Friday, January 05, 2007

Motorola Conundrum Bad May Be Good (Corrected)

Motorola Inc (NYSE:MOT) issues a very late Thursday press release (approximately 2000 ET) that they have missed their guidance. They also indicate that they will be issuing more complete information at 0630 Friday Jan 19 followed by a conference call one hour later. (A full two weeks later) They missed the guidance because of unfavorable product mix. This is a code word meaning the high margin stuff is not as popular as the spreadsheets need it to be. The stock roared up from approximately $19 in early July to $26 in early Oct before falling to a close of $20.55 on Thursday. Pre-market trading on Friday is down.

Motorola indicated “Quarterly mobile devices unit sales were about 66 million units, up 23 percent from the third quarter and 48 percent from the fourth quarter of 2005.” Most marketing departments would be delirious with huge volume results of this nature. Given Nokia’s strength any major improvement from Motorola should be welcome.

The marketing achievement turned guidance failure clearly indicates Motorola still does not have it figured out. Unfavorable geographic sales mix probably means currency exchange fluctuations. Global companies such as Motorola should be experienced in managing a specific risk of that nature. Product tier mix probably refers to more lower margin products being sold than forecast. Either the financial forecast was overly optimistic and or the production costs for the lower end are still not sufficiently competitive.

Everyone is dumping on Motorola. The company said “Both the networks & enterprise and the connected home segments are expected to meet or exceed internal expectations.” If they truly fix this problem the current herd negative thinking will be wrong. Hmmm Do not drop this call just yet!

Note: In my original post I had the date of the earnings release incorrectly.

Thursday, January 04, 2007

Nardelli's Money

Home Depot (NYSE:HD) announced the immediate departure of Mr. Robert L. Nardelli, 58 Chairman, Chief Exec. Officer, Pres and Chairman of Exec. Committee. Shareholders are looking at approximately $210 million to wave good-bye. Apparently Mr. Nardelli will not be sitting on the board as a triumphant retired CEO offering sage advice to those that come after him. The remaining officers and more importantly members of the board appear to remain intact. Some of the grey beard directors have even been asked to stand for re-election. So what has changed or is transpiring? Has the problem really been solved? By the way the new boss does not have a retailing background. So that problem definitely has not been resolved.

The negotiated settlement, which is almost certainly based, patterned, rooted or influenced on a pre-existing employment agreement, is huge by any standards. $210 million is approximately 20% of the last quarters reported cash flow. $210 million is approximately 2% of last quarters inventory position. $210 million is approximately $592 per associate (Home Depot web site reports 355,000 associates). $210 million is an incredible amount of money. Most of us would eagerly take the settlement. More than one would have darkly worked to the settlement rather than doing the actual job.

We all understand the management change. What is appalling is the price. Not all CEO's work out. Settlements are a fact of life. New CEO's have de facto pre-negotiated exit arrangements. We currently have a compensation culture for CEO's; particularly star CEO's at large cap well funded organizations. The CEO's know it. The boards know it. The consultants, lawyers, accountants, governance compliance experts, wives and mistresses know it.

Why then does the investor not know what the hit will be if as and when he has to pick up the tab? If Reg FD and Sarbannes Oxley mean anything why not publicly report what the exit arrangement would be in the case of early termination. Therefore when the exorbitant arrangements becomes upfront public knowledge you achieve transparency. When the exit arrangement is equivalent to 20% of a quarter's cash flow the investor needs transparency not confidentiality. If the package were public, anonymous directors and consultants would be held accountable as the deal was being made. Probably would also have avoided the Grasso controversy over at the NYSE.

But hey its only money. It used to be the investors money. Now its Nardelli's money.

Currently the only one who is not properly informed of any details is the investor. That cannot be allowed to stand. (Hint to politicians and legislators: many small investors would welcome adequate disclosure of this nature. Several million investors would be for and only a small handful of executives against. Can you count the votes?)

Wednesday, January 03, 2007

Nabors Analysts Confused

Nabors Industries Ltd. (NYSE:NBR) announced that it expects Q4 results to be below current analysts' consensus estimates as a result of weaker-than-expected Lower 48 and Canadian operations. The company currently estimates Q4 earnings to be in the range of $0.95 to $1.00 per diluted share, implying a full year 2006 estimate between $3.53 and $3.58 per diluted share.

Problems are occurring in Canada due to unseasonably warm weather which frustrates implementation as the ground is too soft to move the heavy equipment into place. Gene Isenberg, Nabors' Chairman and CEO commented that the lower 48 also experienced some slippage in delivery of new rigs.

