Saturday, November 21, 2009

Bank of America Committee Solution

Bank of America (BAC) is having a hard time identifying the new CEO. Who do you offer it to? Who will take it? Is there any similarity between the two lists? Why would you take it at this point? Watch for a decision to go with an Office of the CEO and perhaps three individuals trying to sit in the same chair. That way no one individual is truly responsible and the regulators and investors cannot figure out who to shoot at. This will allow some of the potential candidates to test drive. This may also allow a dark horse to come out of nowhere in the next year or so and pick up all the marbles and become firmly entrenched. Because the way it is now; this job is not worth it.

Friday, November 20, 2009

Dell Investors Relations By Lawsuit

Dell (DELL) unloads poor results on its investors and watches as 10% of its value disappears. No significant comment from management they just put the numbers out there and watched the slaughter. All this in the context of buying EDS which supposedly is a game changer. No leadership in communications. Then again when you have so many snakes jumping out the lawyers will say the less you say the better. The more you say the more attack angles for lawyers. Investors may have to demand investor relations by lawsuit.

Time Warner Hypocrisy @ AOL

Time Warner (TWX) decides to sell off AOL. At the same time they announce they will reduce the AOL work force by one third. So basically the board of directors knew they had to cut one third if not more and kept these guys around, destroyed shareholder wealth and are now sufficiently hypocritical by trying to unload AOL with the lead headline that the staffing is bloated.

Thursday, November 19, 2009

Will Investors Buy Anything?

Last Friday the 13 (Nov 13, 2009) a spoof was run by a blooger to see if investors would buy something called SOAR and SINK offering really stupid leverage and gearing ratio's. The blogger Jason Kelly actually received expressions of interest. Proving that there is too much greed out there. Go to

Williams Sonoma -- Labour Costs?

Williams Sonoma (WSM) announced results and told investors they are pleased despite the current economic circumstances. Howard Lester, Chairman and Chief Executive Officer even played to the gallery by saying that they delivered another consecutive quarter of better than expected results. That starts to beg the question about guidance but that’s another story.

Williams Sonoma is reducing costs by closing stores and exiting leases. But look at the balance sheet and you will see accrued benefits and salaries have not really moved in the same proportion as revenues and the bottom line. What does that mean? Staffing and service levels are important for a chain such as Williams Sonoma. But are they banking specialized labour to avoid costs in the future or are we just waiting for the other show to drop.

Wednesday, November 18, 2009

Salesforce -- Explain Cash Balances & Reasons Thereof

Salesforce (CRM) produced excellent results but disappointed some of their exceptionally greedy shareholder base who expected better. The stock was at or near is 52 week high and reports of 20% increase in revenues in a terrible economy were not satisfactory to this very tough crowd. Who managed those expectations? Marc Benioff?

Hmnm how to please? Well let’s look at some balance sheet issues. They currently hold approximately $1 Billion in cash and marketable securities. 60% of this balance seems to be something called a non current or long term asset; which raises enough questions on its own. This is a 600% increase since nine months ago. The cash items now constitute 13% of their market capitalization. R&D is comfortably paid for from regular cash flows.

So how do we please shareholders? Because good results apparently do not cut it here. I know lets spend some cash and do acquisitions, joint ventures cool financial engineering stuff. Then the nature of the company changes and you have to wonder if the management group is the correct team. Will the earnings be accretive and all that kind of stuff will become a factor.

Ever get the feeling that management is about to take their eye off the ball and make it sound like a complicated business school strategy case.

Tuesday, November 17, 2009

Home Depot & Lowes -- When Will Desperation Hit?

Home Depot (HD) and Lowes (LOW) all announced much weaker revenues. Home Depot is down 8% and Lowes is down 29.5%. Both are cutting costs and probably doing everything imaginable to salvage the situation. Economic headwinds continue at gale force levels. They will soon realize they have more capacity than they need. The super store size may not sustain the economic models they are used to working with.

Being retailers and merchants they will look to other product lines to fill their stores and feed their investors. This will entail stepping out into product lines that they are not familiar with. Watch for new hires from non traditional product groups. Watch for investments, joint ventures and other forms of partnership with non traditional product groups. Watch for financial shrapnel in the commercial real estate space as stores go dark and leases are exited. Any technicality will do.

Hey I know if a mortgage defaults with Home Depot or Lowes as the lease let the tenant buy out the mortgage, own the site and then bring in competing retail product to threaten the retail site immediately adjacent. Sounds like a vulture capital opportunity to me. So buckle up it will be nasty.

Canadian Solar -- Serious Questions

Canadian Solar (CSIQ) reported improving results and would have you believe that the trend is up and away. After all we are solving the world’s energy crisis. What they do not point out is that despite the corporate name they hardly have any operations in Canada. Most of their revenues come from Europe (well over 85% last quarter) but most of their manufacturing is in China. The revenues in Asia are anaemic. Asia needs to become energy efficient also so you have to wonder about the marketing strategy.

Speaking about marketing there is no discussion on how they manage the distribution channel. Is it direct sales, distributors or some form of agency agreement? How do they know they are making the right deals. There are other competitors out there also distributing. You cannot rely on the market place just beating a path to your door.
The earnings release headline trumpets an 87% increase in revenues Q3 over Q2 but they neglect to mention YOY is a decrease.

Accounts receivable net of doubtful at Sep 30 stood at $227 million which is still larger than the entire quarters revenues which are supposedly 87% greater than the comparable quarter. They are not collecting their receivables.

Value added tax recoverable doubles to $31 million or 15% of the quarters revenue. Just seems huge if you know what I mean.

Short Term borrowings triple to $322 million which explains where all the cash is coming from. No explanation about their banking relationships or structure.

Payables have jumped from $30 to $157 million. When your payables are equal to 50% of the quarter’s revenues you have to wonder about operating difficulties and tough guy’s knocking loudly on your door.

Accrued warranty costs jump 40% to $14 million. No explanation about warranty issues, policies or any other danger signals.

All this was enough to drive the stock to its 52 week high. Hmmm. Where is the SEC in all this.

Monday, November 16, 2009

Illinois Tool Works Dividend Signals

ITW (ITW) Illinois Tool Works knows how to finesse their earnings release. First the board of directors declares a dividend on Friday Oct 30, 2009. Then on Monday Nov 16, 2009 they release earnings which show an operating revenue decrease of some 18%. The press release is Reg FD challenged as it did not include classic financial information. The investor needs to search around and go to regulatory filings. The earnings release contains nothing from management by way of comment. They do provide a chart showing the percentage decline by business line. They have all tanked. This is not a company that is used to explaining itself and it shows. The reality is that they see more bad news and need cover.

The Problem with Buffet

Bershire Hathaway (BRK.A; BRK.B) just let the cat out of the bag with filings dating back to June. Given the amount of media attention I do not blame the guy for using every trick in the book to hide his specific announcements. The issue becomes that of liquidity. They can buy and sell huge blocks of investments. The ability to sell is perhaps the most important. But what about when they buy 100% of say a railroad? There is no ability to sell. Would you buy an investment that was previously owned by Berkshire Hathaway. Isn't that the signal that the investment has nothing left to offer? The trick is to trend with them not against them.