According to a new report from FactSet Insight, cash and short-term investments in S&P 500 (INDEXSP:.INX) firms increased by 6.6% year-over-year and had accumulated a total of $1.34 trillion as of the end of the first quarter. That said, the net cash position for the quarter declined sequentially (-4.7%) for the first time since the second quarter of 2012. FactSet notes, however, that the decline for the quarter was largely due to Verizon Communications Inc. (NYSE:VZ) closing its buyout of Verizon Wireless.
The Verizon Communications Inc. (NYSE:VZ) situation resulted in decrease of more than $50 billion in the overall S&P 500 (INDEXSP:.INX) cash balance quarter-over-quarter. Not counting the Verizon close out, S&P cash balances only dropped by 1.1% sequentially.
S&P 500 cash often down seasonally in first quarter
The FactSet report also pointed out that cash is much more likely to fall sequentially in the first quarter. There are several reasons for this, but the main factor is that operating cash flows in Q1 are consistently below levels throughout the rest of the the year, particularly the holiday fourth quarter. S&P 500 firm operating cash flows in the first quarter were more than 26% than lower than the fourth quarter. It is of interest to note that cash has sequentially declined only 10 times out of the the past forty quarters, but six of those declines did occur in the first quarter.
Breakdown of first quarter numbers
S&P 500 (INDEXSP:.INX) firms produced over $282 billion in operating cash flow in the first threemomths of the year, tallying up to a year-over-year growth rate of 7.4%. Nine of ten sectors had an increased OCF in the first quarter, with the Consumer Staples sector the only decliner (largely because of due to Safeway’s sale of Canada Safeway).
The Health Care sector led the way with a robust +28.7% OCF increase, and alsi demonstrated strong free cash flow growth of +31.6% relating to strong inflows from Johnson & Johnson (NYSE:JNJ), CIGNA Corporation (NYSE:CI), and Bristol-Myers Squibb Co (NYSE:BMY). Even after subtracting fixed capital expenditures, aggregate free cash flow increased more rapidly than OCF (+8.7%) in the first quarter. A low baseline in free cash flow from the Energy and Materials sectors led to a very strong year-over-year growth rate (31.7% and 34.5%).
Just two of nine sectors grew cash by at least double-digit rates year-over-year, as compared to six that managed to do so in the fourth quarter of 2013. Overall cash growth was also supported by the Energy sector, which increased cash by 2.9%, the first increase in two years. Not surprisingly, the fastest growing sectors—Health Care and Information Technology—also enjoyed the largest cash balances. The Health Care sector represents 16% of aggregate cash in the ex-financials S&P 500 (INDEXSP:.INX), increased their cash position by 15.0%, and the IT sector, which comprises the lion’s share 37% of the total cash, grew their cash balance by a solid 10.8%.
