Financial Skeptic

IBM Trash Talks Hewlett Packard

2010-09-15T13:37:00.001-04:00

IBM (IBM) trash talked Hewlett Packard (HPQ) go to www.financialskeptic.wordpress.com to see my post

Nasdaq Draws Criticism from Asensio

2010-09-10T12:32:00.001-04:00

Please see my latest post at http://financialskeptic.wordpress.com

Cienna Sluggish Balance Sheet

2010-09-09T14:00:00.001-04:00

Please see my post on Cienna's sluggish balance sheet at www.financialskeptic.wordpress.com

Oracle Ensnares Mark Hurd

2010-09-07T11:12:00.001-04:00

Please read my post about Oracle (ORCL)and Mark Hurd at www.financialskeptic.wordpress.com

Burger King Latin Preferences?

2010-09-03T13:50:00.001-04:00

Please read my Burger King (BKC) post on www.financialskeptic.wordpress.com

Dollar Thrifty Clarity Issues in Guidance

2010-09-01T14:34:00.001-04:00

Dollar Thrifty (DTG) has some clarity is issues in its latest guidance. Please read my comments on www.financialskeptic.wordpress.com

Monsanto Communications Failure

2010-08-31T12:42:00.002-04:00

Please see my comments on Monsanto (MON) at www.financialskeptic.wordpress.com

Benihana Long Long Road Ahead

2010-08-30T12:47:00.003-04:00

Go to www.financialskeptic.wordpress.com for todays post on Benihana (BNHN)

Tiffany Commodity Play Not Retail

2010-08-27T13:13:00.001-04:00

Go to www.financialskeptic.wordpress.com for complete details

Financial Skeptic on Word Press

2010-08-26T14:33:00.001-04:00

I am in the process of transitioning to Word Press. So here is the link.

www.financialskeptic.wordpress.com

Gerber Increased Overheads

2010-08-26T14:25:00.001-04:00

Gerber Scientific (GRB) fails to provide substantive comment or MD&A about any of its four major divisions. They have consolidated the numbers and its all in one bowl of soup. Specifically they do not segment or discuss R&D. For a scientific company this is more important than guidance for the next few quarters. They do comment about the increase in SG&A claiming that they are reversing some wage freezes and paying out more in commissions. That’s great guy’s you just increased your over heads.

Disclosure: No position in any stocks mentioned in this post.

Brown Shoe Inventory Risk

2010-08-25T13:16:00.001-04:00

Brown Shoe(BWS) neglects to point out that it’s increased inventory level is equal to the last quarters sales. They trumpet improved sales and revenues and then increase inventories by 10%. If the consumer continues to not buy they cannot cover the bet. When will we see better thinking on inventory.

Disclosure: No position in any stocks mentioned in this post.

Burger King Pulls Its Punches

2010-08-24T15:06:00.001-04:00

Burger King (BKC) missed the point in its latest earnings release. They have over 12,000 restaurants with a near 90% franchise rate. Yet in the press release they report 249 net new restaurants, 79 refranchised restaurants, 54 re-imaged restaurants. These are pathetically small numbers. At the same time they report strong cash and balance sheets. The question becomes are they pulling their punches or do they really not have the capital and cash flow to do the job properly.

Disclosure: No position in any stocks mentioned in this post.

Lenovo -- More Info Please!

2010-08-19T12:58:00.000-04:00

Lenovo (ADR:LNVGY) left shareholders hanging for more financial details as they announced huge consolidated sales and net profit increases. They neglected to include a balance sheet with the earnings release but made the very big point that they now have net cash reserves of USD $2.2 billion. When you say net that means you have debt somewhere but no explaining on that point.

No breakdown provided on geographic sales. If you claim to be a global player you need to present global numbers. Hard to come to firm conclusions when there is too much fog on the landscape.

Disclosure: No position in any stocks mentioned in this post.

Deere No Balance Sheet in the Headlights

2010-08-18T13:39:00.000-04:00

Deere (DE) left out the balance sheet when they reported boomer numbers for Q3. Everything was about the income statement and how large equipment was selling. For investors to develop an accurate assessment you need to include all the financial statements. The earnings release leaves it out. Surely it was included somewhere else making it more difficult for investors to find and assess. Not investor friendly.

Disclosure: No position in any stocks mentioned in this post.

Home Depot Abandons Press Release

2010-08-17T13:36:00.001-04:00

Home Depot (HD) abandoned the earnings release in all but name. The press release that came out today contained very little qualitative information that an investor would find useful. For a large cap stock this is shameful. I can only assume that the good stuff was included in the conference call. The press release has been castrated and management wants to deal with information in the conference call where they feel that have better control over analysts and can manage the public portion of their messages.

Open question to the board. If the CFO came to you with only this press release would you feel comfortable coming to the qualitative decisions that you are paid for. Then why should the investor.

Disclosure: No position in any stocks mentioned in this post.

ITW Talk to Me Baby

2010-08-16T13:37:00.000-04:00

ITW (ITW) issued an abbreviated earnings release which I am not sure meets Reg FD standards. No income statement, balance sheet or sources and uses of cash were included. They threw in a few points about sales and revenue gains and called it an earnings release. No management discussion of anything meaningful. Ten days ago they increased the dividend by 10% citing strong free cash flow.

Talk to me baby. Say something an investor would understand. Anything for a start.

Disclosure: No position in any stocks mentioned in this post.

JCPenney Tops Up Pension Plan

2010-08-13T14:04:00.001-04:00

JCPenney (JCP) reported some interested pension plan contributions. On the income statement they show Q2 contributions of $55 million to something called qualified pension plans. In the notes they claim to have made a voluntary contribution of $392 million to the qualified pension plan. The earnings release then goes silent on the financial engineering. Net income for q2 was $14 million. Would have been nice to get more detail and transparency.

Disclosure: No position in any stocks mentioned in this post.

Kohl's Spends Profits on Infrastructure?

2010-08-12T12:45:00.000-04:00

Kohl’s (KSS) spent their net profits on something called property, equipment and favourable lease rights. No discussion in the earnings release about merchandising, product mix, improving margins or store openings and closings. But then numbers do not lie and they spent shareholder profits on what seems to be the infrastructure.

Management is not very forthcoming in the earnings release.

Disclosure: No position in any stocks mentioned in this post.

