Friday, July 25, 2008

Dynegy Excuse Me Restates

Dynegy (DYN) announced early this morning that it will need to restate its Q1 numbers. But do not worry the net profit will not change. You see due to a calculation error power purchases were presented on a gross basis. So both revenues and costs were overstated by some $229 million.

OK let’s think about that one a little bit. $229 million but we are still OK. Maybe it will be OK when it all comes out in the wash. But you have to know that a near miss like that has a credibility issue attached to it. What else can you trust or not trust from this company.

Thursday, July 24, 2008

Tupperware Sales Do Not Generate Profits

Tupperware (TUP) announced Q2 results and trumpeted significant increases in sales in both local currencies and converted into US. But when the bean counters convert the numbers into what the shareholder worries about the most, the results are not financially impressive. Traders must have been anticipating good news because the stock was on the move before the announcement came out. Then reality and the cold harsh facts set in.

If sales and revenues may be reported with an 18% increase, as per the headline in the press release, than the EPS had better reflect the marketing achievement. Otherwise why bother showing up. Even boiling the numbers down to 10% as local currency, the EPS should start to impress.

Institutional ownership is well over 90% in this stock. Hopefully this means no hair trigger reaction. But the phone calls into the VP finance should be brutal.

Wednesday, July 23, 2008

Boeing Announces Meaningful Improvements

Boeing (BA) announced quarterly Q2 results, reaffirmed guidance and then let the market place figure out that earnings and margins worsened, not to mention that their cash position dropped some. (Working capital build for the dreamliner) The problems with the dreamliner have been aviation news for a long time. So read this quote from the earnings release:

“While Boeing continues to address challenges associated with the assembly of the initial airplanes, the program has achieved meaningful improvements in the completeness of structure and systems installations”

They went on to say that with the acquisition of 50% of Global Aeronautica they now have greater operational control. But they also caution that the risks remain.

It just does not sound like they have it nailed down tight. I hope the board has asked the right questions behind closed doors. But it does not sound like they are prepared to go public and make any definitive hard statements that the project is truly under control. If there are more slips what are the commercial penalties for late delivery?

Tuesday, July 22, 2008

Citigroup’s Dividend Debate

Citigroup’s (C) earnings supposedly beat the street estimates. But the street is debating if the already reduced dividend is safe. Citi is selling assets, slashing costs and taking the harsh medicine needed to restore itself to healthy status. But selling long term income producing assets just to pay a dividend and watch the cash leave seems incredibly short sighted.

You have to love the debate on dividends. But why do we have to wait until the patient is in the trauma unit before there some thought on the matter? Dividends are a sign of financial health. They are paid in cash to investors who take the risk. It is near impossible to fool around with the accounting. The dividend is declared and paid. That’s it. Frequently the dividend has a serotonin effect on investors creating a warm and mildly euphoric state.

Some analysts are asking if the continued dividend means that profitability is being forecast for the next five quarters. Of course they are asking about the Comptroller of Currency regulation requiring dividend suspension if eight straight quarters of losses have occurred. Citigroup can easily financially engineer a profit and break that cycle. So lets predict it will never be a factor.

Monday, July 21, 2008

Student Loan Corporation Steps Up Risk

Student Loan Corporation (STU) which is 80% owned by Citigroup (C) announced worsening results. Compared to the same quarter last year they dropped earnings by 40%. The press release went to great lengths to point out that they were able to successfully securitize and therefore off load much of their originations.

As any lender they are looking for ways to increase their spread. Read this quote:

“This increase was driven by higher average loan balances as well as an increase in net interest margin. Net interest margin for the quarter was 1.89%. This 15 basis point improvement over the second quarter of 2007 was driven by management’s repositioning of the portfolio towards higher rate loans, partially offset by a $20 million increase in funding costs due to higher credit premiums over LIBOR. The trend towards higher credit premiums is expected to continue as the Company refinances its maturing term debt under less favorable conditions.”

Basically they are taking more risk to generate more yield while at the same time the market is taking more risk on their paper. Sounds like a mugg’s game and STU will not be the winner.

How many times have we heard that one? Just take more risk and you will make more money. Student Loans needs to articulate a risk strategy. Right now they seem to be flip flopping around reflexively reacting to basis points changes in the risk spectrum. The strategy is reactive not proactive.