As CEOs and CFOs make their fourth-quarter 2017 earnings calls, they’re taking the opportunity to unveil what they plan to do with the money they’re getting from new tax reform.
The Tax Cuts and Jobs Act of 2017 dropped companies’ tax rates significantly, which means more money is available for profits, investment and expansion.
In his State of the Union address last night, President Trump touted ExxonMobil’s announcement that it plans to invest more than $50 billion in expanding its U.S. business. “These investments are underpinned by the unique strengths of our company and enhanced by the historic tax reform recently signed into law,” company Chairman and CEO Darren Woods wrote in a Jan. 29 blog post.
Specifically, the company plans to increase oil production in the Permian Basin in West Texas and New Mexico, which will be in addition to its existing $20 billion Growing the Gulf effort, which aims to start or increase 11 chemical, refining, lubricant and liquefied natural gas projects in Texas and Louisiana.
In the technology sector, Harris Corp. announced investment plans yesterday resulting from tax reform. Officials there plan to invest $20 million in technologies to speed innovation. Additionally, the company will contribute an additional $300 million to its employee pension fund and grant each of its 17,000 nonexecutive workers 10 shares of Harris common stock.
“We are pleased to share the benefits of our strong performance and the recent tax reform legislation with our employees,” said William Brown, chairman, president and CEO of Harris, in a press release. “This represents an investment in Harris’ greatest asset and differentiator—our talented employees. Coupled with our innovation and technology investment, we are using this opportunity to further strengthen the company and position Harris for future success.”
Talk about net income and cash flows resulting from the law kicked off Northrop Grumman’s Jan. 25 conference call, during which officials named three actions that are “well-aligned with our longstanding capital deployment strategy,” said Chairman and CEO Wes Bush.
First, the company will give employees—except senior managers—an annual additional contribution to their retirement accounts based on the company’s competitiveness and performance. For 2018, the amount can be up to $1,000. Shareholders will also benefit, Bush said, getting an off-cycle dividend increase of 10%. Lastly, the company will increase capital expenditures to about $1 billion this year, compared to $900 million last year.
“Given the benefits of tax reform on our cash flows including accelerated depreciation as well as an opportunity set that we expect will generate long-term shareholder value, we firmly believe we are making good investments for our company and our shareholders,” said Kenneth Bedingfield, corporate vice president and CFO. “We continue to expect that capital expenditures will remain elevated in 2018 and 2019 before starting to return to a new normal that reflects a larger business.”
The law puts the company in an effective tax rate of about 19.5% this year, he added.
Pharmaceutical giant Pfizer saw its effective tax rate fall to 17% from 20%, according to CNBC. The company plans to use the additional money to invest about $5 billion in capital projects in the United States, contribute $500 million to its U.S. pension plan and give nonexecutive employees one-time bonuses totaling about $100 million.
Other companies that are giving employees a cut of their windfalls include Aflac, which is increasing 401(k) matching from 50% to 100% on the first 4% of compensation plus a one-time $500 contribution to every employee’s 401(k), and Comcast, which will give $1,000 bonuses to 100,000 employees. The cable conglomerate’s chairman and CEO, Brian Roberts, also said the company would spend more than $50 billion over the next five years on infrastructure to “radically improve and extend our broadband plant and capacity, and our television, film and theme park offerings,” a press release states.