Constant Currency Issues

Received this email just recently about constant currency issues. Interesting read. Would appreciate hearing from others on this issue.

When a company reports on a constant currency basis (I am concerned with quarter-to-quarter and year-to-year) what currency do they use to make these calculations. My first inclination would be to assume that they use the exchange rate at the beginning of the term of change in which they are quoting, so for example if they state that revenue grew 10% on a constant-currency basis from Jan 1, 2008 to Jan, 1 2009, then they use the exchange rate from Jan, 1 2008. Is it safe to assume that this will always be the case? I am having trouble finding footnotes in the 10Ks.

The email comes from a

Troy J. Pospisil
Deloitte Consulting LLP | Strategy & Operations
Mobile: 949.500.8013 | Fax: 213.694.5119
Email: tpospisil@deloitte.com

Website: www.deloitte.com

Fedex Excite's In Advance

Fedex (FDX) excited the market with a change in guidance upwards. At the same time spot oil prices seem to be down (at least for long enough for the headlines to intersect) Earnings will be released on Sep 17, 2009 but they feel justified in letting the world know today that Q2 EPS will be $0.58 @ share. This is way down from last year; but much better than previously expected.

But look at the range for Q2 $0.65 to $0.95. The quarter in question is the next ninety days and management wants 50% wiggle room. The problem with guidance being changed six days before results are released is that there really is insufficient information for a complete decision. Investors are now shooting in the dark and hoping for the best.

Navistar Disappoints

Navistar International (NAV) reported losses and the stock sold off. The company has reduced guidance for the year. What is amazing that the guidance was accepted for so long? The economy is tough. Navistar products are all major strategic decisions and not impulse buys. Navistar tried to soft shoe this one; just check out how the headlines on the press release were structured.

“Continuing Weak Market, Increased Provision for Income Tax Expense Contributed to 3Q Loss for Navistar.”

Psychologists will tell you the probability of the last word being read is low. The headline confuses more than explains the true circumstances. They want you to throw this one away and forget about it. Just too tricky for most. Trust; well not now.

Apple -- Money Talks BS Walks

Apple (AAPL) Money talks B*llsh*t Walks. Apple is a master of hype. The hype has hype. When possible I like to take a peak at insider trading and see what the officers and directors are doing. The money has talked and the following have been sellers in the past two months as reported through Reuters

Robert Mansfield SVP Mac Hardware Engineering
Scott Forstall SVP iPhone Software Engineering & Platform Experience
Jonathan Ive SVP Industrial Design
Ronald Johnson SVP Retail
Bertrand Serlet SVP Software Engineering
Millard Drexler Director; Board of Directors and Compensation and Nominating and Corporate Governance Committees of Apple, Inc. Also Chief Executive Officer and Chairman of the Board J Crew.

Korn/Ferry -- Questionable Balance Sheet!

Korn/Ferry International (KFY) issued anaemic results. The headhunting business is not what it used to be. Revenues are approximately 50% of what they were just recently. Fixed costs are difficult to cut and the operating leverage is biting the investor. Cash balances seem to be at acceptable levels. But let’s take a look at a few other tangible issues on the balance sheet.

Receivables are up on declining revenues. This means that the client base is being allowed to string out payments which has obvious negative implications for cash flow. Are they winning assignments because clients can finance deferred payments? This is similar to selling cheap sofa’s to trailer park clients.

Compensation and benefits payable is down. Are the consultants getting stretched out to match the timing of receivables? Will this be a good place for consultants to hang their hat or will other deals look attractive.

The press release refers to Korn/Ferry Institute which is the repository of thought leadership, intellectual property and research. The institute’s web site says

“It is our intent to commission, originate and publish groundbreaking research utilizing Korn/Ferry’s unparalleled expertise in executive recruitment and talent development, combined with our preeminent .behavioral research library.”

This just does not line up squarely for me. Is the institute a separate financial entity? Who pays the bills? How is intellectual property being transferred and paid for? Are the shareholders winners or losers ? Where is the independent oversight?

Cadbury vs Kraft More Cash Please

Cadbury (CBY) says it wants more cash from Kraft (KFT). Of course they do; it was entirely predictable. I always like to look at the insider trading and see if the tape was painted. Using Reuters and Morningstar it looks like no insider trading for Cadbury.

On the Kraft side the latest trade was by Vernon Anthony President Kraft North America who on Aug 11, 2009 buys 35,910 shares at zero; must be the stock option plan. Irene Rosenfeld CEO of Kraft sold 63,651 shares @ 26.13 on Jun 30. Her last purchase was on Feb 19, 2009 when she bought 173,300 at zero which again must be the stock option plan. Which means that legally and morally Irene is sure that selling about two months ahead of the game is alright.

Smithfield Exorbitant Debt Costs

Smithfield Foods (SFD) reported additional losses as they continue to struggle with high input costs such as corn and low protein prices. The most telling part of the press release is when they need to disclose that the renegotiated loans do not have any covenants that can be adversely triggered. Therefore they have breathing room. Look at the price of debt that they took on. 10% for five (5) year notes. That is something like five times treasuries. When you are prepared to pay that much say good bye to decent returns for investors.

Time to consider a new future. Where is the board on this and are they giving direction? Insider trading activity is all sell sell sell!

Power Ambition Glory --- Book Review

Steve Forbes and John Prevas reached deep and identified that 'Plus ca chance plus c'est le meme chose" The book is a wonderful read if you are into classical history and trying to understand the modern day CEO. Excellent and concise history followed up with comparisons to modern day executives and how they fared in the various battles they fought.

Historical figures are understood as we analyze their circumstances. The book is not as understanding of the modern day executive who wins some and then does not win some. Then again it's hard to criticise Julius Ceasar but Carly Fiorina we have lots of opinions on. Hmm The book does not help you understand the CEO as he/she develops on the public stage.

It is interesting to note that only North American executives were compared to the Greco-Roman world with a significant nod to Persia and Asia Minor. No modern day executive from Asia and no historical figures from the Middle Kingdom or anyone else from Asian history after the classical greats.