Friday, November 10, 2006

Bausch & Lomb Blind Dividend

Bausch & Lomb (NYSE:BOL) on Tuesday Nov 7, 2006 declared a regular quarterly dividend of $0.13 per share on the Common stock of the Company. Payable Tuesday, January 2, 2007, to shareholders of record at the close of the business day on Friday, December 1, 2006, the shareholder will be able to collect a dividend, record it for 2007 income and maybe still do any tax loss selling in Dec. All pretty nifty if you ask me.

Bausch and Lomb also released preliminary numbers on Thursday Nov 9, 2006. They were very careful to call them metrics, which is not a legally defined term within the context of securities law. They are not able to properly file a 10Q and provided all manner of caveats as to why investors should not rely on the metrics, preliminary results or whatever that was that the company threw out to the marketplace.

When the board declares a dividend what do they rely on? If the financials are in such disarray that investors cannot rely on them how does the board come to the decision that a dividend may be paid? In this case the dividend was unchanged from the last declaration. That usually means something.

Leadership is ambiguous to non-existent. Management has a mess and is looking for exculpatory cover as they try to dig their way out of the problem. The Board is whistling through the graveyard issuing financial signals, by way of dividend declarations, indicating that they think the situation is OK.

The dividend declaration came out on Tuesday Nov 7, two full business (open for trading) days before the financial metrics were issued. A large trading spike occurred late on Tuesday. The stock has dropped approximately 6% in the past week.

Dividend declarations and financial results reporting should be integrated. Management comments and actions by the board should be congruent when reporting on the financial condition of the company. Please see my previous blog comments about Moody’s (NYSE:MCO) on Wednesday Oct 25 and an open letter to the SEC posted on Monday Oct 30.

Thursday, November 09, 2006

Maple Leaf Foods Tardy Recall

Maple Leaf (Toronto:MFI) continues to experience controversy. In a corporate press release the company indicates they found syringe casings on Oct 24, Nov 2 and Nov 3. “None of the products involved and produced on November 2nd and November 3rd ever left the Company's possession.” The company now also claims that the product recall is complete and the product is no longer on retail shelves. The company had a critical investor conference call on Oct 26. The governance question becomes who knew what and when? If there have been credible reports for two weeks why was there not a recall instituted sooner.

While much is up in the air it may be that Maple Leaf did not move appropriately to deal with this issue. Two weeks is a very long time. Yes no one has reported any ill effects this time. What changes will be instituted to avoid this problem? Why does Maple Leaf need a catastrophe to initiate changes? My sense of the matter is that you recall whenever there is a problem. But management needs to be aware of problems and not in a bubble preparing for investor conference calls.

Lenovo Marketing Problems

Lenovo (ADR’s trade as reported disappointing results despite a huge market share in China. The shares have climbed 19% from July to Sep. The results are worse than expected and share prices have been retreated. The corporate press release focused almost exclusively on cost cutting and optimizing distribution. No mention was made of any R&D or innovations that an end user might appreciate.

Lenovo acquired IBM’s computer business and became the world’s third ranked PC maker. Management has become much too focused on the factory and close to home markets. Marketing and brand development efforts are anemic. North American shipments dropped by 9%. Asian sales (excluding China) were flat.

Lenovo needs to develop an effective outside of China marketing strategy. This raises an interesting question. While Chinese production is cheap due to low wage rates, is Lenovo truly sufficiently global to solve this business problem. If not than Dell (Dell) and Hewlett Packard (HPQ) may pick up some additional market share with the windfall volume efficiencies. Currently the smart bet would be against Lenovo.

Wednesday, November 08, 2006

Diebold Voting Machines

Diebold DBD filed a 10-Q on Nov 6. While the company started making safe’s over 150 years ago and now has a pretty good business making ATM’s for banks, it has become very identified (almost overly) with Voting Machines. Diebold the only publicly traded company that has significant exposure in voting machines said this in their recent filing

The election systems business continues to be a challenge for the company. A number of individuals and groups have raised concerns about the reliability and security of the company's election systems products and services. The individuals and groups making these challenges oppose the use of technology in the electoral process generally and, specifically, have filed lawsuits and taken other actions to publicize what they view as flaws in the company's election management software and firmware. These efforts have adversely affected some of the company's customer relations with its election systems customers.”

