Thursday, November 29, 2007

Sears Drops; Whatca Gonna Do?

Sears (SHLD) laid an egg and released disappointing results. The market sells off. Like its some kind of surprise that retail may not be the place to be. Aylwin Lewis, CEO and President claims to be disappointed in the results. He also quite bravely refuses to blame the results on the poor economic environment and actually said "We have much on which to improve and are working hard to do"

Well what are you doing? Senior management sees the numbers daily and should not be surprised when the final totals come in. Aylwin Lewis continued "Nevertheless, the Company continues to generate cash, and we continue to invest in our customer relationships, our multi-channel experience, and our information technology systems. Importantly, we believe that our stores and websites are ready to serve our customers and provide them more reasons to shop with us."

Sounds like the same old party line. The continued to generate cash mantra will not hold with this style of performance. Then you see cut backs in investments in customer experience and information technology.

The real question is what are you going to do about it?

Wednesday, November 28, 2007

Herman Miller Cozy and Cryptic

Herman Miller (MLHR) issued an updated and improved earnings guidance press release. They feel that they will be making more money in the second quarter. And that's a good thing. They also raised their long-term operating income target to 13% of sales. And that's also a very good thing.

But they fall short of issuing any additional guidance for the only number that will matter and that's EPS over the next year. The only point mentioned was that it is increasingly difficult to forecast furniture demand in an increasingly difficult market. Maybe as companies need to lay off employees they will not be buying really nice chairs and office furnishings.

There are clearly some cost cutting measures for Herman Miller such as layoffs for about 150 employees. They also claim that some other undisclosed measures will also come into being over the next six to nine months. They are claiming annual cost savings of $25 to $30 million. Given that last years after tax earnings was approximately $129 million that's a really big and interesting number. Transparency in the process would be nice instead of teasing promises.

The company also indicated that as recently as on September 28, 2007, they announced a $300 million expansion of its share repurchase authorization. Additional capital structure work is underway and the company anticipates sharing more complete details in its second quarter earnings release and conference call.

A quick scan of the balance sheet leaves no other conclusion that an increase in indebtedness to support the share buyback program. More debt to support buying your stock at a low point when the market for high end office furnishings is probably about to become rather difficult.

Reading this press release reminds me of when you sometimes are about to sit down in your chair and the chair has rolled away some and for a few moments its questionable as to if enough of your backside will land on the moving chair and stabilize it or if the laws of physics and gravity will apply and you fall out of your chair.

Tuesday, November 27, 2007

Google You Are Not an Energy Company

Google (GOOG) just announced a goal of developing renewable energy that is cheaper than coal. No market research required everyone wants this one. What does Google bring to the table? Lots of venture capital style cash. But there are other potential investors who can bring substantial capital to the table. Are we going to see bidding wars on unproven technologies. Great wads of cash do not always equal success.

When it comes to assessing Internet technologies Google certainly has something to offer. When it comes to assessing energy technologies they do not have any natural advantages over other players.

In part they are motivated by the desire to be greener, which is nice. They are also motivated by the whopping energy bills they are looking at as a result of the build out of their server farms, which is more than understandable.

Electricity utilities also have initiatives to transmit electronic and Internet traffic on their own wires which of course terminate at every electrical outlet in the developed world. Hmmm

Google says that they anticipate committing hundreds of millions of dollars into this initiative. Will they report results broken out separately from their other operations so that investors may have transparency?

Laudable goals both socially and economically. But will this turn out to be a major distraction for management? There is just too much of a we can do anything attitude in this one.

Monday, November 26, 2007

Quebcor World The Dividend That Could Not

Quebecor (NYSE:IQW) declared a dividend on preferred shares when it released terrible earnings. The press release dated Nov 7 said

"The Board of Directors of Quebecor World Inc. declared today a dividend of CA$0.3845per share on Series 3 Preferred Shares and CA$0.43125 on Series 5 Preferred Shares. The dividends are payable on December 1, 2007 to shareholders of record at the close of business on November 19, 2007."

On Nov 26 Quebecor World announces dividends won't be paid on the series 3 and series 5 preferred shares because there isn't enough capital to satisfy the Canada Business Corporations Act. At almost the same time a controversial refinancing plan seems to have stalled out.

Quebecor followers all know there is difficulty. We can all safely assume that the refinancing package was a game of hardball.

But when the board declares a dividend and then twelve business days later yanks it citing oblique regulatory concerns you know the board has lost it. The non payment of a declared dividend when there is sufficient cash has governance ramifications all of its own. You do not declare dividends and then treat them as a negotiating tool.

The company withdrew a refinancing plan last week. The board is playing poker. It does not seem that the shareholder interests are equally represented. Everyone is waiting for a white knight or something to show up and buy this situation. The lawsuits and governance issues are sufficient to muddy the waters so as to deter a take over. And maybe that was the plan after all?