Friday, January 18, 2008

GE Great Numbers Short Sermon

GE (GE) reported Record 4Q and Full-Year Results for 2007; 4Q EPS up 17%; 18% for the Year 4Q Orders of $27 billion, up 18%; 4Q Revenues of $48.6 billion, up 18%; Infrastructure Segment Profit up 26%; Global Revenues up 27% and if that was not good enough they reaffirmed 2008 guidance.

The numbers look good of course. But the report is just too abbreviated for many investors taste. In the fourth quarter GE experienced revenues of $48.6 Billion and profits of $6.8 Billion. That's a really big operation with a lot of moving parts. The press release provided summarized comments on a super macro level. Healthcare, NBC, Financial Services are all dealt with in just a few words.

Hard to track the investment at this level. If a problem develops how will investors be able to assess the context. This week the market has been tough and maybe the PR types talked management into an abbreviated cheerleader style press release. But for this size of company you need some meat and potatoes.

Thursday, January 17, 2008

BlackRock Please Read Carefully

BlackRock (BLK) reported impressive increases in earnings and assets under administration which should mean more fee income overtime. But as with all financial institutions a careful read is prudent.

Much of the asset inflow is parked in highly liquid money market funds. Not surprising in today's environment. I am sure that Blackrock hopes to convert this to something with a higher fee schedule and more longevity.

At the same time Laurence D. Fink, Chairman and CEO of BlackRock stated "Yet, low interest rates and a weaker dollar suggest increased allocations outside the U.S. over time, as well as faster adoption of new strategies, including liability driven investing, the increased use of multiple asset class products and the mainstreaming of alternatives. This outlook reinforces our strategic focus on investment performance, globalization and product diversification, client service and independent advice."

Pretty well covers all the bases. We are going to globalize and diversify products. These are all very general blandishments that do not offer any particular insights into BlackRock's thinking. I also would like to note that he sees the mainstreaming of alternatives. An oxymoron type of a comment. With everyone piling into liquid treasuries and money market style investments I am having some trouble spotting the trend where alternatives are being mainstreamed.

BlackRock you guy's are very smart but you have to explain a little more. Specifics would be nice.

Wednesday, January 16, 2008

Boeing Stalls Again

Boeing (BA) reluctantly announced yet more delays for its 787 Dreamliner. The same old supply chain problems were blamed. Deliveries are now expected to start late 2009 and not late 2008. Everyone seems to think that Airbus may have a window of opportunity to catch up; but that still seems remote given the relative time frames.

The late delivery penalties seem to be rearing their collective heads. If Boeing is late delivering the aircraft, clients can and probably will demand penalties. These will be absolute cash costs either in outright payments or discounted pricing which will reduce profit margins. Airline operators will not sit idly by and not realize the supposed savings of the new equipment. They have demanding shareholders also.

A quick check of Boeing's investor relations web site could not find any information on the size or scope of the so called penalties. At this point there are 817 orders for the 787. It is reputed to be the fastest selling new aircraft in the history of aviation.

Good hype. So how bad will the hits be if the penalties become a factor. The penalties are probably embedded into the various purchase and sale agreements and may be viewed as commercially sensitive and proprietary information. However if they become financially functional Boeing's numbers will be different.

If financial institutions need to report on contingent liabilities from guaranties and other exotic structures, Boeing should be required to do the same when there is a financial impact to failure (default risk if you will).

Boeing executives may claim they do not anticipate events that would trigger the penalties. But every time they delay the test flight and subsequent deliveries the penalties become more real. In the meantime as they dig their way out of the problem, watch for expenses increasing in 2008. While they have claimed that 2008 would not have a significant impact from 787 sales they will be trying to dodge the penalties and just get the sucker moving properly and that means you spend lots of money. Will the R&D budget suck a lot of cash out this year?

Boeing has a big sell job on their hands. Earnings guidance may have intermittent tap dancing episodes.

Tuesday, January 15, 2008

US Bancorp Whistling Through The Graveyard

US Bancorp (USB) released their results on the same day as Citigroup(C) Everyone knew the Citigroup news would be tough to swallow and would dominate the financial news. So lets take a look at some of the finer points that US Bancorp has put out.

U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis indicated in his remarks that "During 2007, we returned 111 percent of earnings to shareholders in the form of dividends and share buybacks." This coming from the head of a financial institution. Investors who are receiving 111% of earnings need to scrutinize the arithmetic and financial engineering implications. The phrase sounds good at first but when you think about it is this really good that you are taking more out of the pot than is being earned? Eventually this will come back to haunt you.

He went on to say "Our Company’s credit quality remains sound. Both net charge-offs and nonperforming assets increased during the fourth quarter, but the growth was moderate and as expected. We will not be immune to the current stress in the residential real estate markets and mortgage-related industries, but given the Company’s overall credit risk profile, increases in net charge-offs and nonperforming assets in the coming year will be manageable."

While no one is putting this company into the problem category of some other high profile disasters you need to take the comment with a grain of salt. When you are returning 111% of earnings in a deteriorating environment you need to scrutinize the loan loss provisions carefully. The loan loss provisions and write offs are climbing exponentially.

This is not the environment to come to shareholders and make the case for returns of 111% of earnings however that was achieved.

Monday, January 14, 2008

Barnes & Noble SoftShoes Guidance

Barnes and Noble (BKS) issued an obtuse guidance adjustment indicating that as a result of disappointing Christmas sales and January sales trends they are reducing Q4guidance and with that they are reducing full year guidance. January results were available to Jan 5 and the guidance adjustment was issued before market open on Jan 10. Therefore management is spooked quite badly by the miscue.

The change in guidance offered precious little explanation other than sales were disappointing sorry it did not work out. Management did manage to make the comment that with this latest downward revised guidance they are still better than the initial guidance that they provided at the start of the year.

Its very hard to pick up this book and read it. When things do not work out to this extent you need to issued a more comprehensive explanation rather than hide behind an exceptionally short press release

Conference Call Transcripts

In a strong move to make financial information more accessible to more investors the folks at Seeking Alpha are now providing free conference call transcripts on 2,500 publicly traded companies. Just go to and click on transcripts. The search works by stock symbol or phrase.

David Jackson who founded Seeking Alpha stated "When I was a sell-side research analyst, I always felt that analysts' earnings notes were less informative than the transcripts of the companies' own conference calls. The prepared remarks contained the company's presentation of its business and quarterly results, and the question and answer session pinpointed the issues that surprised or concerned investors and analysts."

Earnings season is expected to start this week with Intel (INTC)reporting on Tuesday.