Friday, February 08, 2008

Alcatel Lucent Watch The Intangibles

Alcatel Lucent (ALU)reported 2007 results. The Board of Directors saw fit to cancel the 2007 dividend. 2007 was supposed to be a transition year. Patricia Russo speaks to a three year plan and wants the market to believe that they are on track. If they are supposed to be transitioning why did they wait till the last quarter to recognize some of the losses. You're first loss is usually your sweetest if done quickly.

Watch the intangibles and goodwill category. Consider this quote from the press release

"Due to the continuing decrease in the market value of Alcatel-Lucent's shares during the second half of 2007 and its revised outlook, the company has carried out an additional impairment test of goodwill in the fourth quarter of 2007. This test led to an impairment charge of EUR (2.52) billion in the quarter, mainly impacting the goodwill allocated to CDMA and IMS activities."

At this point I should disclose that I loathe and mistrust goodwill valuations. Neretheless with the goodwill and intangible valuations still at approximately 10 Billion Euro's the corporate book value is over invested in this category. (Well in excess of 50%) Watch for further writedowns in this category. Which will mean the three year plan is not working out.

Tuesday, February 05, 2008

Google’s Conniption Fit

Google (GOOG) recently issued a statement about Microsoft (MSFT) buying/rescuing Yahoo (YHOO). Apparently they are against it. Surprise? Then they went on to call the kettle black. In a statement that went out over the signature of David Drummond, Senior Vice President, Corporate Development and Chief Legal Officer Google shareholders have now been informed that:

“the interests of Internet users come first --and should come first -- as the merits of this proposed acquisition are examined and alternatives explored.”

Dude investors are motivated by profits. No one every bought a stock so that the internet would be a better place. Products and services with compelling propositions will dominate and make profits. Your primary reason is to enhance shareholder wealth. If you do not believe this, check with companies whose earnings stumble. It’s not pretty.

There is a lot of information overload in the business media. Much of it is noise and not valuable information. But when the chief legal officer tells investors they are not first its very telling. I know Google will probably say something about values and stakeholders.

But do you think perhaps Google has shown an executive naiveté as they try to thwart an inevitable move.

Monday, February 04, 2008

Wrigley Needs To Chew On This

Wrigley released impressive looking numbers announcing that full-year 2007 net sales climbed 15 percent from the prior year to a new annual sales record of $5.4 billion, which also produced record earnings results in 2007. Fully diluted net earnings per share were $2.28 for the year, up $0.38 or 20 percent from a year ago.

Most of the growth appears to be international outside of the US. The US operations are experiencing difficulties in a very competitive confectionary and chewing gum market. New products must be launched constantly which means expensive development costs and big marketing budgets to prime the sales pumps.

Read this interesting quote from their press release when considering how well the US is doing.

“While there was some negative volume impact due to pricing changes, the larger portion of the second half decline was due to U.S. trade inventory adjustments, but the lower shipments were substantially offset by the positive contribution of the price increases to net sales."

We could use more elaboration on the trade inventory adjustment comment. I would have expected the Fed or some economist to reach for that phrase. It does not help the investor assess long term prospects. If you take out that comment basically they are shipping less product at higher prices. In the first half of the year they achieved sales gains but lost them in the second half. It sounds like there is price inelasticity in play and they are not doing well.

Internationally as sales grow you have to wonder about increasing competition from other international and local brands. No market share numbers are provided so it is difficult to even guess if the results are good news or not. But as more sales develop in each individual market you have to believe that other competitors will not let Wrigley eat their lunch every time.

Wrigley you need to explain what your plan is for this eventuality. You know you just cannot roll up and sell candy everywhere.