Macy's: Torn Silver Lining

2010-08-11T14:02:00.000-04:00

Macy’s (M) is leaning on its merchandise payables as it navigates debt repayment. Sure results are improved including huge on line increases. But merchandise payables is up some $400 million, inventories seem flat for the past six months, cash is down for the past six months and we are looking at an inventory build as we enter the back to school and Christmas selling seasons.

Is this the rip in the silver lining?

Disclosure: No position in any stocks mentioned in this post.

Alibaba.com Achilles Heel?

2010-08-10T13:18:00.000-04:00

Alibaba.com (HKSA:1688) may have shown it’s Achilles heel. They announced stellar results showing that international customers grew much faster than internal Chinese customers. Check out the Ali-Loan program and this quote “The Ali-Loan program continued to gain traction since it was launched in 2008. As of June 30, 2010, the cumulative number of loans issued by our partner banks to our paying members was more than 5,500, totally amounted to RMB13 billion (US$1.9 billion). The program has catered to the financial needs of small businesses while also increasing our member’s stickiness to our platforms. It brings long-term benefit to the company although it does not serve as a revenue driver. “

No explanation of what is being financed and how. Member banks are not captive finance companies so how do you control the flow of credit. Admittedly they are not experiencing revenues from the program directly. But if they act as an acquisitions marketing agent for other banks why are they not being compensated for the referrals? How do they manage who are member banks and who gets the deal flow?

They have hit USD of $1.9 billion over 5,500 loans. That is an average of $345,000 per loan. So what is being financed and how?

Disclosure: No position in any stocks mentioned in this post.

Chrysler Quiet on Gov't Liquidity

2010-08-09T08:04:00.001-04:00

Chrysler (Fiat:FIA) slipped out some massaged messages on its liquidity. In the headline bullets Chrysler reported flat out they have $10 Billion of liquidity. Its only later deep in the earnings release that investors realize that liquidity from the market place is only $7.4 Billion. The remaining $2.6 Billion is a reliance on government support from the US Treasury, Canada and Ontario. Not a peep about when they will stop relying on the support and actually cut the apron strings. Not a peep about the terms of market place liquidity. How much of it is truly co-dependent? You know how brave lenders can be.

Disclosure: No position in any stocks mentioned in this post.

Dynegy Spark Spread Blues

2010-08-06T10:29:00.000-04:00

Dynegy (DYN) issued some wording that makes an investor stop and think. Under liquidity and debt in the last earnings release they announced this snippet “During the second quarter, the company added a $150 million contingent letter of credit facility that, while currently unavailable, will provide additional liquidity for 2012 commercial activity in the event of widened spark spreads.”

OK so you look up “spark spread” you get “The spark spread is the theoretical gross margin of a gas-fired power plant from selling a unit of electricity, having bought the fuel required to produce this unit of electricity.”

So if the spreads are increasing that should be good. But Dynegy needs to post letters of credit to back itself up. Definitely needs more explaining. Was this backdoor 2012 guidance?

Disclosure: No position in any stocks mentioned in this post.

Fortress Investment Group - Stealth Takeover Maybe?

2010-08-05T19:04:00.000-04:00

Fortress Investment Group (FIG) announced some results and watched their stock stay below $5 @ share. They tipped toed around the redemptions issues. They cannot explain why with all their good idea’s the share price is going no where and a mere $2 billion in market cap is not attracting any interest. The company is a hodge podge of different investment deals. No focus. No management commentary worth listening to.

Makes you wonder if management group wants to talk the share price down and then buy it up?

Disclosure: No position in any stocks mentioned in this post.

Sirius XM Radio – No Winning Profile

2010-08-04T11:32:00.003-04:00

Sirius XM Radio (SIRI) increased customers given better car sales. The stock stayed solidly above the $1 @ share level. The questions are on the balance sheet. In the past six months cash dropped $150 million, accounts receivables from distributors increased $35 million, prepaid jumped a whopping $93 million, something called other long term assets jumped $48 million and long term related party debt jumped $90 million.

This is not a winning profile.

Disclosure: No position in any stocks mentioned in this post.

MasterCard American Decline

2010-08-03T21:26:00.001-04:00

MasterCard(MA) issued improved results but was not encouraging for the future. Offshore growth was the primary driver. Look closely at the US numbers. Volumes declined by half of one percent. The offshore volumes cannot possibly cover the half percent US decline over the long run. If the US consumer does not pick it up Mastercard has a problem. Speaking of marketing. Volumes decline in the US but the marketing costs were flat for the quarter. Is there a strategic abandonment or are they just prepared to have someone else eat their lunch?

Disclosure: No position in any stocks mentioned in this post.

Honda Short on Details

2010-08-02T09:50:00.000-04:00

Honda Motor (HMC) issued an earnings release showing huge increases in net revenues. But for a company with $59 billion in market cap they had an underwhelming amount of financial information. No balance sheet, income statement or sources and uses of cash were included. Therefore no management commentary. Given the revolutionary nature of the global auto business why not explain yourself Honda, and let investors into the information tent.

Disclosure: No position in any stocks mentioned in this post.

Northrop Grumman Liquidity Convenience

2010-07-29T11:40:00.000-04:00

Northrop Grumman (NOC) presents debt net of cash as a percentage of capital. They currently make the claim that the debt percentage is down significantly. What they fail to point out is that they have substantial pre-payments and progress payments which are pseudo-debt. Clearly without these prepays they would be heavily indebted. The debt net of cash is not fully representative of the firms liquidity and capital.

Disclosure: No position in any stocks mentioned in this post.

Comcast No Discussion Earnings Release

2010-07-28T13:20:00.000-04:00

Comcast (CMCSA) reported improved results but had to digest NBC Universal costs. The press release is disappointing as it does not discuss the business in any detail. There are lots of macro numbers. No qualitative discussion was presented. Management does not want to address the issues and is hiding behind the accounting presentation. Stock is near it’s 52 week high. What’s the big secret.

Disclosure: No position in any stocks mentioned in this post.

L-3 Curious Balance Sheet

2010-07-27T13:01:00.001-04:00

L-3 (LLL) has a curious balance sheet. They announced an additional stock buy back program to goose up the EPS. They have refinanced some long term debt at reduced rates and extended maturities. They have $1 Billion of long term debt which is now current. They have about $1 Billion in cash. They make no mention of short term borrowings or lines of credit. They rely on pre-payments in excess of costs billed to provide working capital. This can slide the wrong way. Investors have no clear picture. Debt costs have already negatively impacted guidance.

