Friday, February 16, 2007

Campbell Soup Difficulty

Campbell Soup Company (NYSE:CPB) announced a Q2 4% increase in net sales and boldly ups its guidance. Douglas R. Conant, Campbell's President and Chief Executive Officer offered these contradictory comments within the same paragraph of their press release.

“…. For the first half, our U.S. soup business delivered strong results with solid sales growth and enhanced profitability.”

“Despite a modest decline in U.S. soup sales during the second quarter, we are very satisfied with the performance of this business.”

The US Soup business is still the keystone to Campbell Soup and in Q2 the numbers retreated. If they cannot make these numbers march forward investors will be looking at disappointing results.

Thursday, February 15, 2007

Baker Hughes Stock Option Confusion

Baker Hughes Incorporated (NYSE:BHI) reported much improved financial results. After swallowing substantial settlements with SEC and Justice Q4 earnings were $1.02 @ share compared to $0.75 for last years comparable. Good work.

The stock has been volatile with some signs of recent resurgence. The stock is capable of sharp sell offs presumably as it trades as a proxy for oil futures.

The current winter drilling season in North America is almost over. But Chad C. Deaton, Baker Hughes chairman and chief executive officer offered this comment in the press release

“With several weeks remaining in the North American winter, the near term activity outlook for gas-directed drilling remains uncertain. We are encouraged by recent strong withdrawals from gas storage and remain convinced that the rebalancing of the North American natural gas market, if required, can happen relatively quickly."

Basically the boss is issuing warning orders to investors to buckle up and not lose faith. The stock will run fast when it turns. But look at insider trading as reported by yahoo finance. No insider purchases in the past six months. There have been a large number of bizarre looking non open market dispositions in the past two months. The dispositions dating back to Jan 25, 2007 are nickel and dime but wide spread.

In the two month time frame immediately preceding a large number of non open market acquisitions also occurred in substantial quantities. Almost certainly some mechanism relating to stock option grants kicked in (I hope). The question becomes are insiders really buying and hiding behind legalisms? If so whats with all the dispositions? Strange case of painting the tape while we all worry about how cold it is.

Wednesday, February 14, 2007

AngloGold Ashanti Hedge Book Bites Investors

AngloGold Ashanti (NYSE:AU) reported improved Q4 earnings with production up 4% and slightly better cash production costs. The company forfeited approximately 6% of gold’s value on the table as they continued to produce to the hedge book that they are locked into. The negative valuation of the hedge book also continued to worsen.

In the conference call transcripts provided by Seeking Alpha the Treasurer Mark Lynam spoke competently but very briefly to the hedge activities and pointed out that over the next twelve months the actual received price will be 8-10% below anticipated spot prices as they continue to sell into the old and obviously unfavourable hedge book.

Not one analyst mentioned anything significant about the hedge book ands its drag on cash earnings. They all focused on the mining production and engineering side.

The press release that preceded the conference call contained this contradictory comment

“Commenting on the year, Bobby Godsell, AngloGold Ashanti's CEO said, "In sum 2006 was a year of production disappointments, competitive cost control and good reserve generation. In a year in which the gold price rose by 36%, our earnings have increased by 105%, clearly demonstrating the company's strong leverage to a rising gold spot price".

AngloGold Ashanti is not strongly leveraged when you automatically forfeit up to 10% of gold’s value right off the top. This company is not well understood by the analysts. With a market cap of approximately $13 Billion and approximately 1 million shares average daily volume for the past three months the shares seem to be rebounding somewhat. The analysts seemed to focus on micro issues of specific properties.

Methinks, when the analysts get it, the drum will beat much too loudly for reasons that the astute investor will have already figured out. The secret sauce will be when the hedge book stops being an impediment thereby allowing other positives to shine brightly.

Tuesday, February 13, 2007

Teva Whats Next?

Teva Pharmaceuticals (NASDAQ:TEVA) reported Q4 and year end earnings. Quarterly sales up 63%. Annual adjusted EPS up 45%. The stock has still not returned to its 52 week highs. But trading in January has pushed to price up rather nicely.

