which results in more shares outstanding.
This may be yet another factor contributing to recent market weakness. After all, it's not just the quantity of earnings that count. Quality matters, too.
By the way, I mentioned in the last issue of the Forbes Growth Investor that I expected to post a MoneyMasters interview with Harvey Pitt on June 15. This has been postponed to June 29. Mr. Pitt traveled all the way to New York from Washington last week to film our segment. Unfortunately, his plane was extremely delayed due to bad weather. He has graciously agreed to make another trip. Let's hope we get better weather this time.