Disclosure: No position in any stocks mentioned in this post.

BP New Whipping Boy

2010-07-26T11:53:00.000-04:00

BP (BP) is changing the CEO optics. Tony Hayward with his Anglo Saxon weekend yacht racing propensity may become the sacrificial lamb. Congress did not like him. He did not like congress.

A native from Mississippi is coming out of the bullpen. The PR types think he will be able to stick handle the crisis better. Maybe who really knows for sure. Robert Dudley is on deck.

How about this for strategic planning? The US government starts to meddle so much in BP operations that BP spins off the US entity and dividends it out to unsuspecting shareholders. The US government still has the whipping boy it wants. Shareholders divest from a problematic asset.

The US is still dependent on foreign oil.

Disclosure: No position in any stocks mentioned in this post.

Ford "Headgame Wording"

2010-07-23T14:05:00.001-04:00

Ford (F) released great numbers but a few items need some scrutiny. The wording of the earnings release plays a few mind games. Take note of this one after explaining most of the current financial issues.

“Take actions to strengthen its balance sheet and become investment grade” Nice motherhood statement. Was this just a throw in or are they planning something else? The automotive side is to become debt free so what is to become investment grade?

Next item “Expand its business, particularly in the growth regions of the world, such as China and India” The China and India story are old news. Getting a little tired of hearing the same old refrain. By omission the question becomes what are you doing in still large and lucrative markets of North America and Europe.

Will there be enough resources to capitalize on opportunities and defend existing market shares?

Disclosure: No position in any stocks mentioned in this post.

Baidu -- Murky Tech Future

2010-07-22T13:14:00.000-04:00

Baidu (BIDU) announced earnings and then confused thinking investors about the future. Robin Li, Baidu's chairman and chief executive officer made this comment in the earnings release "Baidu continues to focus on user experience and has many initiatives on this front to ensure Baidu remains at the center of China's Internet ecosystem."

No real substance. Just a motherhood statement. No comment as to possible acquisitions of technology or funding of R&D. They are on a rocket right now. Yes the Chinese market is huge. But remember Google (GOOG) knocked Yahoo (YHOO) off its perch. Baidu shows no signs of understanding that critical lesson.

Disclosure: No position in any stocks mentioned in this post.

Yahoo Silent on China?

2010-07-21T13:03:00.000-04:00

Yahoo (YHOO) issued earnings and made no mention of China. Google (GOOG) is struggling with Beijing and cannot claim momentum. Yahoo has some 40% of Alibaba and more than just a foot hold in the Chinese market. The investor got silence. It’s not just what you hear but what you do not hear that is significant.

Disclosure: No position in any stocks mentioned in this post.

Johnson & Johnson Consumer Marketing Costs Will Explode

2010-07-20T11:37:00.000-04:00

Johnson & Johnson (JNJ) experienced disaster within their domestic consumer sales channel. Domestic division reported a 14.3% decline. International sales increased an anaemic 1.8% which was attributable to FX fluctuations. Management is blaming slow spending consumers. Problem with the excuse is that once brand loyalty shifts to generic options JNJ will be faced with a permanent loss of market share or will have to mount expensive recapture marketing campaigns.

Difficult decisions coming which management is not addressing in the earnings release. Margins will be squeezed with additional marketing costs.

Disclosure: No position in any stocks mentioned in this post.

Warren Buffett Propaganda

2010-07-19T09:38:00.002-04:00

Warren Buffett of Berkshire Hathaway (BRK.B) has some interesting corporate propaganda with the recent Netjets ads. The ads feature both Buffett and David Sokol as Netjets owners. The tag line claims they are among the most productive people. No mention of their positions as equity owners or executive responsibilities.

Subliminally we may assume David Sokol's anointment as the crown prince. But when you own the equity and hold down executive positions to make the claim that you also hold fractional shares in aircraft is superfluous.

So Warren what was the agenda on this one?

Disclosure: I do not hold positions in any stocks mentioned in this post.

Schwab Declares Economy Finds Footing

2010-07-16T11:45:00.000-04:00

Schwab (SCHW) declared the economy has stabilized. In the latest earnings release Chairman Charles Schwab has declared “The economy is starting to find its footing, and short term interest rates have either stabilized or improved.” That’s good news Chuck. Have you looked at any of the macro’s lately. Solid footing is not the signal anyone else is reading.

CEO Walt Bettinger said, We also reduced the management fees on our proprietary ETFs so that clients can utilize their unique combination of professional management, diversification and transparent pricing with both the lowest expense ratios in the industry and commission-free online trading.

ETF’s are measured by efficiency and correlation to an underlying index. It sounds like Walt is making the point that Schwab’s stuff is special. If it’s special why do you have to lower management fees. The answer is to be competitive with similar product offerings.

Hard to have confidence with the two senior guys talking through their hat.

Disclosure: No position in any stocks mentioned in this post.

JP Morgan Politically Correct Earnings

2010-07-15T13:23:00.002-04:00

JP Morgan (JPM) played some politics with the latest earnings release. The second lead off bullet point puffs up a supposed economic support program resulting in some $700 Billion in new and renewed credit for well almost everyone.

This of course includes capital raised on behalf of large corporations. That’s more than 4X JP Morgan's market cap. Looking at it from a balance sheet perspective that’s about 33% of total assets. Huge Numbers.

But there is very little information on the break outs. Some consumers were allowed to continue using their credit cards and JP Morgan wants you to think they are supporting the economy.

In the politically sensitive area of small business JP Morgan claims a 37% increase in originations. The term origination can be bent, folded, spindled and mutilated. If someone wanted an increase of a few dollars or a change in their term loan you can just see the corporate culture driving those changes as originations.

Sounds good for Jamie Dimon, Chairman and Chief Executive Officer when he is currying favour at the Obama White House. But just in case Obama was real busy with Warren Buffet Jamie Dimon put it into the press release for all to see.

Transparency has many shades.

Disclosure: No position in any stocks mentioned in this post.

Obama & Buffet Freudian Slip?

2010-07-15T11:59:00.002-04:00

President Obama met with Billionaire Warren Buffet (BRK.A) at the White House. Warren who has more money than God, shows up in a frayed tie. He clearly does not care. He clearly does not need to care. He is a true value investor who can look through the packaging.

President Obama cares about appearances and offers him another tie. A red one if unnamed White House sources are to be believed.