The month of Dec saw the stock drop from around $35 to $30. Institutions have been net sellers for the prior quarter lightening the load by about 8.6% of their holdings. Insiders have not purchased any stock in the past six months. Warm weather and lower heating fuel demand have been well-publicized stories.

So every other informed observer figured it out and took appropriate action. Analysts maintained higher estimates and missed it entirely. Of the over twenty analysts not one was even close to calling it. In the past six months there was only one upgrade/downgrade with RBC Capital Markets issuing an upgrade to sector out perform. The change came out mid Dec. The herd just missed it. Too bad for the investors and advisors who listened to these guys.

Tuesday, January 02, 2007

SEC Slow on UnitedHealth

UnitedHealth Group Inc. (NYSE:UNH) reported on Boxing Day Dec 26 that the company received a formal order of investigation from SEC staff on Dec. 19. The disclosure time lag was seven calendar days but only three full trading days before investors were informed. You could see this one coming of course. At least I think the culprits could. Unfortunately the SEC is attempting to drive a poorly maintained one-stroke engine instead of using something more suitably powerful as the circumstances clearly dictate.

UnitedHealth Group's founder and CEO, Dr. William McGuire, resigned as board chairman on Oct. 15 after an external review found that many of his stock options were likely backdated. Even with that very big signal it took the SEC two full months before they upgraded to an investigation. (Congressional oversight investigation should be pending)

McGuire agreed to leave as CEO by Dec. 1, turning duties over to the UnitedHealth’s president, Stephen Hemsley. This allowed Dr. McGuire approximately six more weeks with his hands on the steering wheel when there was nothing but negative controversy surrounding his options. That having been said if the SEC does show up with a broom it should be a big one. Otherwise the stench will linger and suspicion will lurk in every footnote.

To those who say the SEC staff is overwhelmed with the options backdating quandary that the market finds itself in: Hire temporary private sector staff from law and accounting firms. We have a problem if the bad guys get away without any serious consequences. The SEC cannot become the financial keystone cops.

Bad Champagne

Happy New Years to all. 2007 starts with several mouthfuls of very bad champagne that should not be swallowed. These companies issued adverse news on Friday after market close before the New Years Day break, which has been extended for one additional trading day to honor President Ford. Few if any investors are looking making these press releases Reg FD challenged.

I would also like to thank Santa for his post. The wireless link in your sleigh must be something else.

Accentia Biopharmaceuticals, Inc. (NASDAQ: ABPI) released the results for the fiscal year ended September 30, 2006, as reflected in the Company's annual report filed with the SEC on December 29, 2006 in a News Years Day press release at about 0900 ET. One of the very few companies to conduct Reg FD corporate communications on New Years Day reported significant losses but wanted investors to focus on how they have been achieving milestones such as Fast Track designation from the FDA for SinuNase, a potential blockbuster prescription intranasal amphotericin B formulation for chronic sinusitis and commencement of partnership discussions for SinuNase with pharmaceutical companies that have existing respiratory franchises. Essentially they have to make a deal quickly. Not the strongest negotiating position.

SIRVA, Inc. (NYSE: SIR) announced on Friday around 1800 ET preliminary financial results for the six months ended June 30, 2006). The Company announced a preliminary loss from continuing operations of $37.6 million, or $0.51 per diluted share, for the six months ended June 30, 2006, as compared to a preliminary loss of $60.1 million, or $0.82 per diluted share, for the six months ended June 30, 2005. The company also indicated that these numbers may be restated (which means they will be restated). Investors never make money when management is twisting in the wind. (The company has secured a one month extension from NYSE)

American Technology Corporation (NASDAQ:ATCO) announced that the filing of its Form 10-K for the fiscal year ended September 30, 2006 will be delayed past the extended December 29, 2006 due date. As previously reported, the company has been conducting a voluntary review of its historical stock option and stock grants, and has not yet completed that review. The information they have reviewed to date does not indicate misconduct or fraud by any member of the Company's current or former management. Why they cannot issue earnings which will at least indicate profitability before the per share breakdowns is tantamount to cowardice. Other companies do issue reports with the proviso that they expect some form of restatement. Investors are flying very blind.

Cycle Country Accessories Corp. (AMEX:ATC) announced its earnings of .08 cents per share for the year ended September 30, 2006 and .15 cents per share for the year ended September 30, 2005. The company missed its own guidance because of extraordinary and non-recurring items. Essentially they have been blindsided and very surprised by it all. The explanations are very poor. This usually indicates a very poor knowledge of the subject matter.