Boeing Buys Out Vought/Problem Child

Boeing (BA) buys another facility from Vought. The headlines from Boeings press release claim that this will give them more control over production. This follows on the heels of another purchase from Vought that also supposedly allowed more control.

What is clear is that Boeing does not understand how to handle the sub-contractor culture and craves more control. Supposedly this means that companies with multi-million contracts are not meeting spec’s on the 787 Dreamliner. Strange most companies with multi-million dollar contracts and their corporate reputations on the line turn themselves inside out to satisfy the customer.

Pundits point to the increasing fixed cost that Boeing is adding. This is very true as the program seems to be consuming enormous amounts of capital just before it’s supposed first flight. What is most likely happening is that the contractors are not producing within the cost parameters. Boeing probably strong-armed the costs down and the suppliers had to do something to stay afloat. Boeing does not like the quality it is receiving otherwise it would not crave more control.

What will probably not see the light of day is what the increased control will cost Boeing in terms of margins. The advance that was forgiven looks like a loan loss when it really should have been an increase in materials and direct cost inputs.
How much more needs to be brought under control; purchased? Boeing probably is not entirely certain.

Regis Corporation Messy Hair Problem

Regis Corporation (RGS) announced Q4 results and a new stock offering. Based in Minneapolis the company operates globally cutting everyone’s hair including investors. Sales and revenues are dropping as the worldwide downturn affects everyone’s pocket book. The hair-care business is not recession proof.

The company is heavily indebted so raising equity is a must. Investors should have seen this one coming. No announcement of who is underwriting or advising on the deal. So some may conclude that the lenders have taken matters into their own hands and told Regis what the deal will be and did not bother to pay an investment banker millions of dollars to convey the message.

The release included much top line information but nothing about bottom line results. They are trying to change the equity structure so per share data will change radically which is an oblique way of saying shareholders are being diluted.

Which explains why the share price is falling like a stone; 20% at time of post. As recently as May 28 the company was paying a dividend. The investors are being sheared. The board is declaring dividends which usually means everything is OK. The intellectual dishonesty is appalling because you do not look lovely darling.

Confession Season Commences

Earnings Season Preview. Regular readers know that I research press releases and other forms of financial communication. In the past finding CEO’s who were effusive about their company’s prospects was not difficult to locate. Everyone saw a golden future. The press releases where dripping with hyperbole. We have just passed the six month mark. Many call this earnings cycle as confession season. Adjustments are to be made to annual guidance. My sense of the corporate mood is that most will report less than encouraging news. CEO’s do not have a reason to stick their necks out and go positive. Remember it’s a herd even for CEO’s. They all watch one another. The trick will be to see who issues overly negative reports in the light of positive results.

Bing vs Google Yahoo Does OK

Checking out Bing, which is owned by Microsoft (MSFT) of course,as a financial search engine. Being a self confessed financial news junkie I am a voracious consumer of financial/business information always looking for those nuggets of insight. I performed my own little experiment by searching for several large cap companies on Bing and seeing if any results point you toward MSN Money. The search results failed to push you toward their cousin product; at least not in the all important top 10.

This is still early days for Bing and I am sure they have some more tricks up their sleeve. But if you are looking for people with money, active investors fit the definition and have disposable income. Hopefully they do not spend frivolously but they do spend.

Just to compare I searched Google (GOOG) for the same companies and they also failed to push to Google Finance. Maybe both Bing and Google assume the investing world already knows about MSN Money and Google Finance.

Except that in both searches Yahoo Finance (YHOO)did reasonable well. But everyone says Yahoo is having trouble. Not in this category it seems. Perhaps it will be carved out as a stand alone unit.

Teck Partners With China Investment Corporation

Teck Resources (TCK) which has been in financial trouble (too much debt) made a strategic play by selling Class B shares for the equivalent US$1.5 Billion. The Vancouver based NYSE listed company is now welcoming China Investment Corporation (CIC, which will sit at the table with 17.2% equity interest and a 6.7% voting interest in Teck. The funds will be used to repay debt so the fundamentals should improve immediately. China Investment Corporation is a sovereign wealth fund.

The deal was announced when the US market was celebrating Independence Day. The Chinese have taken strategic steps to guarantee reliable supplies of critical metals. They have bought low so you may be sure they will sell high.

The deal creates a potential for ambiguity. The Chinese are not primarily interested in the stock. They want preferred access to metals and commodities. Teck knows they have a customer and just need to control margins. Other customers may find that previously eager salesmen do not return phone calls as quickly as they used to and lunch is out of the question.

Commodities and metals trading inhabit their own secret and arcane world. The products are fungible. They trade globally and no one regulator can even attempt to impose any form of regulatory discipline. The deal makes fundamental sense and China Investment Corporation has long been interested in developing this strategy. Other participants may find this to be a complicating feature.

Scotia Capital was the advisor. Philip Smith, Global Head of Investment Banking at the Bank of Nova Scotia unit, was quoted in the Wall Street Journal as saying “the investment bank had looked at "a number of different options" for CIC's investment in Teck. Scotia Capital concluded that “the optimal structure for both parties was straight common shares.” Hmmm

Zep Commits To Be Smaller

Zep (NYSE:ZEP) a leading producer, marketer, and service provider of a wide range of cleaning and maintenance solutions has admitted defeat. Read this quote in their press release from John K. Morgan, Chairman, President and Chief Executive Officer of Zep Inc.

“As committed, Zep has adjusted to operate as a 15% smaller company due primarily to deteriorating economic conditions.”

Thanks for the heads up.

Goldman Sachs - Rolling Stone - Bonuses

Goldman Sachs (NYSE:GS) is poised to announce its next quarterly. Rolling Stone magazine, a well known source of high value financial information, has noticed that these guys seem to make a lot of money. Hmm what’s that story about stock tips; if a cabbie gives you one, its time to get out, because the cabbie is the last one in.

In any event they will be announcing bonuses and earnings. Expect the numbers to be huge. The question becomes where did all those guys rate as a percentage of their bonus pools. Did they just qualify or did they hit home runs. The firm is big, so the numbers seem large. But you need to drill down and see what was left on the table and then you can reach a properly greedy capitalist interpretation

Sealy Generates Cash - For Now

Sealy Corporation (NYSE:ZZ) reported Q1 results and was very careful to explain that they have generated cash. This is critical because their sales are dropping and they are heavily indebted. No forecast predicted the current severe downturn. But when you hear Larry Rogers, Sealy's President and Chief Executive Officer say the following you have to wonder just what do they have for the future.

"While we expect market conditions to remain challenging, we will continue to take measures to improve our profitability through increasing collaboration with our retailer and supplier partners and the introduction of new products, while aggressively right-sizing our cost structure and maximizing our cash flow.”