Top US CompaniesÂ’ Spend on Capital Formation Remains Intact

Top US companiesÂ’ Spend on Capital Formation Remains Intact ....though shareholders get more of the cash.

It is reassuring to know that despite the S&P 100 companies burning substantial cash to reward shareholders (through dividend payouts and share buybacks), a majority of them continued to sustain or increase their capital expenditure through 2015.

An IRIS analysis of the 10 K filings of these companies found that there were 53 companies whose capital expenditure or Capex (which is funds used to acquire or upgrade assets such as property, industrial buildings or equipment) showed an increasing trend in FY 15 compared to 63 companies in FY 14 and 50 companies in FY 13. Out of these, 25 companies showed an increase of more than 20% in FY 15 compared to 18 companies in FY 14 and in FY 13 while 6 companies recorded no capital expenditure outlay. On the other hand, 41 companies in FY 15, 31 companies in FY 14 and 44 companies in FY 13 showed a decreasing trend in their capex outlay.

Sector-wise snapshot of capital expenditure for S&P 100

The chart below shows the Capex outlay for various sectors in the FY 12 - FY 15 period

From the chart, it is evident that the capex outlay has mostly remained stable or risen in this period. However, during FY 15, the Energy and the Capital Goods sectors have seen a sharp decline in their Capex.

Click here for a detailed report

The Energy sector contributes nearly 30% of the total Capex of the S&P 100 companies. However, in FY 15, their share in the overall Capex dropped to 23%. In FY 15, Public UtilitiesÂ’ share in overall Capex rose to 17%, while the Finance sector saw its share of overall Capex rise to 8%.  The top 5 sectors contribute nearly 80% to the total Capex of all S&P 100 companies.

We then drilled down a little further into the sub-sectors to get a better view of things.

Energy Sector: All the integrated oil companies have shown a sharp reduction in Capex outlay in FY 15. However, ExxonÂ’s Capex  has been declining from FY 2013 itself. Occidental PetroleumÂ’s Capex  too has been in a declining trend for the last 3 years.

Public Utilities Sector: - This sector has seen a steady rising trend in Capex outlay over the 4 year period. Sub sectors such as Natural Gas Distribution had a sharp rise FY 13 whereas Electric Utilities and Power Generation sub sectors saw a sharp rise in FY 14 and FY 15.

Technology Sector: In line with the overall rise in Capex in the Technology sector, subsectors Computer Hardware and Computer Software have both seen a significant rise over the 4 year period. Semiconductors, however, has seen reduced capex outlay in the same period thus bucking the overall sectoral trend.

Consumer Services sector: The Consumer Services sector has seen a nominal rise in Capex outlay in the last 4 years. However, the Department/Specialty Retail Stores sub sector has seen a steady decline in its Capex outlay and this has been neutralized by the steady rise in Capex outlay in the Television Services sub sector.

Capital Goods Sector: The Capital Goods Sector has seen a substantial decline in its Capex outlay in the 4 year period due to the steep fall in Capex outlay in the Industrial Machinery/Components sub sector.

A quick look at other sub sectors throws up the following insights as well:

  •    Berkshire Hathaway, the sole company under the Specialty Insurers subsector has seen its Capex outlay climb substantially in the 4 year period thanks to its diversified     investments across various sectors.
  •    Major Pharma companies have not increased their Capex outlay in the last 4 years.
  •    Medical/Nursing Services, Biological Products and Medical Specialties, all from the Healthcare Sector, have seen their Capex outlay go up substantially in the 4 year           period.
  •    Smaller sub sectors such as Consumer Services and Shoe Manufacturing too have seen a significant rise in their Capex outlay over the 4 year period. 


To summarise, in FY 15, the S&P 100 companies have used up nearly a trillion dollars for equity buyback, dividend payment and capital expenditure. Majority of the companies in the S&P 100 have increased their capex expenditure in FY 2015, although it barely touches half of what was used for share buyback and dividend payments. Only the Energy and Public Utilities sectors have their Capex amounts being greater than their outflow towards dividend and equity buyback. On the other hand, the Healthcare and Consumer Non-Durable sectors have large outflows towards equity buyback and dividend payouts, which has dwarfed their Capex amounts.
Details are shown in the table below.

Author: Vaishali Dedhia
Date: May 5, 2016