On a certain level you have to wonder about President Obama's focus. Here comes the best financial advice available and your first reaction is to change it's tie.

Did he just forecast his future approach to economics.

Disclosure: I have no position in any stocks mentioned in this post.

Additional Disclosure: I am prepared to buy some new ties if it will help the economy. This metric may be replacing the Alan Greenspan men's underwear consideration.

Infosys Troubled Business Model

2010-07-13T13:41:00.003-04:00

Infosys (INFY) disappointed investors and watched the stock sell off on an up market day. Management spent no time explaining markets, costs or any other metric that a business might measure itself by. Local wages rates in various jurisdictions were ignored. Foreign exchange fluctuations or currency alignments were not considered.

Is management asleep as the business model changes? They do not communicate well with shareholders. Transparency seems to be a big problem. How do they create value going forward?

Disclosure: No position in any stocks mentioned in this post.

Playboy Worth More Without Hef

2010-07-12T12:15:00.000-04:00

Playboy (PLA) announced that Hefner wants to take it private. For a company with a habit of showing women in very public ways that’s just too cute. I think Hef wants to manage the brand. What has he been doing for the past little while? It’s an obvious sell. Hefner is not the guy to lead in the future. He is 84 and you need to worry about a succession plan. The offer is a gambit to force another hand and get more money for Christine. Playboy without Hefner is worth more than Playboy with Hefner.

Disclosure: No position in any stocks mentioned in this post.

Monsanto Balance Sheet Worsens!

2010-06-30T14:04:00.000-04:00

Monsanto’s (MON) balance sheet worsened. The cash position has decreased substantially. Trade receivables are up significantly. Short term debt including current portion of long term debt has sky rocketed. Long term debt itself has increased.

Management also mentions that much of their R&D pipeline is in the latter stages; which means substantial cash investment before commercial applications are available to the marketplace. The R&D spend will no longer be a percentage of revenues, but will be whatever it takes to get the project done. Valiant words. Very tough on cash flow.

Guidance is not sufficient to understand when the corporate model corrects itself and becomes the shareholder wealth creation machine that it should be.

Disclosure: No position in any stocks mentioned in this post.

Barnes & Noble Too Late Too Little

2010-06-29T13:06:00.000-04:00

Barnes & Noble (BKS) announced big revenue increases resulting from digital sales. Management has seen the light and is aggressively pursuing the digital option. Read this snippet from the boss.

William Lynch, chief executive officer of Barnes & Noble, Inc. “In light of the exciting digital opportunity before us, we are planning to redirect a significant portion of our financial resources towards investments in technology, sales and marketing. These investments will impact our bottom line in 2011, but we believe they will enable Barnes & Noble to capitalize on the significant mid-to-long-term growth opportunities presented by the digital markets.”

They are promising red ink chasing an opportunity they are ill prepared for. They have substantial bricks and mortar infrastructure and do not break out comparable divisional costs.

Nothing compelling about the too late me too management style.

Disclosure: No position in any stocks mentioned in this post.

Biomet Not IPO Friendly

2010-06-28T12:53:00.000-04:00

Biomet (No stock symbol) announced improved results and looked every bit the take over or IPO candidate. They announced that knew replacements and hip replacements are up in almost every part of the world. The presentation is not investor friendly. You need to be an insider in the industry to understand the underlying dynamics of why hip replacement sales are doing better in one market than another. If the investor is to be engaged Biomet will need to talk in terms of markets, regulatory overviews and competing offerings. At the present time they do neither.

Disclosure: No position in any stocks mentioned in this post.

KB Homes Addiction to Land

2010-06-25T14:27:00.001-04:00

KB Homes (KBH) is a land junkie. They have an insatiable or uncontrolled drive to acquire land regardless of its economic value. Today in the conference call Chief Executive Jeffrey Mezger commented on the SEC investigation in their land valuation practices. The earnings release also disclosed that they are still acquiring land. The outlook for housing and consumer spending continues to look grim. These guys are a one trick pony. Who has the strategic vision at KB Homes?

Disclosure: No position in any stocks mentioned in this post.

Darden Irresponsible Dividend

2010-06-24T13:50:00.001-04:00

Darden Restaurants (DRI) announced Q4 results and disappointed investors. Management seems oblivious to declining metrics i.e. declining revenues and has gambled with a 28% increase in the dividend. The current portion of long term debt is almost equal to the current cash position. Car crash waiting to happen.

When the blame starts to be allocated remember this moment of incredibly poor judgement.

Disclosure: No position in any stocks mentioned in this post.

CarMax Caution Flag on Gross Profit %

2010-06-23T12:10:00.001-04:00

CarMax (KMX) reported much improved Q1 earnings primarily due to improved results from its financing arm. They also improved revenues and feel they are making more money on each used car they sell. Here is the item to worry about:

Net sales and operating income are up some 23% but Gross Profit as a percentage of revenues has dropped almost half of one percent. This is a very telling sign. While the business cranked up marginally there was less value. Management did not address the issue in their earnings release. Investors need to watch this metric.

You cannot make it up on volume with declining margins.

Disclosure: No position in any stocks mentioned in this post.

Sprint Evo Collapsing Technology Metaphor

2010-06-22T12:29:00.004-04:00

Sprint (S) is advertising the new 4G phone Evo manufactured by HTC. Subliminal message is: technologies tip over and are quickly replaced by another one. Not creating confidence in product durability. Does Sprint expect to survive? Poorly conceived marketing message equates to poor execution.

Diclosure: No positions in any stocks mentioned in this post.

Carnival Fuel Addiction Eats Profits

2010-06-22T12:11:00.001-04:00

Carnival Cruise Line (CCL) reported improved expenses and then promptly lost everything to higher fuel prices. The fundamental nature of the cruise business is constant fuel costs.

They may be the biggest and the best from a consumer point of view. From an operating point of view they are OPEC’s best friend. Before we even get into how green this business really is, Carnival has to address the Achilles heel of oil dependency.

From the earnings release they are entirely silent on the issue. Is management awake on this one?

Disclosure: No position in any stocks mentioned in this post.

Budweiser This One Not For You

2010-06-22T11:04:00.003-04:00

Budweiser (BUD) err I mean FIFA Cup organizers dropped charges against blond women in orange dresses who attended a World Cup Soccer match between Holland and Denmark. The attractive orange dresses bore a very small Bavaria tag at the side. Both sides have agreed not to talk about it in public.

