GE Could Have Explained More

GE (GE) comes out and disappoints the market with lower than expected earnings. The market promptly punishes itself and drops the price by 10%. The major culprit is financial services. Everything else seems to be going rather well. Rather encouraging actually. Back orders are up and profits look nice. But financial services which has long been a mainstay in GE strategic asset mix has finally put a major bite on earnings expectations.

GE Chairman and CEO Jeff Immelt said. “Our primary shortfall was a decline in financial services earnings. We knew the first quarter was going to be challenging, but the extraordinary disruption in the capital markets in March affected our ability to complete asset sales and resulted in higher mark-to-market losses and impairments,"

When you look at the segment numbers Commercial Finance and GE Money profitability dropped approximately 20%. The entire world understands that sub prime has been a problem. For investors to suddenly wake up and say now it’s also at GE also is disingenuous.

For GE to stand up in this market and issue such an abbreviated discussion and explanation is an error in judgement. Basically Jeff Immelt is telling us we know the assets are shaky and we couldn’t finish the game of hot potato before the buzzer. That is not Six Sigma quality management.

The press release may have been regulatory compliant but has become investor toxic.

Levi Strauss Could Provide Some More Color

Levi Strauss announced earnings which beat some street estimates. Levi is privately held but has publicly traded bonds and files with the SEC. Net income increased by 12% which is very decent and the shareholder is getting a $50 million dollar dividend. The dividend is about 25% of the current cash position and approximately 50% of last quarter’s net profits. Nice to be private.

Should the bond holders be concerned? Here are two things to think about.

1. They report sales as up in Asia with the exception of a few mature markets. Most companies that have Asia figured out do well. But what portions are mature and what does that mean for the future? No explanation or discussion is offered on this point.

2. They shipped some jeans in Feb which would make it Q1 instead of Q2. The press release said “Operating income benefited approximately $9 million from these shipments.” So we took a few numbers from the next quarter. No comment on where in the world this happened. No comment if sales are doing well somewhere and accelerating. Just thought we would disclose how we moved a few numbers forward from one Q to the other.

It’s nice to be private from an equity point of view. But would the bond holders not be monitoring interest coverage ratios and starting to ask a few questions just for the sake of clarity? They should be.

AMD Plays To The Traders

AMD issued a press release after market close on Monday headlined as a Q1 update. Executive summary: The results will stink badly in Q1 and Q2 will also have an ugly but still to be determined restructuring charge in Q2. End of message.

The regulatory and corporate governance driven press release with Reg FD quality details such as financial statements and management comments surely followed by a conference call allowing analysts to ask probing questions will come in ten days. But right now AMD wants the market to know that it all stinks and they are surprised by the downturn.

By the way 10% of the work force will be decimated by the end of Q3. So employee morale and engagement must be at an all time high.

The quandary is this. The accountants are beavering away crunching numbers. Their faces turn grey as they realize the numbers are bad. The way the press release reads it’s a surprise. But as AMD was operating, were there no systems that would tell them they were about to hit a financial brick wall at high speeds?

The last sentence of the first paragraph indicates management was asleep at the switch. And I Quote “AMD had previously anticipated first quarter revenue to decline in line with seasonality.”

OK we all know AMD has a high beta. Somewhere around 2.78. But with high beta stocks we need to ensure the bridge is staffed with alert executives. We all know this is a tough business. Is this management team up for the next storm?