Friday, December 08, 2006

National Semi Strange Dividend

National Semi (NYSE:NSM) announced financial results worse than some expected. At the same time they announce an increase in the dividend from $0.03 per share to $0.04 per share. The dividend yield was miniscule before and continues to be miniscule registering at significantly less than 0.75%. Dividend oriented investors have and will continue to give this one a pass.

So why announce a 33% dividend increase. I reckon that the increase will cost the company approximately $14 million in cash over the next year. Cash position has dropped, cash flow is off dramatically, margins are being squeezed there are real problems here. The dividend increase is somewhat delusional.

Reading the conference call transcript on Seeking Alpha management did not discuss the dividend. The analysts did not raise it. Discussion around any cash or similar fundamentals was incredibly superficial.

So this flavour of cool-aid has an unidentified taste. Clearly the board declared it after management must have recommended it. The dividend increase has no clear useful value as any critical evaluation of this company will identify problems and deteriorating cash positions.

Boards and management that do bizarre things eventually burn themselves and shareholders. Management should speak to the dividend and identify the rationale.

Thursday, December 07, 2006

Hershey Continues to Melt

Hershey (NYSE:HSY) reduced 2006 guidance citing problems with a Canadian recall as well as disappointing marketing results in the US domestic market. The two year stock chart shows a pronounced drift downwards which means the market has not been impressed with anything.

The Canadian recall while not a joyous event should be considered as a onetime problem that will eventually be fixed. The recall is being used as an excuse to bleed out the fundamental problem which is people are not buying enough Hershey products.

"We haven't executed the types of competitively advantaged consumer and customer programs that are required to deliver superior sales and marketplace performance," in 2006, Chief Executive Richard Lenny said in a statement. "This must and will change for 2007."

Hershey has overly focused on low margin line extensions usually symptomatic of being stuck in the muck thinking. Management does admit that “attempted shifts to sustainable value added platforms has taken longer than anticipated.” It seems that the jargon challenged business plan is experiencing execution problems.

Watch carefully as year-end and quarter bonuses and compensation are awarded. This company has been slowly slipping away and is now at a crisis point. If it takes so long to launch new products it means that management does not have a viable view of the marketplace. This is a time when the Board of Directors needs to exert authority and shake up the team on the field.

Wednesday, December 06, 2006

Yahoo Groove Shopping

Yahoo (Nasdaq:YHOO) finally announced what many have long suspected, a corporate reorganization. The CFO Ms Decker acquires more responsibilities and seems to be within reach of the CEO's office. Several very senior officers have pulled the rip cords on their golden parachutes and will be leaving within the next few months. They certainly will not be making major decisions in the interim. Not a good thing as momentum approaches stone cold.

Consider this analogy to the old automotive industry when they were the leaders, movers and shakers in our economy. When a car guy was in charge usually the company rocked and had excellent sales. When the numbers guy was in charge the sizzle was not the same. The numbers guy was there to fix until the car guy got his groove back. What the auto companies did have was large teams of car guy's, numbers guy's and other guy's. Usually referred to as management depth.

Yahoo has had to reach outside for key talent. Yes, I know the company is rather young but they have been around for over a decade with approximately 10,000 employees. They are supposed to be the internet revolutionary with the killer vision. If every top key position keeps going to outside white knights who interview well, the troops will get the career message. Investors will also get the message that there is no new vision but Yahoo is shopping extensively for it.

Shopping you say. If Yahoo cannot make it they will have to buy it. Make it momentum seems to have stalled. Watch for acquisitions paid for in stock. Yahoo's stock is at the lower end of its two year trading range. If you believe in turnarounds smaller companies will want to vend themselves into Yahoo and ride the stock up. So will the new guy's be good at operating in their fields or will they be well connected in their fields and good at doing deals? What kind of groove will be hired? In any event their stock options should be priced attractively.

Hopefully Yahoo will not become just another conglomerate with problematic valuation and ambiguous potential begging to be unlocked somehow someway?

Tuesday, December 05, 2006

LSI Logic Flawed On Agere

LSI Logic (NYSE:LSI) is acquiring Agere Systems (NYSE:AGR). LSI feels the need to bulk up in the mobile devices market. LSI’s press release talks about cell phones, MP3 players and other portable devices, as the place to be. Agere’s financials seem to be improving so perhaps now is a good time to get into the game.

If LSI is to properly leverage the acquisition they must harness market drivers. Yes portable devices have experienced impressive growth rates. But Agere’s revenues over the past several years have not. Agere needs to have something very special in the lab to reverse that problem. The stock has moved sideways for the past two years. So if something special is in the lab the market has not sniffed it out.

The deal also needs the market for portable devices to continue booming. How large is the remaining untapped market? How large is the upgrade got to have the new gadget market? Prices and margins decline rapidly in hyper-competitive markets. How fat will/can the margins be?

Not a straightforward as it first seems.

Monday, December 04, 2006

CapitalSource Buys. But What Are the Returns?

CapitalSource Inc. (NYSE: CSE), announced that it has completed the purchase of 77 long-term care facilities for approximately $462 million. The dollar amount approaches 50% of the equity yet no additional information regarding how the transaction was financed and at what spreads was provided.

If it was big enough to announce than it is big enough to provide some substantive commentary on all the ramifications.

Me thinks the company may be acquisition hungry with too much of a gun slinger close the deal mentality. Management needs to talk to the market more extensively.