Friday, August 14, 2009

Why Did Bernie Madoff Plead Guilty?

Why did Bernie Madoff plead guilty which was a guarantee of big jail time. The other women issue makes a jail cell the safest place for an adulterer. Can Bernie's wife Ruth Madoff now claim in bizarre divorce proceedings that she is a victim and get to keep more? If the other women helped with the scam can the book proceeds be seized. Sheryl Weinstein's royalties and advances should be looked at.

What can be said? Sex and money sell. Is the market returning to normal?

Abercrombie & Fitch Dividend Delusion

Abercrombie & Fitch (ANF) reported Q2 results which of course are terrible. While they saw sales drop they could not reduce expenses quickly enough. They lost money and cash. But they declare a dividend and open some new stores around the world. The dividend speaks volumes. Is the board reckless with this one. Here are a few metrics to worry about. Cash and Equivalents are down approximately $100 million. Receivables are up when sales dropped some 25%. Collectability issues? Inventories still seem high in relation to dropping sales levels. Accounts Payable have increased which means they are becoming slow pay. The only good news is long term debt is down some $63 million.

Given this financial profile the Board still approves a dividend. This one is at risk.

Thursday, August 13, 2009

Wal-Mart Needs New Reporting Model

Wal-Mart (WMT) reported Q2 results and hit the top of their guidance. They patted themselves on the back and claimed strong headwinds and the fact that consumers have shrinking pocket books. They continue with the standard retail model of same store sales comparison, foreign vs. domestic comparisons and then excluding the volatile fuel component.

Is this an adequate way to analyze Wal-Mart. The big issues are consumer pocket books, pricing and foreign exchange rates. The reporting should evolve to an econometric model where you compare results in relation to local economic activity.

For example if employment grows say in the state of Minnesota how well did the stores in Minnesota do. If GDP in India grows surprising well how is the new wholesale unit in India doing.

When you play this large a game reporting models developed decades ago no longer provide clarity.

Briggs & Stratton Poor Explaining

Briggs & Stratton (BGG) announced that revenues and profits are off. Big ride on mowers are not selling because people do not have the money. Smaller push mowers are selling because the price points work for cash strapped consumers. Simplistic and begs too many questions. They make this comment about their outlook

“Global markets for engines are mixed at this time but we anticipate that the domestic market could grow slightly while export markets could be flat to possibly down next spring. Production levels for all products are planned to be lower in fiscal 2010 to address working capital targets”

There is no break down about global markets. There is no discussion or comment about competition. There is no comment about energy effectiveness or the fact that many lawn mowers are insanely polluting and what are we going to do about this.

Wednesday, August 12, 2009

HJ Heinz Makes a Covenant With Shareholders

HJ Heinz (HNZ) held their annual meeting in Pittsburgh and told investors how well they have been taking care of them. Chairman, President and Chief Executive Officer William R. Johnson noted that Heinz has increased its annualized dividend almost 56% from $1.08 in Fiscal 2004 to $1.68 in Fiscal 2010, Mr. Johnson added: “As Heinz moves forward, I assure you that growing your dividend remains a top priority as we are committed to returning a high percentage of earnings to our shareholders.”

Mr Johnson failed to point out that five years ago the stock was about where it is now. But having drawn the line in the sand it appears that Mr. Johnson has made a promise of income to the shareholder. This is basically a statement of strategy. The man has made a covenant with the shareholders.

The stock should be viewed through this prism?

Will Volt Energize General Motors

General Motors has created way too much buzz about its “Volt”. Sure the car is fuel efficient. Sure the Vice Chairman of GM Robert Lutz sells it well. But its only one product. General Motors needs a range of products. This is just a PR game designed to make the restructuring look good. The new board is playing a dangerous game by leading with only one car. Do they really have a strategy or are they making it up as you go along?

When I read your next financial statement will investors have the same passion about the numbers as the media has about Volt.

Tuesday, August 11, 2009

Fluor Who Controls Margins

Fluor Corporation (FLR) reported Q2 results. As Chairman and Chief Executive Officer Alan Boeckmann said “While we have posted strong results to date, we remain sensitive to the pace of global economic recovery which could impact the timing of future new awards.” The concerns for this company are to keep the backlog full so that the work and margins keep flowing in.

When you listen to the conference call the analyst Andrew Kaplowitz of Barclays Capital he was very focused on the margin question. Everyone was assured that all is good.

But when you read the press release you see this comment under business segment oil & gas “Results were driven by a reduced level of project execution activity, offset by an increase in segment margin in the quarter.”

There is a spigot here. The pace of activity can be affected by more than on site construction issues. The question is how many clients can turn the taps down and affect cash flow and profits. Management does not deal with the issue and hides behind the macro-economic verbiage.

Monday, August 10, 2009 Check Out Fundamentals (PCLN) reported much improved results. Everyone cheers and management claims increasing market share and consumer interest in discount off price travel. Sounds good particularly in difficult economic times. So lets take a look at a few metrics that you would not expect from an improving story.

Year over Year cash and equivalents are down by $140 million. For every dollar of stock options exercised they have bought two dollars of their own stock. Stock based compensation expense is approximately 20% of net income. Accounts receivable are up approximately 60% in the past six months yet Q2 revenues are up 17.5%.

Management needs to explain how they will manage these conflicting issues and deliver shareholder value.