Friday, May 21, 2010

Borders Takes a Drag on Vector. -- Nicotine & Books -- The New Synergy

Borders Group (BGP) announced that Vector (VGR) will invest $25 million and effectively take defacto control of the board. Pershing Group is a willing bystander. Perhaps an enthusiastic bystander. Borders is the long suffering book seller who does not know what the next thing is. Vector is a cigarette manufacturer and probably has more cash than they know what to do with. They seem to have a 10% dividend yield. (Can we check that number again)

The following made transaction fees by being high priced advisors:

”Rothschild Inc. served as financial advisor to Borders Group and Jefferies & Company, Inc. served as financial advisor to Mr. LeBow. Baker & McKenzie LLP represented Borders Group and Latham & Watkins LLP represented Mr. LeBow. Jones Day advised the Board of Directors of Borders Group in connection with the transaction.

So what does a purveyor of nicotine want with a book retailer? What is the strategy? Is it only $25 million. Will the backroom operators pump up Borders in some fashion and use it as a disruptive tool. Should Amazon worry? Should shopping centers read their leases a little bit more clearly?

Why does nicotine want a book retailer?

Disclosure: No position in this stock

Thursday, May 20, 2010

Staples Discussion Deficient Earnings Release

Staples (SPLS) announced a 32% increase in net profits on a 4% increase in top line revenues. That’s operating leverage for you. Ron Sargent, Staples’ chairman and chief executive officer said. “With sales and profit improvement in all three of our businesses, the year is off to a good start.”No information on categories. No comment on where the emphasis will be. No comment on computers and electronics and where you think you are in the upgrade cycle.

Basically the press release had no comment. Good way for management to stay out of trouble is to not say anything much.

Disclosure: No position in this stock

Wednesday, May 19, 2010

HP Naked Global FX Risk

Hewlett Packard (HPQ) nailed it this last quarter and printed some strong numbers. The earnings release has this snippet. “Revenue from outside of the United States in the second quarter accounted for 66% of total HP revenue”

Then you read “Cathie Lesjak, HP executive vice president and chief financial officer. “With the improving demand environment, we are accelerating investments for growth while raising our full-year outlook.”

66% of revenue is subject to foreign exchange risk. What percentage of costs are subject to FX risks? HP is a global entity. They have outsourced manufacturing to low cost jurisdictions. They have retained high cost high value labour in USD and Euro.

How are they managing the FX risk on and enterprises basis?

Disclosure: No position in this stock

Tuesday, May 18, 2010

Home Depot Disclosure Challenged Earnings Release

Home Depot (HD) has abandoned the earnings release as a form of shareholder communications. The latest one throws some macro numbers and then refers all to the conference call. The few tidbits of information indicate customer traffic is up. But average purchase is down by a few pennies.

Does this mean consumers are just doing the basics and are finally getting around to doing them. Frank Blake, Chairman & CEO reported strong growth in customer transactions. The average sale needs to increase to achieve operating leverage.

Management is still a little scarred to speak openly about operating issues.

Disclosure: No position in this stock

Walmart Lacks Tranparency Numbers Just Too BIG

Walmart (WMT) released earnings to beat its own guidance, beat First Call Consensus Guidance and then talked down future results. Same store sales are not doing well. The US consumer is not doing well. If the US consumer is recovering he/she is taking their money to some place nicer.

The earnings release does not provide significant merchandising or regional categories. International is doing well but we have no idea where the wellness is. This company blew their brains out in Germany, Japan and South Korea. They do not have a good track record internationally.

The international numbers provide no transparency. The US numbers provide no transparency. What does an investor hang his hat on?

Disclosure: No position in this stock

Boeing When Will It Be Honest With Itself?

Boeing (BA) has another design flaw in the 787 according to the WSJ. The tail cone assembly does not hold up to extreme temperatures. Apparently the design flaw was identified in test flights last Dec 2009. The story only comes out in May 2010. The project is complicated and not everything will go smoothly. But a five month delay just stokes the fires of doubt. The 787 should not be doubted. Boeing is having a hard time being honest with itself. Remember these moments if there is an aviation disaster.

Disclosure: No position in this stock

Jazz Air Confuses Investors

Jazz Air (JAZ.UN.T) the supposed front guy for Air Canada (AC.A.T) stunk up the joint with disappointing earnings and reduced disclosure about operations. Investors are disappointed that management will no longer provide key metrics. Management for some reason needs to confuse the marketplace. The share price dropped.

Will Air Canada take over Jazz at a reduced price? Will Jazz buy itself out and convert to a corporate style? Shareholders should be ultra suspicious. Airlines are wounded animals and can turn on anyone and anything.

Disclosure: No position in this stock

Monday, May 17, 2010

Lowes Still Broken

Lowes (LOW) reported supposed improved results. The earnings release trumpets net earnings up 2.7% and diluted earnings per share increased 6.3 percent. What they fail to point out is that net sales are up 5% but they can only increase net earnings by 2.7%. The enterprise is not leveraged for improvement which is very worrisome considering the supposed cost cutting and improvements of recent past. Also look at the shrinking gross margin. At this stage in the recovery they should be improving margins.

Something seriously wrong with the business model. The increase in dividend is just an anaesthetic for sleepy investors.

Disclosure: No position in this stock

ITW When is Wrong Illegal?

Illinois Tool Works (ITW) issued something that looks like an earnings release without substance. For a large cap company with supposed good news the detail was inadequate. Investors cannot make a buy sell or hold decision on the information. The Board cannot say it has met its fiduciary duties to the shareholder. Management cannot say it has complied with Reg FD. Even a conference call is not scheduled at some point in the future.

The communications strategy is suspicious. The agenda’s are hidden. The stock is selling off. Red flag in front of class action lawyers looking for work.

Disclosure: No position in this stock