The Association for Financial Professionals says U.S. corporations are ready to use their cash reserves in the first quarter of 2019 to pay debt and initiate share buybacks.
The AFP's latest Corporate Cash Indicators report, published Monday (Jan. 28), said corporate treasurers and finance executives are planning to deploy cash “in the form of capital expenditure, share buybacks, dividends and debt payments,” a trend in line with historical data. According to the AFP, corporates have expressed their plans to deploy cash every January in the seven years since the AFP began its Corporate Cash Indicators report, except for one.
Yet historical data from the AFP also reveals that companies tend to do the opposite in subsequent quarters, holding on to cash reserves and short-term holdings rather than deploying it. Businesses built up their cash reserves throughout 2018, researchers found, and did so at a faster pace in Q4 2018 than they had done in the previous quarter.
Still, the AFP said the findings signal optimism despite unfavorable market conditions stemming from the government shutdown, trade disputes and a slowing global economy.
“Despite a Federal Government shutdown and a turbulent stock market, there is some willingness to loosen purse strings,” said AFP president and CEO Jim Kaitz in a statement. “Strong employment numbers and the effects of the Tax Cuts and Jobs Act are the likely forces behind this outlook. While it is encouraging that senior practitioners are looking to mobilize their cash, past CCIs indicate that they may not do so.”
The AFP's announcement pointed to additional findings from the report, including more than one-quarter of companies predicting they will actually grow their cash and short-term investment balances in the coming quarter, compared to 31 percent that plan to reduce those balances.
Data compiled by Reuters earlier this month noted corporations are dampening their outlook and struggling with share declines as earnings reports fail to meet analyst expectations.