Friday, November 06, 2009

Scripps Interactive -- How Will Travel Channel Contribute?

Scripps Interactive (SNI) released earnings and left a few issues unresolved. Delayed one day because of the deal to acquire Travel Channel you have to look at the product mix and wonder if they are just too schizophrenic.

The Food Network is doing well and is now rated in the top ten cable networks list. That’s good but why did it happen. The economy is having difficulty. Many people are staying at home and have more time to watch TV. Instead of going out why not have a nice gourmet meal at home. So going forward as the economy recovers will the Food Network continue its relevancy?

HGTV was touted to be increasing. HGTV is doing better in the worst housing market in memory. How are these viewers engaged? But read the sentence carefully. “Lifestyle Media advertising revenue grew slightly while affiliate fee revenue was up 16 percent on higher rates for HGTV and expanding distribution of all of the company’s television networks.Italics and bold are mine.

Somewhere there is a lawyer who understands disclosure and is now sweating this one out. This will not win the award for transparency. It sounds like we rolled a few concept categories together and created a frothy phrase or two. Will the nations housing woes discourage the traditionally engaged HGTV viewer and cause advertisers to curtail their spend.

They just bought the Travel Channel and are injecting $181million. The cash injection pretty well drains their cash reserves. $878 million of debt goes into the joint venture and there is no information about debt service and if it’s accretive to shareholders. Cox did OK on the deal. The other question becomes how to finance the ongoing production of new Travel content. Travel production is expensive. You do not want to watch the same episode over and over again. Travel plans seem to be curtailed will the viewers be engaged consumers or will they just be frustrated and jealous of the idle rich.

Thursday, November 05, 2009

Wendy's/Arby's Strange Co-Op Arrangement

Wendy’s/Arby’s Group (WEN) reported numbers which show a reported 9.1% increase in EBITDA. They have been diligent about reducing costs. They announced a Supply Chain Co-Op which will start in Q4. There was very little information provided other than the fact the franchisee’s will be financial partners. The question becomes who gets the benefits and why penalize the shareholder and advantage the franchise owners. Initially Wendy’s funds the co-op and then the franchisee’s start to contribute. But there is no real information on the financial model and therefore how do you understand the risks.

The co-op is seeded with $15.5 million over the next 18 months. Wendy’s has approximately $645 million in cash and equivalents. If it’s an opportunity to reduce costs why not take full ownership and maximize shareholder wealth.

Scripps Still In A Fog

Scripps (SPP) reported results and continued the woes of newsprint. They have sold off their cable and used a big fat tax refund to reduce debt significantly. So the over-leveraged argument is no longer a factor.

We're determined to position Scripps for continued success in the rapidly evolving news industry. In the third quarter we made significant progress," said Rich Boehne, president and chief executive officer.

Nice words but what are you doing. They go on to say that they will pursue strategies for expanding audiences and revenue streams across multiple platforms despite the difficult economic environment.

OK so Rich you must have spent some time thinking about the problem. And maybe you been watching what some of the other guys are doing and what’s working and what’s not working. In TV you are investing in content and new business categories. Content. Are you funding original productions? Or are you buying from someone else. Just what are new business categories. Getting new business has been a marketing 101 course for many years. We really need something with more substance.

There was an interesting comment about other revenues in the television category. The snip is “Other revenue, which includes retransmission fees for carriage of the stations on cable and satellite systems, up 44 percent to $4.2 million.” No further comment about a category that went up 44%.

For a communications company they could spend some more time explaining just where they think they are going.

Wednesday, November 04, 2009

GMAC How Much Longer?

GMAC Financial Services issued their earnings release and had an interesting objective buried at the bottom of all the words. They want to transition to and meet all bank holding requirements. Sounds good. But in the disclosure business you need to report where you are and how you are going to get to your objectives. Nice objective but the financial world cannot determine from this earnings release where you stand in relation to your own stated objectives.

Molson Coors Sudsy Disclosure

Molson Coors (TAP) came out with a sudsy press release and made some very interesting comments. The lawyers must have signed off and let the marketing people have a few. The verbiage is meaningless but designed to impress investors. Here is the snip

“We remain focused on building a diverse portfolio of extraordinary brands, offering value-enhancing innovations for consumers, and achieving positive pricing to grow our top-line and bottom-line as the economy improves. We offer value to consumers in many forms, including innovative brands and promotional packaging, as well as category-leading advertising, retail promotions and service to our customers. In the fourth quarter, incremental investments related to these efforts will be most significant in our Canada, U.S. and international businesses. These investments are consistent with our brand-led global strategies, and we expect them to drive top-line and bottom-line growth as we move into 2010."

One buzz word at a time:

1. What is value-enhancing innovations for customers? Are they promising more price discounts? The marketing guy could explain this one a little better.
2. Achieving positive pricing is included in the same sentence so something else will drive value.
3. Whatever it is it will happen to both top and bottom lines.
4. Offer value to consumers ...There it is again. OK I think I am starting to understand. They will be promoting to the customer and throwing in service. What kind of service are we talking about. Is somebody coming over to my place and crack one open for me?
5. The investments will be most significant in Canada, United States and international business. Hey that covers the whole planet. Could we get some focus please?
6. The buzz word fest concludes with them driving top and bottom lines again. Sounds like a marketing guy went to a one day seminar on finance and got a few questions correctly.

The beer business is highly competitive and investors need real commentary not sudsy buzz words.

General Motors Grabs Opel

General Motors (MTLQQ.PK) or should we say Obama Motors has pulled the rug out from under the Germans by rescinding the Opel Sale. Merkel will be in the White House today and some form of political mumbo jumbo will come out. GM yanked the deal because they are still a drowning man grasping at straws. It is far from certain if GM’s non Opel offerings will make it. So if you are going down why not try to get more life boats.

