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Oracle bought a profit blow with share buybacks



Oracle Corp. Wall Street surprised on Monday with strong returns, but only with the help of strong share buybacks.

The Oracle

ORCL, -1.87%

Adjusted fiscal earnings of 80 cents per share in the second quarter were at the upper end of its forecast and slightly higher than Wall Street's consensus estimate of 78 cents per share. according to FactSet. Its shares rebounded in the after-market business, up 5%, although the cloud services business, which is now reported along with license support, only met expectations.

This figure per share must be reduced with approximately $ 1

0 billion of salt grains. Oracle admitted, however, that these shares were repurchased in the quarter with 203 million shares. It is the second consecutive quarter in which Oracle has repurchased more than $ 10 billion, more than double the software maker's record of quarterly repurchases that occur this fiscal year. Oracle is only halfway through the fiscal year and has so far repurchased more than $ 20 billion in shares. This is a massive leap from its total spending of $ 11.5 billion in fiscal year 2018, a record for Oracle.

Opinion: Misguided Share Repurchases Cause Company's Culling

Two analysts estimated Oracle's share buybacks to have risen from 3 cents to 4 cents during the quarter. and that only looks back three months. Over the past 12 months, Oracle has repurchased 602 million shares, or about 12% of its total outstanding shares, said Oracle co-chief executive officer Safra Catz.

"Given the way that repurchases reduce the number of equities from quarter to quarter, EPS benefited $ 0.09 in the second quarter compared to Oracle's share repurchases in the last 12 months," said Steve Koenig, an analyst with Wedbush Securities, in an email. "Net income increased 2% year-over-year, but EPS increased 14% as a result of share buybacks. In other words, earnings per share would have been $ 0.71 higher than in the same quarter last year, excluding the last 12 months when shares were bought back.

The use of share buybacks to increase corporate profits has been a popular tactic for many companies, who use it when revenue and earnings growth slows. A 2016 Journal of Financial Economics study suggested that "managers are prepared to balance investments and jobs with stock repurchases to meet analysts' EPS forecasts."

Do not miss: stock buyback Overdrive as CEOs Enjoy Tax Savings

Some investors lost confidence in Oracle over the past year as the vaunted cloud business began to ease. At the beginning of this year, the software giant did not break the separate revenue for its cloud business on its own. In September, the company's leading cloud manager, Thomas Kurian, took a long time off, and two weeks later, Oracle said he would leave. In mid-November, Kurian appeared as head of Google

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cloud business.

Senior Oracle chief executive Larry Ellison tried to crack down on pessimism on Monday, predicting that the company would witness a rapid migration of Oracle's local database business to the Oracle cloud, but analysts apparently did not believe it. John DiFucci, an analyst at Jefferies & Co, noted that it will take some time for Oracle customers to get there, while Ellison replied that the migration can be done very quickly.

Rather than honestly addressing the areas where Oracle is underperforming, Oracle appears to be reacting to financial harassment and its typical bombast. Oracle is unlikely to be alone in bolstering its declining equities and slowly growing returns through share buybacks, but investors need to restrain from these moves and make the numbers seem more rosy than they actually are.

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