Year of the Buyback

Good morning and happy Monday.

President Joe Biden signed a stopgap funding bill into law on Saturday, averting a holiday shutdown. To seal the deal, Republicans ignored President-elect Donald Trump's demand that they suspend the debt ceiling for two years. 

But if he's bothered, he isn't showing it. Over the weekend, Trump trained his ire on a very longstanding fiscal peeve: the Panama Canal, which Washington has been complaining about since at least 1903. He wrote that the crucial waterway, operated by a Panamanian government-owned agency, is charging US merchant and naval vessels "exorbitant prices and rates of passage." As Teddy Roosevelt once said of the politics surrounding the controversial engineering marvel: "And while the debate goes on, the canal does also."

Two of the biggest names in retail got something worse than coal in their stockings this year.

At the end of last week, strikes were announced by unions representing both Amazon and Starbucks workers. Both companies have vehemently opposed union action in the past, and while the striking employees may be a drop in the bucket compared with the enormous workforces at each of the businesses, the work stoppages set uncomfortable precedents for management.

Santa's Elves Better Not Get Any Ideas

Amazon is not a stranger to strikes: As a huge international corporation, it's had to deal with its fair share of them around the world, especially on Black Friday, when workers threatening to take action has practically become tradition. On an international scale, Amazon's sheer size has always been a hedge against strikes and other disruptions to its operations: In 2020, all its warehouses in France were shut down for a month over worker safety concerns relating to COVID-19, but the e-commerce colossus simply shipped in parcels from neighboring countries.

From that perspective, workers at seven of its US warehouses going on strike doesn't seem like a particularly big deal. The Teamsters Union, to which the striking workers belong, said it represents 7,000 employees. Amazon has a US staff of roughly 800,000, so that doesn't make any kind of meaningful operational dent. That doesn't mean the strike isn't worrisome for Amazon top brass, however:

• The Teamsters' official involvement in Amazon worker-organizing is a relatively new phenomenon, having only started this year. Previously when it came to US union action, Amazon had only had to deal with grassroots drives.
• The Teamsters bring a lot more experience and resources to the table, and that seems to have had an effect as this is the largest-ever coordinated US strike action against the company, spanning four states and including both warehouse staff and drivers.

How to Espresso Yourself at Work: Starbucks' union drive has seen a slow but steady build-up. The first Starbucks store unionized in 2021, and the company employees' union now represents 12,000 workers across 500 US stores, according to National Labor Relations Board data. A November regulatory filing reported by Bloomberg revealed Starbucks has 201,000 café workers, so that would put the density of unionized baristas somewhere around the 6% mark. That proportion would be a weak milk-to-shot ratio in a latte, but for Starbucks management, it's a bit too strong.

Written by Isobel Asher Hamilton

Two more sleeps til Christmas: Those are words that will leave any last-minute holiday shopper sweaty at the brow.

Executives at blue chip companies, however, will be sleeping easy. Their firms already bought themselves the greatest gift of all: a piece of themselves. This month marks the end of what Goldman Sachs estimates will be a record year for stock buybacks, with a volume of roughly $930 billion representing a 13% increase over 2023.

930 Billion Steps to Achieving Self-Love

Apple, the world's largest company by market capitalization, spent $25.4 billion buying its own stock in the third quarter, up 19% year-over-year. The company's stock, up 32% on the year, is a longtime hot commodity. Nvidia, whose shares are the new hot commodity, spent $12.7 billion on buybacks in the same period. That's up 176% YoY, a gain close to its stock's 172% rise this year.

This craze is not just the province of tech giants: Bank of America spent $3.5 billion on buybacks in the third quarter, good for a 250% increase from a year ago, while rival JP Morgan spent $6.4 billion in the quarter, a 167% YoY increase.

So why buy yourself? Part of it has to do with supply and demand: When the number of outstanding shares falls, there's often a perception that what's left is worth more. Another part is confidence: Buybacks signal companies are confident they can keep generating strong cash flow and believe they're worth their increasingly lofty valuations. Generally, that's good news for shareholders:

• In this climate, with the market up, shareholders that are selling — buybacks have to come from somewhere, after all — get an immediate payout and a return on their investment.
• Those hanging on are also earning record dividends: Third-quarter dividends from S&P 500 companies rose 2.4% over the previous quarter to a record $157 billion, and gained 9% YoY.

"Q4 2024 buybacks appear to have increased so far, even as stock prices have moved up, as companies' stock up on issues needed for employee options," Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, said in a buyback report.

The Odd Man Out: Would you bet against Warren Buffett? Well, right now, he's not even betting on himself. With $325 billion in cash reserves at his Berkshire Hathaway, last month's third-quarter results revealed he opted not to buy back shares for the first time in six years. It's a sign that Buffett, who prefers to buy at "bargain" prices, thinks his company might be overvalued. The Oracle of Omaha's instincts aside, Goldman thinks other firms will remain hot on themselves: The bank is forecasting that next year's buybacks will top $1 trillion.

Written by Sean Craig

The nameplates on CEO offices are changing at what appears to be an historic pace. 

In the first 11 months of the year, 1,991 CEOs have announced their departures, according to a report from outplacement firm Challenger, Gray & Christmas. That's up 16% compared with the same timeframe last year and the highest tally on record since the firm began tracking CEO changes in 2002.

Hit the Bricks

This year's high-profile breakups included Nike and John Donahoe, Intel and Pat Gelsinger, and Boeing and Dave Calhoun. With the economy going strong, the stock market on a two-year bull run, and consumer spending trending upward, corporate boards are demanding more from their CEOs and — in some cases — ditching them faster than ever. "The spotlight has been on, and boards of directors moved faster than they might have moved five or seven years ago," Clarke Murphy, of Russell Reynolds Associates, told CNBC.

However, not every departure was the result of boards and investors at their wits' end:

• Retirement, the third most common reason for CEO departures, accounts for 445 exits, according to the firm. Leaving for new opportunities accounted for 148 CEO departures.
• Companies in the government/non-profit sector led in CEO transitions with 438 exits, while retail was at the lower end of the spectrum with just 37 CEO exits.

Temporary Solution: The strategy of appointing an interim CEO has become a little more popular in 2024. This year, 13% of all replacements were named on an interim basis, compared with 7% of all incoming CEOs in 2023, the study found.

"It's much less disruptive to replace an interim head if things do not appear to be working out, not only to the company and its employees, but also to analysts and shareholders," said Andrew Challenger, Senior Vice President for Challenger, Gray & Christmas.

Written by Griffin Kelly

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