The King of Beers did not do well with the social marketing aspects of the event and raises questions about Bud's marketing prowess. Are they too old school?

Disclosure: no positions in any stocks mentioned in this post.

Ralcorp Mumbo Jumbo Guidance

2010-06-21T11:45:00.001-04:00

Ralcorp (RAH) updates guidance with a mumbo jumbo press release. EPS for Q3 are dropping from last years $1.31@ share to today’s reality of $1.00. Good thing they could keep it above the psychological dollar level. But check this wording out for the reasons:

“Principal factors contributing to this downward estimate can be attributed to cereal category dynamics including lower returns on promotional spending at Post Foods and the impact of branded competition on private label cereal results at Ralston Foods.”

Bolding and italics are mine.

The company failed to execute. The promotional spend failed to deliver. The impact of brand on private label is not completely clear. This sentence would not work with a flinty eyed board of directors. Why was it dished up to investors?

So the expectations guidance dropped the stock some 6% in one day when it was trading at the upper end of its 52 week range. Has management been speaking clearly?

Disclosure: No position in any stocks mentioned in this post.

BP Chapter 11 Blow Out Risks

2010-06-18T11:01:00.001-04:00

BP (BP) is wrestling with the financial fall out of the Gulf deep water well disaster. The Obama administration just made arrangements for $20 Billion in claims. It has been called extortion. Credit Default Swap costs for BP debts are astronomical. BP is no longer a financial model. BP is most definitely a political model.

Some call for BP to enter Chapter 11 and blow off critical responsibilities. If they attempt Chapter 11, Obama’s posse will intervene and meddle. The shareholders may loose everything. BP will be made to honour obligations and not run away. Shareholders that are pension funds may see some interesting legislation enacted to protect widows and orphans.

The blow out may follow the law of unintended consequences and give Obama the political leverage in many other area’s it has been looking for.

Corporate America needs to buckle up.

Disclosure: No position in any stocks mentioned in this post.

Winnebago Has It Really Changed?

2010-06-17T13:44:00.001-04:00

Winnebago (WGO) announced improved numbers and popped its stock price quite nicely. Looks like investors were surprised. But wait lets take a quiet read and think about the numbers. The order backlog has increased but even the company admits orders can be cancelled at any time.

Chairman, CEO and President Bob Olson let investors know this is the first time in two years that they have printed black ink on an operating basis. That’s good Bob. Now tell us about sustainable changes that you have made in your break even points and operating leverage. If sales go into the toilet again how fast can you cut expenses? How fast can you start to conserve cash?

None of these fundamental issues were dealt with by management. They just feel they can excite the dealers with the new models for 2011. Same old thinking will bring the same old problems. Next time will be faster and harder.

Disclosure: No position in any stocks mentioned in this post.

Budweiser Ambush in South Africa

2010-06-16T13:29:00.001-04:00

Budweiser (BUD) is hiding behind the skirts of FIFA World Cup organizers. Bud paid large sums for the exclusive advertising rights for Beer. During the Holland - Denmark match last Monday approximately 36 incredibly attractive Dutch women attended the game wearing bright orange mini skirts. If you have any testosterone you took a very good long look.

The ambush marketing ploy was orchestrated by another beer company called “Bavaria” which is Dutch based. (As reported by NYT) The colour orange plays a very big role in Bavaria’s branding. The girls seemed to be having a really good time. They cheered enthusiastically for Holland who did win the match.

But South African police arrested some of them for unlawful commercial activities. Not sure why only some ladies were arrested, they all were wearing bright orange. Hard to miss. South Africa has come a long way since Apartheid when colour made you wrong. Colour still makes you wrong, but now it’s a money thing. How civilized!

Budweiser is depending on FIFA to vigorously protect it against Bavaria. If FIFA and the South African police get this wrong, Budweiser will lose out. Who do you want to bet on?

Disclosure: No position in any stocks mentioned in this post.

Sara Lee Disclosure Failure

2010-06-15T12:48:00.000-04:00

Sara Lee (SLE) finally came clean and reported that their CEO had suffered a stroke and needed to take a leave of absence. I am sure that everyone wishes Brenda Barnes all the very best in her recovery. The medical condition goes back to at least May 14 when Sara Lee announced a temporary medical leave. She must have been suffering well before that point. There have been health issues going back to Oct 2006 when she missed an annual meeting.

The health of the CEO is of major concern to shareholders. Incapacitated CEO’s cannot create shareholder wealth. Incapacitated CEO’s can easily destroy shareholder wealth. Critical information was withheld from the investor community. CEO health is material information. There is something called Reg FD. Sara Lee has failed miserably.

Where is the SEC investigation? Where are the class action lawsuits?

Disclosure: No position in any stocks mentioned in this post.

BP Tricks Clean Up Costs

2010-06-14T14:00:00.002-04:00

BP continues to be the American Whipping Boy. The public debate focuses on how BP will pay. Most politicians have missed this critical fact “The clean up cost will be tax deductible”.

So if BP kicks in say $20 Billion the American taxpayer really foots half that amount. The BP tax accountants are laughing at American Politicians and their zombie like response.

Financial engineers are buckling up and starting to work the new algorithms.
Disclosure: No position in any stocks mentioned in this post.

Dell -- Does Michael Dell Have Credibility

2010-06-11T13:50:00.001-04:00

Dell (DELL) announced a complicated legal liability that will destroy shareholder wealth. Michael Dell has cost the shareholder potentially some $100 million. Thanks a lot Mike Dell. The problems revolve over poor and inadequate disclosure.

What is surprising is the continued support of the Board of Director’s. Former Senator Sam Nunn who used to represent the state of Georgia reaffirmed the board’s support with this statement:

“The independent directors of the Board have affirmed that Michael Dell will continue to lead the company as its Chairman and CEO, and he continues to have our complete confidence and support,”

Senator Nunn is the presiding independent director supposedly looking out for the interests of shareholders.

No mention of any changes in governance or disclosure policy. So if someone costs you
$100 million shouldn’t you change something. Ross Perot sits on this board. How happy can he be? Usually he is not shy? Wonder if Mike and Ross are having a drink and sorting things out.

Oh by the way the next time Michael Dell says something to we believe him.

Disclosure: No position in any stocks mentioned in this post.

