Crunching Amgen's numbers
There's a long-running argument about whether companies are better off spending their money on R&D or repurchasing their shares in the open market. Whatever the answer, share repurchases enabled Amgen (AMGN) to meet its first quarter consensus EPS numbers.
Investors didn't seem to notice, as the stock added $2 to $56 on the week. Most of AMGN's move came several hours after the earnings release when a federal judge granted one of AMGN's motions for summary judgement in its EPO patent suit against Transkaryotic (TKTX) and partner Aventis over their GA-EPO erythropoietin product. AMGN gained $2.938 to $57.25 on Wednesday, while TKTX fell $3.938 (12 percent) to $28.188 on 485,900 shares, and rebounded slightly to close Friday at $29.938 (see Noteworthy, A8).
The stock repurchasing proved crucial in the numerical rounding. The diluted EPS on the earning statement read $0.25, but doing the math provides an actual number of $0.245. The company would have had to round the number down to $0.24 if it hadn't repurchased 3.5 million shares (0.3 percent of shares outstanding) during the quarter - the additional shares outstanding would have resulted in diluted EPS of $0.244.