Friday, February 13, 2009

McAfee - Is it Really OK

McAfee Inc (MFE) reported record Q4 and annual revenues, income, EPS and all that good stuff. The financial results are commendable. The stock has surged on the news. Security seems to be an indispensable priority and everyone pays up. Listening to McAfee it sounds like all markets, all products and all strategies are working out just fine.

The problem in understanding the company is most investors do not understand how the security product is constructed. We just understand if it works or fails. One day we know there will be a fail. The question becomes “What are the contingent liabilities” If some one stole money from me because security failed I will sue, as would most people. This risk is unexplained at McAfee.

Michael Moore Does Wall Street

Michael Moore the famous gadfly film maker is starting work on a film/movie about Wall Street. Michael Moore is known for Fahrenheit 9/11, Sicko, Bowling for Columbine, Roger & Me all of which portray their subject matter in accurate but non flattering perspectives. He is looking for stories from Wall Streeters about the current debacle. You just know he will knock Republicans and George Bush. But can he accurately portray the myriad complexities that we call financial markets.

What I do not understand is how he will visually depict the sick sensation that many stomachs have been experiencing. In the mean time the call for stories is a clever marketing ploy generating buzz and content.

Wonder what Borat is working on these days?

Thursday, February 12, 2009

Winn Dixie EBITDA Perspective

Winn Dixie (WINN) reported Q2 EBITDA to be up 65%. That’s fantastic until you start reading the press release with a flinty eye perspective. There are several one time events such as an insurance settlement of approximately $22.4 million and a Visa/Mastercard Settlement of nearly $2.6 million.

Management is headlining 65% increases and not fully explaining the one time nature of the special events. You almost wonder if it really should be EBITDA in the first place.

Wednesday, February 11, 2009

Coca Cola's Financial Subscript

Coca Cola Enterprises (CCE) reported Q4 loss of $2.99 per diluted share including a non-cash impairment charge of $2.3 billion in North America, caused primarily by non-operating factors. Interesting choice of words “non-operating factors”. We are also supposedly comforted by the words “non cash.” The word loss is not supposed to have the negative connotation here that it would normally have.

Read this quote which is the explanation “The non-cash impairment charge is the result of CCE’s impairment analysis in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” and is necessary to reduce the book value of the company’s North American franchise license intangible assets to their estimated fair value in light of financial market conditions and CCE’s stock price.”

OK so the financial markets are in a mess. So therefore the intangible value of franchise licenses to sell Coca Cola needs to be written down, is what we are to believe. In reality management had intangibles at inflated valuations and is using the current economic difficulties to skate the valuations on side. It is not so much the news of today that is important but the mistakes of yesterday. Coca Cola management has been swimming without their bathing suits to quote a rather famous investor.

Management is also claiming the valuations are adjusted downwards in part because of CCE stock. CCE stock 52 week high of approximately $25.46 was last seen about 52 weeks ago. Today the stock was around $13.00. Management needs to further explain the connection between CCE stock price and the trigger points that brought SFAS No. 142, “Goodwill and Other Intangible Assets into play."

They will comment on sugar and transportation costs as well as the marketing challenges; all of which are critical issues. They also need to explain the financial engineering subscript that causes reductions in valuation. Just saying they are non cash is insufficient.

Tuesday, February 10, 2009

Qwest Taxes Poorly Explained

Qwest (Q) starts the week off trying to tell everyone that their Q4 Income before income taxes increased 17 percent year over year. Sounds good. This is the lead off bullet on the earnings release. You always lead with your best punch. Then let’s read the numbers and you see that revenues are down, net income is down and net income per diluted share is down. Not good.

Qwest continued to explain the poor financial performance by blaming it on taxes. Read this quote

The earnings per share calculations reflect higher pre-tax income compared to the fourth quarter of 2007, offset by increased tax expense as the company recorded normal effective tax rates beginning in 2008. Income before income taxes in the fourth quarter increased 17 percent compared to the fourth quarter of 2007”

So basically the tax man is taking a bigger bite. Qwest does not really go on to discuss their tax situation to any extent. Taxes are an arcane body of knowledge. Quite frankly most investors, even if they have access to sophisticated resources, have difficulty understanding taxes and their bottom line impact.

Qwest has done a poor job of explaining the future of taxes. They want to keep you focused on traditional metrics. Meanwhile the taxman is in the driver’s seat.