Del Montes Extra Cherry Dividend

2010-06-10T13:13:00.000-04:00

Del Monte Foods (DLM) reported a very encouraging Q4 and year end. They increased the dividend some 80% and announced a three year stock buy back equal to 10% of their current market cap. They soft shoed the fact that they have decreased their cash position by $100 million mainly as a result of repayment of long term debt. They claim to be growing the top line. But they have not explained if it is increased market share, pricing power or some combination of both.

The dividend increase is a catch up. 80% sounds like a lot but it’s just a few pennies per share.

Investors need to be careful about the “Pigs Lipstick”

Disclosure: No position in any stocks mentioned in this post.

Microsoft -- Financial Engineering Cynicism

2010-06-09T11:57:00.000-04:00

Microsoft (MSFT) announced some financial engineering with a convertible debenture issue. Interest rate to be negotiated at closing. Due in 2013 which is just around the corner, Microsoft says it will buy up enough shares to prevent dilution if as and when. Proceeds to repay existing debt.

Microsoft has a “AAA” rating which was just recently affirmed by S&P. Do we believe them?

Why the short term? The deal has more financial engineering than anything else. Microsoft is saying we are strong enough to bet against our shareholders, except the debenture owners of this particular issue. So do a few select institutions have a guaranteed ride? Must be nice.

If you believe interest rates are rising why not borrow long at a fixed rate and leverage the growing spreads. Perhaps that is the next deal?

Disclosure: No position in any stocks mentioned in this post.

Cascade -- Excludes FX -- Too Simplistic

2010-06-08T12:39:00.000-04:00

Cascade Corp (CASC) announced improved Q1 earnings, revenues and better metrics all around. They have a very curious habit of specifically excluding the effect of foreign exchange when reporting numbers. The presentation is overly simplistic and unfortunately conclusions may prove to be inaccurate.

Q1 sales are reported at $94 million. North American sales are $45 million. Therefore 50% of revenues are outside of North America. The Canadian numbers are subject to foreign exchange fluctuations so even the North American numbers are not pure US$.

This could be the case of management being just too provincial to run a global business.

Disclosure: No position in any stocks mentioned in this post.

Ma Bell -- Kills App World -- Creative Destruction

2010-06-04T13:25:00.000-04:00

AT&T (T) finally came to its senses and stopped giving away unlimited data usage. They could see the financial pain coming and stopped the self abuse. As a marketing ploy to acquire initial market share they were brilliant. The financial guys reminded the board that they are a dividend paying stock.

Marketplace commentary, from app world, that complains users will become nervous about usage, are signs of weakness about the various product offerings. If your app has a compelling proposition it will attract users. If you are a junk app eating up broadband you deserve to die.
AT&T just helped to weak app die sooner. Creative destruction rules today.

Disclosure: No position in any stocks mentioned in this post.

Whirlpool -- Maytag Recall Legal Sham

2010-06-03T12:50:00.000-04:00

Whirlpool (WHR) hid behind its Maytag brand and announced a major recall of some 1.7 million dishwashers because of a fire hazard. They have identified twelve units that have had such defects.

Most dishwashers are built in. The average home owner, even if he/she is a pretty good handy person cannot just take out the dishwasher and bring it into a local store. If you bought the house with the appliance already installed you probably would not know where to bring it.

The recall is a legal sham as it is not practically possible. Yet lawyers will be able to point to the recall and say we tried your honour.

The stock has sold off on the news. Yet no announcements on potential costs and what would be picked up by insurance. Actually no word on how much insurance if any. Uncertainty provides the legal smokescreen. What burdens do investors carry on this one?

Disclosure: No position in any stocks mentioned in this post.

BP Independent Director Responsible for Safety & Environmental Assurance May Be Culpable

2010-06-02T13:21:00.001-04:00

BP (BP) is now facing a criminal investigation from the Obama administration. The investigation is political posturing. Think through the legal ramifications. To be convicted you need to prove intent.

Never gonna happen.

BP did not intend to spill oil and lose tens of billions of dollars of shareholder wealth.

At the same time the federal government is trying to regulate with one hand. On the other it is pressing a criminal investigation. Any street cop will tell you it’s very hard to get a criminal to cooperate unless you give him/her something. What will Obama give BP to get them to co-operate?

The regulatory infrastructure is rotten. The rot started under the Bush-Cheney administration. Obama is in charge of a very late rescue team. Given his recent approvals of new off-shore drilling he must have spent some time thinking about the regulatory issues.

The thinking does not show.

The investment market place needs to ask itself why it wants to take these risks and what real safe guards are in place. Tony Hayward may be the next sacrificial lamb. But what about the board at BP? What do we know about these guys?

Well look at this

Sir William Castell, LVO is a non executive director and the senior independent director. He is also the Chairman of the safety, ethics and environment assurance committee, as well as a member of the chairman's and nomination committees.

Sir William according to the corporate bio spent his early career with the Wellcome Foundation, holding various positions. In 1989, he joined Amersham plc as chief executive. Following Amersham’s acquisition by General Electric in 2004, Sir William became president and chief executive officer of GE Healthcare, and a vice chairman and a director of the General Electric Company. He retired from GE Healthcare in 2006. Sir William remains a director of the General Electric Company. He was appointed as a member of the board of governors of the Wellcome Trust in 2006, subsequently becoming its chairman.

The senior board member in charge of safety does not have a drilling background much less a petroleum background. He is not suitable to the job.

Disclosure: No position in any stocks mentioned in this post.

Prudential Needs Heimlich Maneuver to Dislodge AIG

2010-06-01T12:38:00.000-04:00

Prudential (PRU.LN) cannot swallow AIG’s (AIG) Asia unit. This is a hell of a time to need the Heimlich Maneuver.

Actually Prudential just wants to pay about $5 billion less because it cannot raise the money. AIG which was too big to fail and now relies on the charity of the American tax payer, refuses to give the house away.

Could you imagine the outcry? By the way AIG’s current market cap is just under $5 billion. So why give the discount and declare yourself worthless. AIG and the American taxpayer must stand firm.

AIA is too big to swallow. AIG is too big to fail. Prudential is not big enough and investors want to keep it that way. No one is arguing about the valuations for AIA. We just know Prudential cannot pull it off.

Adieu to Tidjame Thiam.

This may be the silver lining in AIG’s hurricane clouds. Will this be similar to General Motor’s last minute decision to not sell Opel when value was discovered?

Disclosure: No position in any stocks mentioned in this post.

Obama & BP -- Hang em High

2010-05-28T13:28:00.001-04:00

The oil addict junkie is trying to discipline the drug pusher.

