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online.wsj.com
HEARD ON THE STREET
Capital-Spending Plays
May Finally Pay Off
By GREGORY ZUCKERMAN
Staff Reporter of THE WALL STREET JOURNAL
January 4, 2006
After a long lull, there are signs that companies are set to boost spending faster this year. The change could benefit many corporations, including Oracle Corp., Halliburton Co., Schlumberger Ltd. and Washington Group International Inc.
Capital expenditures, which include all kinds of spending that enhance a business's long-term prospects, such as buying or upgrading buildings or equipment, have been growing at a rate of about 11% in the U.S. for more than a year, though that has been edging up a bit lately.
But there are some signs that the spending is starting to rise faster, at least among larger, public companies. Companies in the Standard & Poor's 500-stock index increased their spending on capital expenditures during the third quarter of 2005 by 24%, compared with the same period in 2004, according to Thomson Financial, which tracks these figures. That is quite a change. After a surge in the late-1990s, capital expenditures for these larger companies declined on a year-over-year basis between the third quarter of 2001 and the fourth quarter of 2003, and have averaged about a 9% increase each quarter subsequently, according to Thomson.
A number of analysts expect a jump in this kind of spending in the next year. That is in part because U.S. companies are sitting on a record pile of cash, and many have pared their debt, giving them ample funds to boost spending. While many have used that largess to increase share buybacks, dividends and acquisitions, a jump in capital expenditures could be in store for 2006, some say, as the recovery grows long in the tooth and companies deal with capacity strains in their businesses.
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