Saturday, January 31, 2009

De-risking - New Financial Terminology

De-risking is the word of the moment. What does this word really mean? If you Google it you get about 1,680,000 references. Both Wikipedia and did not have anything for it. I imagine the SEC and Treasury may be using it but do not have a definition. So when the lawyers stand up in front of a judge what meaning will be ascribed? So if you are in the middle of litigation wouldn’t it be interesting if the word changes meaning on the way through. Talk about event risk, the English language morphing right in front of our eyes.

This is what I think it means but we could agree to disagree.

De-risk: The activity or series of activities which reduces or lowers risk in any given situation.

Friday, January 30, 2009

Amazon Marketing Costs Take a Look

Amazon (AMZN) came out with some pretty good numbers. Amazon should be established as the internet success marketing story. So instead of looking at the financial numbers lets take a look at the way the marketer markets itself. Perhaps there may be a few conclusions.

Total 2008 marketing spend was $484 million vs. $344 million representing a 40% increase. Q4 marketing spend was $169 million vs. $133 million representing a 27% increase for the quarter. 35% of 2008 marketing costs were spent in Q4.

Read this quote from their press release

Our marketing expenses are largely variable, based on growth in sales and changes in rates. To the extent there is increased or decreased competition for these traffic sources, or to the extent our mix of these channels shifts, we would expect to see a corresponding change in our marketing expense or its effect.”

OK so they are claiming adherence to the B School Text Book marketing concept of turning all marketing costs into variable costs. But Y/Y revenues are up 29% and marketing costs are up 40%. Impressive as the increase is, the variable correlation of marketing spend to revenue generation is not quite what they are making it out to be.

The marketing challenge remains at Amazon.

Thursday, January 29, 2009

Wells Fargo Sanitizes Terminology

Wells Fargo (WFC) A sharp eyed reader brought this one to my attention. Apparently in a CNBC interview there was mention of Market Disruption Costs of $4.3 Billion by Wells Fargo executives. Or so it was reported by readers. Then when you look at the press release and conference call transcripts they have something called “other than temporary impairment” which total $473 million or eight cents @ share.

The financial markets are coming up with these sanitized terms that are designed to obscure true meanings. Losses are losses. Red ink is red ink. Fairy tale terms should not be recognized by FASB, nor should they be tolerated by investors.

D&B Under Explains Dividend Increase

Dun & Bradstreet (D&B) reported some excellent numbers for 2008. This certainly makes sense as D&B sells products and solutions that help with financial due diligence. They also announced an increase in their dividend from $0.30 @ share to $0.34 @ share which represents a 13% increase. Is there cause for concern? Read this quote about the dividend from their press release

“D&B today announced that its Board of Directors has declared an increased quarterly cash dividend of $0.34 per share, up from D&B’s prior dividend payout of $0.30 per share. This quarterly cash dividend is payable on March 20, 2009, to shareholders of record at the close of business on March 6, 2009. This increase in D&B’s quarterly cash dividend is a reflection of the Company's confidence in its ability to generate continued strong free cash flow growth in 2009. “

In a tough economy this company increases their dividend telling investors they are confident about cash flow but they provide precious little qualitative information about outlooks, markets, product lines, competitive pressures. The investor is just expected to follow blindly and stay warm and fuzzy.

Dividend increases are major events. Investor behaviours are driven by dividend and yields. D&B has under-communicated in the press release.

Wednesday, January 28, 2009

Tyco Moves From Bermuda To Switzerland Why?

Tyco Electronics (TEL) has announced that they will move their head office as quickly as possible from Pembroke Bermuda to Switzerland. No further explanation was offered for this momentous move. Bermuda well known for its tax haven status but not being close to any particular global market was not good enough. Switzerland has an excellent banking system as they say.

However in this case they do not say anything. Reading between the lines does not make investors happy because you never get all of it. Many companies do well and are not domiciled in either Bermuda or Switzerland.

So what’s up Tyco?

Tuesday, January 27, 2009

Travellers - Did They Say Enough?

Travellers (TRV) reported what looked like pretty good numbers for a financial institution. They actually made money. Quite refreshing under the circumstances. But just take a look at how they go about telling you that they had some losses in investment portfolio.

First they say “Notwithstanding these lower returns, we continue to be very pleased with the high quality and diversification of our investment portfolio.”

Then they say “Net investment income in the current quarter was impacted by negative returns in the non-fixed income portfolio and very low short-term interest rates.”

And then “The non-fixed income portfolio, comprised substantially of private equity funds, real estate partnerships and hedge funds, recorded an investment loss of $164 million after-tax”

They never come clean and provide information on the portfolio. There is not enough transparency. They just expect the investor to be happy be passing comments about the decline of the portfolio.

The financial world is going to hell in a hand basket you would think that the management would understand that the way to trust is through extensive disclosure. Right now we just do not understand quite frankly anything about that portfolio.

Monday, January 26, 2009

Crane Smoke Screen Roll Up

Crane (CR) reported Q4 results and of course took the opportunity to present red ink and generally speaking bad news. You see you have to these days no one will believe you if you have really good news. But take a look at how the reached the numbers and what they did not report. Something called “The Restructuring Program” was rolled out. They are cutting costs, letting people go and doing the necessary financial amputations that one would sort of expect.

Except, they do not really tell you where, who, what or important details like that. It would be difficult for investors with a good understanding of this company to look at the parts and try to figure out what the future looks like. It’s easy to say ‘cut costs” in this environment. The trick is to show the leadership and move forward in the right direction. A roll up program is just smoke and mirrors.

Not impressed.