BP (BP) may have choked off its errant Gulf of Mexico oil well. They will now become the whipping boy of the Obama administration. The politicians have to hang someone and satisfy the angry villagers. There is no question that BP fumbled the ball. The shareholders are paying with a significant decrease in wealth. There will be huge lawsuits and vexatious legal manoeuvring.

Obama’s administration is behind the curve in regulating off shore drilling. If they had real time information and knew what to do with it they would have shut the well down long before she blew.

Obama will make compelling speeches. The regulators are not in a position to follow through and back him up. The next major off shore drilling crisis will cost Obama big time.

In the meantime we continue to consume huge amounts of oil.

Disclosure: No position in this stock

Lenovo -- Vexatious Earnings Release

2010-05-27T14:41:00.000-04:00

Lenovo (LNVGY) issued a vexatious earnings release for their Q4 results. The release pounded the table about a 57% increase in shipments. The best gains where in China which saw almost a doubling in shipments. The Company also recorded its highest ever full-year market share and lowest year-end expense to revenue ratio. Management just could not explain why this did not result in comparable improved profitability.

Disclosure: No position in this stock

American Eagle Gambles on Inventory

2010-05-26T12:06:00.000-04:00

American Eagle Outfitters (AEO) announced that they have taken the strategic step to increase inventories and always be in stock.

Big risks abound. Fashion is fickle. Consumer spending is fickle.

You invest valuable cash into inventory which sits around and does not turn as quickly. They are trying to increase margins. Can they report improved buying power with the increased inventory. Will they be stressed out and discount inventories to source cash and get the turns up.

Big risks. Not sure if the risk reward ratio is there.

Disclosure: No position in this stock

Medtronics Cranks Up Debt

2010-05-25T08:30:00.000-04:00

Medtronics (MDT) issued Q4 numbers and let the world know they broke the $4 Billion revenue mark for an individual quarter. Of course that sounds good. What the earnings release misses out on is management commentary on results. We just have a lot of segmented information without qualitative remarks. Will it come out in the conference call?

In particular they are increasing both long and short term debt. This is always of concern. The market cap of some $45 Billion is resting on very real debt of some $10 Billion. Management is silent on this balance sheet issue

Disclosure: No position in this stock

Campbell Soup -- Strange Taste

2010-05-24T13:34:00.002-04:00

Campbell Soup Company (CPB) released quarterly earnings headlining increased sales of 7%, increased margins and confirming EPS guidance for the year at the high end of 9-11%. Hey this sounds pretty good lets take a closer look.

Q3 net earnings after tax are down. Hey the story seems to be changing. Weighted average shares are down almost 4%, meaning the stock buyback is shrinking the share base. Consider comments about the company’s ongoing practice of buying back shares sufficient to offset those issued under incentive compensation plans. Starting to worry a little.

The earnings per share are the same as comparable quarter. You got to love a good financial engineer. The icing on the cake is the increased dividend.

So Douglas R. Conant, Campbell’s President and CEO, said, “We delivered another quarter of strong adjusted earnings growth."

The EPS growth is confirmed at the high side but Q3 results really are not impressive.

The soup tastes strange today.

Disclosure: No position in this stock

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

2010-05-21T12:42:00.001-04:00

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

Staples Discussion Deficient Earnings Release

2010-05-20T12:39:00.000-04:00

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

HP Naked Global FX Risk

2010-05-19T10:45:00.000-04:00

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

Home Depot Disclosure Challenged Earnings Release

2010-05-18T14:14:00.000-04:00

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

2010-05-18T13:05:00.000-04:00

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?

2010-05-18T12:03:00.000-04:00

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

2010-05-18T11:25:00.002-04:00

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

Lowes Still Broken

2010-05-17T12:41:00.000-04:00

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?

2010-05-17T12:19:00.000-04:00

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

JC Penney -- Womens Shoes and Then What?

2010-05-14T14:12:00.000-04:00

JC Penney (JCP) released results announcing improvements and giving guidance upwards. If you parse the earnings release they claim improvements in men’s, shoes and hand bags and children’s wear. They announce new or continuing merchandising efforts such as Sephora and Liz Claiborne. Meaning they are not happy with the women’s category.

If the men’s category went up I am not sure the economy is really improving. Probably a lot of Wall Street Guy’s buying cheaper shirts. I suppose they just want to tone it down for a while. Will this category keep some loyalty?

A notable lack of merchandising talk in the release. They just covered a few high level numbers and moved on. Hard for investors to identify deep value. We are just skimming the surface and dealing with the superficialities.

Disclosure: No position in this stock

Arby's Stinks Up the Joint

2010-05-13T11:32:00.000-04:00

Wendy’s/Arby’s (WEN) posted some disappointing numbers. The stock continues to maddeningly fluctuate around the $5 @ share range despite a share repurchase program. Wendy’s continues to execute while Arby’s stinks up the joint. They are hiring new guys to fix Arby’s and you have to wonder what is the vision?

Management is curiously short on information other than they think they have refinanced a large whack of debt. The disclosure challenge will be in the product and marketing announcements about new Arby’s offerings. The question becomes how fast and how soon. The clock is ticking.

Disclosure: No position in this stock

Moody's CEO McDaniels Lacks Credibility

2010-05-12T14:30:00.000-04:00

Moody’s (MCO) smoking gun. In the what were you thinking category; New York Times DealBook reports today :

“Moody’s chief executive, Raymond W. McDaniel, exercised options on 100,000 shares that were promptly sold on March 18, the day the company received the Wells notice. The delay in disclosing the information only served to fuel suspicions that his transactions took advantage of inside information”

Not only has Raymond McDaniel ruined his credibility his actions make him look like a thief running from the scene. Warren Buffett has also been selling. What will Raymond say about the whole sordid mess?

Disclosure: No position in this stock

Macy's No Stated Merchandising Strategy Management Still Confused ?

2010-05-12T13:13:00.000-04:00

Macy’s Inc (M) trumpeted their return to profitability and even increased guidance on revenue growth. But here are a few cautions investors should be aware of. In the press release they did no refer to any retail or merchandising trends or initiatives. They just spoke to basic numbers. This mean management is still reactive and not leading anything forward.

They seem to have increased cash on hand but short term borrowings are also up. No discussion in the earnings release on this issue. We can all borrow cash and put it into a bank account. What’s the point? Why was this done?

