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Research Announcement:

Moody's - Shareholder returns looming larger over tax overhaul benefits for US companies

01 May 2019


New York, May 01, 2019 --Shareholder returns took center stage again as US companies' focus on debt reduction post-tax overhaul lost steam in the second half of 2018, Moody's Investors Service says in a new report.

While the 2017 Tax Cut and Jobs Act (TCJA) is largely credit positive for the 100 US non-financial companies with large cash holdings that make up Moody's sample, aggressive shareholder returns have diminished the upside.

Incremental spending by companies in Moody's sample, among share repurchases, capital expenditures/R&D and debt payments, increased by a combined $190 billion in H2 2018, continuing the post-tax overhaul trend. However, after prioritizing debt reduction in H1 2018, a credit positive activity, the sample companies returned $114 billion of that total to shareholders via share buybacks in H2, compared to $71 billion in H1. Meanwhile, incremental debt payments dropped from $72 billion in H1 to $28 billion in H2.

"If incremental spending for 2019 on share repurchases and beyond approaches even a fraction of 2018, this would neutralize any cash flow benefits that companies received from the tax rate drop and other credit positive aspects of the tax overhaul," says David Gonzales, Moody's VP-Senior Accounting Analyst.

Moody's report analyzes financial statement data for those 100 US corporates to understand how they have been spending incremental cash since the TCJA was implemented in December 2017. It follows Moody's November 2018 report reviewing the first six months following the tax overhaul.

"In the first half of 2018 there was a notable focus on reducing debt, as companies responded to the US tax overhaul," notes Gonzales. "However, companies in our sample reverted to being net borrowers in the second half of the year, while also showing a slight reduction in incremental investment in capital expenditures and R&D. The return to borrowing reduced the total amount of debt paid off during the course of 2018 by the 100 companies to about $27 billion, from roughly $64 billion in the first half of the year."

The publication is the eighth in Moody's "Debt and Taxes" series of commentaries discussing the credit implications of the changes in the US corporate tax policy on US non-financial issuers, excluding utilities.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Glenn B. Eckert, CFA
Associate Managing Director
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

David Gonzales
VP-Sr Accounting Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
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JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

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