After a boomer year what is left? Even management did not attempt to create growth expectations. The press release contained a very short comment about the future.

“2007 Outlook - The Company expects net sales in 2007 to exceed $ 9 billion and fully diluted earnings per share to be in the range of $2.07 to $2.19.” The EPS guidance is actually down from just reported results.

This is in stark contrast to a previous comment about drugs awaiting FDA approval.

This is in stark contrast to a previous comment about drugs awaiting FDA approval

“As of February 1, 2007, Teva had 162 product applications awaiting final FDA approval. Collectively, the brand products covered by these applications had annual U.S. sales of approximately $92 billion. Teva believes it is the first to file on 42 of these applications relating to products whose annual U.S. branded sales are over $36 billion.”

This could be a management group quietly wondering if the market is going to get it. On one hand they know that they cannot promise a repeat. No one would believe the enormous scope. On the other hand Israel Makov, President and CEO comments that

“Teva is ideally positioned to play an even larger role in the health care industry, and capture an even larger share of the opportunities that this industry offers."

The recent price increase may be more than just anticipation of good quarterly results.

Monday, February 12, 2007

GE Proxy High Jacked

General Electric (NYSE:GE) finds itself in the peculiar circumstance of not being sufficiently capitalistic. The company that spawned Neutron Jack is now being forced to include within its proxy materials a shareholder proposal calling on GE to justify lobbying for global warming regulation.

Action Fund Management, LLC (AFM), investment advisor to the Free Enterprise Action Fund (Ticker: FEAOX) wants GE to report to shareholders on the scientific and economic analyses relevant to GE's climate change policy.

The FEAOX a publicly-traded mutual fund, filed the proposal because GE is lobbying for government regulation of greenhouse gas emissions. Such regulation, if enacted, may raise energy prices and reduce energy availability which, in turn, may harm the U.S. economy, GE's earnings and shareholder value. You see GE may actually destroy the American way of life.

The fund whose web site includes a prominent quote from Milton Friedman “The social responsibility of a business is to increase its profits” has produced very lackluster returns of its own. Approximately 10% since inception around two years ago. They claim the mantle of shareholder activism and have a portfolio of approximately $4.5 billion.

Usually fund managers tout their successes at increasing wealth. The web site info is meager on background info on the principals much less anything as capitalistic as increasing your wealth. This all smacks of reactionary politics with the ancien regime at its worst. I have not spotted it yet but I suspect the flat earth society is deeply involved.

GE has identified the environment as a key strategic sector for future investment and growth. This naturally means lobbying the government in an attempt to shape the landscape in favour of GE initiatives. This is nothing really new. No one else is truly disputing GE’s vision. There will be lots to say about how the strategy is rolled out and executed.

What responsibilities does FEAOX accept for attempting to manage GE on a day to day basis? If you do not like managements shtick sell the stock, go short, write calls and or buy puts. FEAOX quite frankly cannot connect the dots in its own arguments. They do not deserve investor support.

Avon Again??

Avon Products (NYSE:AVP) recently released results. (Feb 6 to be exact.) Andrea Jung, chairman and CEO, commented,

"With 9% revenue growth in the fourth quarter, we continue to feel good about the progress we are making against our turnaround plan.”

A closer reading of the press release and associated financials indicates Q4 operating margin was 10.8%, versus 12.4% in the prior-year quarter. Accounts receivable were up 10% and inventories were up 12%. All this is occurring in the context of product simplification. The basic metrics are not aligning for growth; Avon is dragging some serious boat anchors that should be seeing improvement by now.

The stock is currently trading near its 52 week high. So if management feels good about progress will the stock see new highs. On Jan 31, 07 Andrea Jung exercised 180,000 options and immediately sold 83,115 on a non open market basis at $34.19. So if the boss is hedging their bet investors should be in a caveat emptor frame of mind.

Check out Yahoo Finance insider trading. Money talks BS walks.