Merkel has perfect political cover and is now demanding a return of German Tax payer money. Obama has perfect political cover because a supposedly bankrupt entity is trying to maximize value and return funds to the US tax payer.

Magna (MGA)and Frank Stronach probably saw this one coming weeks if not months ago. The Russians are shut out. The Chinese are conspicuous by their absence. Everyone wants to go to China and they have huge amounts of capital. Hmmm Yes Igor follow the money.

Tuesday, November 03, 2009

Diebold -- No Product Leadership

Diebold (DBD) announced disappointing results. Given the depressed nature of the financial sector its not surprising. In reading the earnings release investors reach the conclusion that Diebold was just an order taker and now orders are down. Yes the financial sector is on its hands and knees. But economies cannot develop without financial institutions functioning well. The self serve concept reduces operating costs. Yet Diebold seems to not have any thought leadership. If you are selling into a specific market you need to know where its going and offer compelling products. Diebold is signalling they do not have it.

Warren Buffet Clashes with Dow Theory

Berkshire Hathaway (BRK.A; BRK.B) aka Warren Buffet just swallowed Burlington Northern Santa Fe (BNI). The largest deal ever made by the oracle from Omaha may actually signal some very difficult times for North America’s economy. Follow this reasoning.

Dow Theory requires the transports to confirm the main industrial average. The rationale is that if America is not shipping therefore how could the industrials be doing well.

Warren Buffet only swings when he sees a big fat pitch. He is also a long term investor. He just bought big into a major transport. He only buys deep value. Therefore the Dow Transports are not confirming the rise in value of the Dow Industrials. At least not for now.

Sure we all believe in America. But what time frames are you working with?

Monday, November 02, 2009

Ford What about Loans for Energy Efficiency

Ford (F) nailed it big time and came out with stellar earnings. Given the supposed weakness of GM and Chrysler they put their mark on the wall. The US market will continue to be problematic and most of the profit gains have come from cost reduction.

The one area they are not really explaining is the loans from the US government for energy efficient vehicles. Here is the quote “Received $886 million in loans from the U.S. Department of Energy for development of more fuel-efficient vehicles. Ford has been approved for up to $5.9 billion in loans in support of projected expenditures through mid-2012”

I presume that the loans are to support eventual manufacturing in the US. Other than puffing concept cars that make interesting pictures, there is no disclosure on the green initiative. If we are all going to green more fuel efficient vehicles we should be able to follow the money.

Las Vegas Sands Geo-Politcal Risk Issues

Las Vegas Sands (LVS) had their conference call and talked at length about Macau and how it will be a winner as the market develops and the gambling market grows. They keep mentioning that they cannot talk about the Hong Kong listing but then they tease and claim to expect good things. Talk about a conflict.

OK here is the problem. China has 1.3 billion people. If as and when their economy continues to grow there will be gambling. But why will the gambler want to go all the way to Macau? Why would Beijing want the cold hard cash to leave their economy? How will they compete with new to be developed casino offerings within main land China? Macau is a protectorate that is distasteful to the Chinese. They will look for ways to bring it back into the fold.

If you do not believe the above just have a chat with Meyer Lansky about how the mob lost the casino’s in Havana. You always need the protection of the state to survive in this business.

NYSE Euronext Has No Technology Strategy

NYSE Euronext(NYX) posted quarterlies and watched investors sell off its stock. In reading their earnings report one is struck by how many businesses they are in and this supposedly provides diversification. But the exchange business is technology driven. Yesterday’s software is today’s junk. Management does not speak to the technology strategy and the capital intensive nature of the business. Yes they are the market leader, today but do they have the environment that allows for innovation or will some whiz kid from Google or someone’s garage come out and clean your clock.

The other issue is the uncertainty of the Obama administration and where the regulatory environment is headed. Other countries are also having indigestion and are not too far behind. What will the costs be of any new regulatory reforms and how will NYSE Euronext be able to pass it through to the end user. If the current administration turns out to anti-speculative and non supportive of high frequency trading these guys have a major problem. The exchange executives do not seem to be on this one other than saying laissez-faire. Which is not about to happen.

Church & Dwight Dividend Signal

Church & Dwight (CHD) better known for its Arm & Hammer brands pulled off a masterful “dividend Signal” The dividend is the 435th consecutive dividend, which clearly is a milestone. The press release went out during the lunch time period on Friday Oct 30, 2009. The days volume was well over double the normal daily volume. And the stock ended up on the day by 2.39%.

Motorola Continues Wiggle

Motorola (MOT) Hello Moto came out with an interesting caveat in its last earnings release. When it dealt with Q4 guidance it included the caveat “This outlook excludes charges associated with the Company's operating expense reduction initiatives, as well as any other items of the variety typically highlighted by the Company in its quarterly earnings releases.” This pretty well gives you any wiggle room you need. Which Motorola typically has needed.

AutoNation Relies on Demand Pull

AutoNation (AN) came out with an interesting press release. While they did disclose the effect of cash for clunkers on their financials they included this little snippet attributable to Mike Jackson, Chairman and Chief Executive Officer

“We are optimistic for the long term prospects of the auto industry based on the successful restructuring of the domestic auto industry, the move to a demand pull system, and the rationalization of the dealer network.”

Of particular note is their view that the industry is moving to demand pull and that they will therefore do well. Demand pull is normally viewed as when demand for goods and services exceeds supply. Investors just cannot see the demand for cars in the US exceeding the supply.

Of course AutoNation views the process that everyone must go through them and that this will create conditions for demand pull. That’s one hell of an arrogant assumption and I am concerned that management is thinking this way.