Friday, November 07, 2008

Ford Interest Margins

Ford (F) and Ford Motor Credit reported their respective disasters. As was expected the two sick puppies had a lot of problems. But in reading the relative press release I could not be struck by the fact that Ford reported “unfavorable net interest expense” when discussing Q3 results. But Ford Motor Credit reports a “partially by higher financing margin” offset to poorer credit results. I know that this is not entirely apples to apples. But it is close enough. Everyone points to the same credit environment. The guy’s running the credit managed a wider margin. The making the cars say they got hammered. Maybe they should get together and have a coffee or something. Its so bad at Ford it could not hurt.

Thursday, November 06, 2008

Blackstone Read The Fine Print

The Blackstone Group (BX) group reported their Q3 financial results. The entity is clearly a financial engineer’s delight. If you are looking to invest in something that is straight forward keep looking this is not it. They are riding a bucking bronco and keep insisting that they are well positioned to not only survive but to thrive in these current uncertain times. OK that’s what you would expect them to say. But who gets the profits. Just read some of the boilerplate. I doubt if you will understand it. But it goes as disclosure. If you do not understand it do not trust it. If you do not trust it then why should you invest.

Have a read.

“A significant amount of equity interests held by senior managing directors and other employees prior to the initial public offering (“IPO”) are subject to future vesting, minimum retained ownership interests and transfer restrictions. As a result of the future vesting, Blackstone has and will continue to show significant charges associated with these equity interests over their respective service periods. These, as well as certain other transactional charges, associated with the 2007 reorganization, the IPO and subsequent corporate actions including acquisitions, are likely to result in GAAP net losses for the next five years depending upon applicable service periods or useful lives.”

That was the clearest one. The next one is clear as mud.

“As Blackstone has previously reported, until December 31, 2009 Blackstone personnel and others who hold Blackstone Holdings partnership units (and who own approximately 75% of all outstanding units, with common unitholders holding the remaining 25%) will not receive distributions (other than tax distributions in circumstances specified in Blackstone’s 2007 Annual Report on Form 10-K) for a given calendar year until common unitholders receive aggregate distributions of $1.20 per common unit for such year. The specific amount of this priority allocation of distributions to common unitholders prior to December 31, 2009 is governed by the amount of Blackstone’s Adjusted Cash Flow from Operations available for distributions, as determined in the manner specified in the 2007 10-K Annual Report.”

So basically what you do is make the numbers as bad as possible now, because the boys will not get anything significant right now anyway. You write off assets and blacken results to the n th degree. You then also say that the Q4 distribution may be in jeopardy. When you have this much financial engineering you have to start wondering on what side of the bread will the butter go on.

Wednesday, November 05, 2008

Sara Lee Plays With Commodities Reporting

Sara Lee (SLE) reported strong Q1 results. Sales up approximately 9.6% and operating income up approximately 20.5%. This of course is excellent news and shows operating leverage. As sales go up more money flows to the bottom line. Here are a few storm clouds to consider. In their own “Forward Looking Statement” they alert investors that possibly the relationship with Wal-Mart their single largest customer could change. Specifically if Wal-Mart changes their inventory levels this may cause Sara Lee to back up somewhat. They also mention that in these difficult times many of their sales are on credit terms. Some retailers are not going to make it and therefore they may lose money and find sales diminished in the future. I at this point cannot identify on Sara Lee’s statements how they account for doubtful accounts.

They do mention they have lost $35 million in mark to market commodities contracts. Sara Lee being a food company buys a lot of commodities. Commodities have dropped in value. Sara Lee is sucking wind on a lot of positions. They have announced changes as to how they will account for commodities losses. Read this quote from the press release

As of the first quarter of fiscal 2009, the corporation includes these mark-to-market gains and losses in general corporate expenses until such time that the exposure being hedged affects the earnings of the business segment. At that time, the cumulative gain or loss previously recorded in general corporate expenses for the derivative instrument will be reclassified into the business segment’s results.

Sounds like a shell game to me. At the very best this is apples and oranges

Tuesday, November 04, 2008

Embraer Disappoints

Embraer – (ERJ) Empresa Brasileira de Aeronautica SA announced Q3 profits and disappointed the marketplace. They made much in their press release about volatility against Brazilian currency. Who cares about Brazilian currency. If there is a naturally global company is has to be aircraft manufacturers. Most of their product will be sold in US Currency and will also be exported.

The press release is disappointing in its detail. They talk about a new facility in Portugal but provide little information about its potential impact on profits. They did take the opportunity to recount the sales announcements and keep the hype up.

Obama vs McCain

One or the other has some serious fixing to do to the financial system and therefore the economy. Main street does not understand what to do they just feel pain. So far the anesthetic has not worked. Fixing the financial mess will define the next presidency. Unfortunately this is all behind the scenes stuff that most folks do not follow.

Not one of these candidates was really ready for this problem. Whoever gets in be prepared for a mix of adequate and correct as well as politically expedient but functionally ridiculous.

Monday, November 03, 2008

Circuit City Bites the Dust

Circuit City (CC) announced that its vendors are refusing to play ball and are not increasing lines of credit for the Christmas season. As well they are announcing that the US government is not cutting a cheque for the $80 million dollar tax refund they have been waiting for.

Well I do not know much about taxes. But I do know that vendors know the business better than investors and commercial bankers. It is clear that Circuit city had a sales problem. It is also clear that retail is going to struggle this Christmas. Vendors are not stupid they knew they were going to have a hard time. So you have to pick winners and losers.

Circuit City was chosen to die. Sure they threw them a few morsels probably because the lawyers said you have to. But if the consumer is not taking out their wallets something has to give. Vendors do not want to be caught with their own brands in mass liquidation sales.

Six (6) months ago the stock traded over $5. Now it’s below $0.50. Watch for very well informed traders from vendor and associated companies selling or shorting the stock. What type of financial disclosure did Circuit city have to do for the Vendors. In the meantime wait for the January sales there should be some great bargains.