Controversy abounds around voting machines. Diebold’s case is further complicated by very overt Republican Partisan support by certain senior Diebold Officers. Why would a Democrat buy Diebold? Isn’t that enough to trigger class action securities lawsuits from aggrieved investors who are shut out of key markets.

The stock is trading near its 52 week high, having a good run up since the summer. Some investors may be tempted to take some profits. Consider this: Why not sell the voting machine business to private equity. The valuation would be tricky. The electoral process clearly needs a voting machine solution, which is very big money. While Diebold has serious PR problems are they stepping away from a lucrative long-term market. If America is prepared to send young men and women to die for democracy, America should invest in adequate solutions to count votes when democracy is exercised.

Looking at it from the other way with your stock at a 52 week high and corporate liquidity is more than OK why not buy out a competitor or two. Perhaps acquire some technology that’s politically attractive to both major parties and then make some money.

Whichever way Diebold has to bust a move.

Tuesday, November 07, 2006

Maple Leaf Foods Encounters Problems

Maple Leaf Foods (Toronto: MFI) has found syringes within their food supply. Suspicion has fallen on their Kitchener Plant. Government Inspectors are investigating. Local police are unaware of the incident at the time of writing. No syringes have been found at the retail level. No information has been provided about the threat levels or if there have been any blackmail attempts. There will almost certainly be a product recall with the usual negative damage to an otherwise OK brand.

The incident raises suspicions about the security of the food supply at Maple Leaf Foods as well as other food processors. It was only just a few weeks ago that various products containing carrot juice were pulled when they were found to be causing botulism. Investors in food companies are understandable nervous.

The stock has been trading at the bottom of its 52 week range

Open Text Abandons R&D

Open Text (OTEX) reported what some people will call slightly better results and made much of its continuing integration of Hummingbird. Management claims to be happy. So why no comment from management about its absolute and relative drop in R&D spending? From $15.7 million Q1 05 year down to $14.2 million Q3 06. From 17% of revenues last year to 14% this quarter.

In the latest conference call management and big shot sell side analysts spent all their time talking about the integration. The Hummingbird acquisition is expected to be accretive in 2008, not earlier. Some analysts came close to talking about market share growth and what will it take to grow faster than the market. R&D was not covered.

Open Text is now the largest independent ECM vendor and is positioning itself as the Switzerland of that world. They appear to be bulking up with market share to make themselves look acquisition attractive leaving the costly innovation to whoever will be buying them. The stock is trading near its 52 week high but was down in after hours trading following the conference call. If the take over does not come soon enough they will have a successful integration with obsolete products.

Monday, November 06, 2006

Aeroplan Stabs Itself

Aeroplan (TSX aer.un) has created some enormous controversy. They have arbitrarily changed numerous rules forcing customers to redeem their points sooner or face forfeiture. Management claims this is designed to cull out financially inefficient clients. Marketing experts claim substantial damage to the brand has occurred. Almost everyone is tremendously suspicious over what is now a PR fiasco. You could almost hear the lawyers dictating legal documents as they prepare lawsuits.

Management must have expected a huge windfall. It probably looked great on the spread sheets. (It always does) The dilemna becomes this: If there were so many problems were past corporate valuations reasonable accurate. Were management comments truthful and reliable. If management retreats either as a PR move or in the face of legal action can they pretend that everything is OK with the shareholder valuation. Expect executive casualties and external litigation. Aeroplan has also partnered with many other enterprises. Expect turbulence in those relationships.

ACE Aviation (TSX: ACE.A) and Air Canada spun this entity off in June 2005 may be wondering if there will be any negative impact on their proposed IPO.

Arcelor European Flat Carbon Problems

Arcelor (ARLOF) billing itself as the world’s largest and most global steel company reported Q3 earnings. Their claim is that guidance will be maintained and everything is on track. As they are the world’s largest they should become a good proxy for the steel market.

Despite all the positive spin one comment was disconcerting. “On October 31, 2006, the Company announced that it plans to temporarily reduce output from its European Flat Carbon Steel mills in response to short term developments in the steel market.”

European Flat Carbon is too large a market to let this one hide in the tall grass of verbiage. If guidance is re-affirmed they should indicate the guidance takes into account the supposed short-term developments.

Steel is a major industrial commodity. What is the nature of short term? Steel generally is a component in long-term capital projects and is not subject to fickle consumer whims.

This consolidation is very large and very bold. Integration will be a major concern for quite some time. Market wobbles will only accentuate nervousness.