Friday, March 13, 2009

Jones Soda Increases It's fizz

Jones Soda Co (JSDA) reported some difficult numbers and red ink. The Seattle based company is purporting to be well positioned for 2009. When you read the press release, you cannot help but be struck by the rhetoric coming from very senior executives of the company. Essentially if these guys’s cannot execute after these statements they should be fired.

Here is the comment from Stephen Jones, Chief Executive Officer, who stated,

The volatile economic conditions that began in earnest last September created a very difficult selling environment during the fourth quarter. Management reacted swiftly to the rapid changes in the market by making further adjustments to our operating platform and cost structure in order to prepare Jones Soda for a successful 2009 and beyond. Importantly, we enter the new year with a leaner infrastructure, a more efficient sales and operating platform, stronger alignment with our key top distributors, and sharpened channel, package & pricing strategies. We are optimistic that the actions we took during 2008 and early 2009 have us in a much better position to deliver improved results in the future, even during these challenging times.”

And then we hear from Joth Ricci, Chief Operating Officer, who also added,

While 2009 will have its own set of external challenges given the current economic environment, we move forward focused on the areas of our business that we can control. We believe we are now a more productive and leaner organization, combined with a stronger distribution network to properly support our brand and products. This will be instrumental as we look to grow within existing retailers, expand through new points of distribution, increase our bottle business, and launch Jones GABA. We are committed to managing our business in a disciplined and controlled manner, which we believe will allow us to gain market share while simultaneously preserving cash and driving improved operating performance.”

Icebergs straight ahead.

Thursday, March 12, 2009

RH Donnelley Executives Whistling In Grave Yard

RH Donnelley (OTC:RHD) announced poor results. But according to David C. Swanson, chairman and CEO . “During 2008, we took significant initiatives to address the challenging selling environment and advanced our strategic priorities”.

The EVP & CFO Steven Blondy then went on to say "Our goal is to better position R.H. Donnelley for the future by establishing a more sustainable capital structure," Essentially they are in pre-liquidation mode and trying to find solutions. He then went on to say

“We have significant debt maturities commencing in 2010 that we are working to address. Though we intended to refinance this debt prior to maturity, it may no longer be possible to do so given the current state of the capital markets. In the meantime, the company continues to generate robust EBITDA and has significant liquidity to meet all our financial and business obligations."

All this at the bottom of the business cycle. If the board and senior executive had truly been on the ball they would have been ahead of the curve on this one. Its buy low and sell high that will create wealth. They are now selling low.

Madoff's Wife's Assets

OK he pleads guilty in the face of obvious evidence. His wife continues to make interesting side bar news by wanting to keep tens of millions. This makes the public incensed. Given that these two have enabled each others lives do you not think that for just a moment or two the wife's requests are really designed to throw the public and investigators of the real trail of where her stash truely resides.

There are reasons why she found the relationship emotionally satisfying.

Wednesday, March 11, 2009

Korn/Ferry Headhunters Well Compensated

Korn/Ferry International (KFY) released Q3 results and announced that they have lost money. Not surprising given the current market conditions. But read closely. There was an asset impairment charge at a services company who calls itself a Talent Management Solutions Provider. (Head-hunter for those of you who are more old school). The asset that was written down had this explanation attached to it.

“During the quarter, given the severity and duration of the decline in the market value of marketable securities held on behalf of participants in certain long-term compensation programs, management recorded an impairment charge of $15.3 million to interest and other (loss) income. Because the impaired assets mirror liabilities to participants which have previously been adjusted to the market value of the assets, this non-cash charge does not impact the Company's operations, operating income or liquidity.”

This quote sounds like something coming from a financial institution and not a services company. Korn/Ferry neglected to further explain how these assets/liabilities are structured. I understand the concept of deferred compensation. But in this case is the shareholder providing a guarantee by taking the loss. What about the individual who was originally compensated; why does he not accept risk which resulted from a financially engineered structure that was supposed to reward him.

While we are on this point check out the cash value of life insurance policies which appear on Korn/Ferry balance sheet. The cash surrender values net of loans are approximately $62 million at quarter end. The company pays interest on these loans which acts as a tax deduction for the Korn/Ferry Shareholder and a third party actually takes the cash proceeds and continues on with his/her life. The cash value net of loans has dropped by some $19 million which means the beneficiaries are drawing on these policies by the millions.

Everyone is up in arms about CEO compensation and the excesses surrounding it. Korn/Ferry could do a better job at explaining why the shareholder should be OK with all these structures.

Tuesday, March 10, 2009

Kroeger Needs To Isolate Fuel In Their EPS

Kroeger (KR) reported Q4 and year end sales pointing out same store sales and margins are up. Which, is good news of course. They keep cautioning that some of their numbers do not include fuel. This does make sense because of the volatility. Kroeger provides some supplemental tables that attempt to show the effect of fuel. What they need to do is show the effect on EPS.

The fuel business is completely distinct from traditional groceries and the accounting would not be difficult to strip out. Competitors in the fuel business know what the margins and other important metrics are; so why not share the information with investors.

If we ever get focused on energy efficient vehicles this will be critical to understanding Kroeger.

Monday, March 09, 2009

Schering Plough & Merck Madness

Schering Plough (SGP) and Merck (MRK) to merge. The deal seems complicated by a co-marketing deal with Johnson & Johnson (JNJ) and Schering for an anti-inflamatory drug Remicade. There is a change in control provision and JNJ may end up controlling the entire drug but at what cost? The merger is supposed to create a $3.5 billion dollar cost savings. Easier said than done.

The merger does not address the issue of meagre product pipelines and many big drugs about to go off-patent. This just shuffles the deck and gives the impression of motion. Investors should be disappointed in the boards of directors. These companies remind me of the auto business. Big, dominant, arrogant with an occasionally popular product.

Watch for the laid off staff, 15%, who will walk out with the good idea’s.