Disclosure: No position in this stock

Winn Dixie Customers Stop Eating Shareholders Starve

2010-05-11T12:49:00.000-04:00

Winn Dixie (WINN) released results and on the earnings call blamed cautious eating habits in the south east of the USA. Peter Lynch the Chairman and CEO let it slip that store visits are down some 3.4%. Peter that’s because the consumer does not like coming to your stores. He did mention that they are working on their merchandising and other ways of attracting consumers with money in their pockets.

Meredith Adler of Barclays Capital did get Bennett Nussbaum SVP and CFO to admit that while he still has not discussed it with the Board Winn Dixie will become a net borrower in 2011. Board of Directors please consult your governance practices you should already be aware of this.

The stock has no dividend and the cash flow cannot keep up with capex. No discussion about when this critical factor will reverse and investors will see some real returns.

Disclosure: No position in this stock

Berkshire Hathaway Poor Disclosure on Foreign Bonds

2010-05-10T12:05:00.000-04:00

Berkshire Hathaway (BRK.A; BRK.B) Warren Buffet’s wealth creation machine issued an earnings release for Q1. The release refers investors to the 10Q which has more comprehensive information.

The document does have a few tidbits which make you think.

Specifically Item #2 of the MD&A of financial condition and results relating to insurance investment income indicates that some $11 billion or approximately 33% of fixed maturity investments were invested in foreign governments.

No further information. The $11 Billion just hangs there. No break down on which country, length of maturity, foreign exchange risks if any. The same item explains that US government debt is “AAA” and state and municipal debt including the foreign debt is “AA”. Given that we are all worried about the Euro some more disclosure would have been nice.

Disclosure : No position in this stock

Penske Desperate To Avoid Dilution

2010-04-30T11:27:00.000-04:00

Penske (PAG) engineered it’s balance sheet with this comment “The Company repurchased $71.1 million principal amount of its 3.5% Senior Subordinated Convertible Notes due 2026 in open market transactions for $71.7 million in cash during the first quarter, leaving approximately $235 million principal amount of these securities outstanding.”

This is over 300% of net income available for shareholders. Penske is a capital intensive business. Trucks and cars not to mention the parts inventory need financing. They have a 48% debt to equity ratio. Buying the sub notes at par is preplexing. They claim an open market transaction. The market in a $300 million issue is thin. I think someone had lunch with someone , went back to the office and made phone calls.

Sure there is a small avoidance of dilution. But overall cash is being deployed for desperate reasons not shrewd and savvy reasons.

Disclosure: No position in this stock

Baidu -- Sexy Financials -- Impotent R&D

2010-04-29T07:37:00.000-04:00

Baidu (BIDU) lays out some growth numbers and continues to make Yahoo (YHOO) look good. 60% increase on the top line and 165% increase in net income. Applause please.

Google (GOOG) in China looks confused but they were savvy enough to ignore that one.

Google has a monster algorithm. Baidu has next to nothing in R&D spending. They are only up some $18 million because they hired a few guys. The R&D spend seems to track revenues by 10%. They may be big now but someone can beat that. Baidu does not even brag about R&D or claim its a strength.

Given the level of innovation within China, Baidu is vulnerable.

Then Yahoo hits another air pocket.

Disclosure: No position in this stock

AOL Dream State Disclosure

2010-04-28T10:47:00.000-04:00

AOL (AOL) seems to be in a dream state when reporting Q1 results. Tim Armstrong, Chairman and Chief Executive Officer was quoted as saying AOL continues to make progress against our long-term objective of becoming an internet growth company.

What is an internet growth company? What services do you provide? Why does someone use you? The terminology is a throw back to the dot com bubble. Investors should worry about the Tim Armstrong mindset.

Speaking of growth, revenue is down 23%, net income down 58% and free cash down 55%. Internet growth story? Well the cash burn looks familiar. But we all know how that turns out.

If a lot of AOL costs are restructuring why was this not done before the IPO? Time to review disclosure from TimeWarner. Where are the lawyers on this one?

Disclosure: No position in this stock

Goldman Sachs -- Creative Suicide Next?

2010-04-27T11:35:00.000-04:00

Goldman Sachs (GS) got a political beating today. The politicians know when to kick Wall Street and get votes from Main Street. Goldman clearly does not know how to manage image or public relations. The vilification is instant and causes even the most loyal client to pause for thought. Many would think Goldman is upping the life boat drills.

The issues will be vexatious and absorb much valuable time at Goldman which could be better used in making money.

So why stay on a slow or stopped boat. There are probably lots of individuals considering non Goldman career options. Goldman will want to re-invent itself and get back to Wall Street.

Go to the Fed Reserve and just give them the keys. Here you go it’s yours. The Senate has prejudiced our life. We’re outta here. Then you walk down the street, find some office space this time in Manhattan and start over.

Creative suicide intersects with structured finance.

Leave behind the political issues and start fresh. If the Federales disapprove how Goldman conducts itself then they can take it over. Goldman will have to engineer the financial structure of the century through a pre-negotiated bankruptcy. This will blow off the liabilities and force them into the Fed’s hands. The American tax payer suffers yet again.

Someone will pay. Someone will hang.

Disclosure: No position in this stock

Citigroup Tax Payers Cheated Again

2010-04-26T11:05:00.000-04:00

Citigroup (C) Uncle Sam is starting to exit its position. Morgan Stanley was hired to auction off some shares. The stock still floats below the psychological $5 @ share point. The Fed will probably realize well over $30 Billion upon full disposition. That’s a few brand new aircraft carriers.

The trade is a political one and does not bear any relationship to any investment logic that may exist out there. If the Fed were a true long term investor and really wanted to maximize its wealth then hang on. When they finish fixing Citi it will be worth more than $5 @ share.

Risk assets were transferred from private hands at a key inflection point that could not look any worse. Now that Citi is showing true signs of recovery the tax payer gets shafted. Again. As the tax payer is not being compensated for the risk it took. In the meantime senators debate financial reform but do not realize they have been taken for another ride.

Disclosure: No position in this stock

Microsoft -- Big Cash -- Small Dividend

2010-04-23T12:00:00.002-04:00

Microsoft (MSFT) the technology company everybody used to hate released improved results and watched its stock bounce off the 52 week high. The press release was disclosure challenged as it contained next to no substantive management information. When you read the conference call transcript you become a lot smarter about the company. But not smart enough. Analysts asked a few product related questions but really did not turn up anything new.

Microsoft has over 10% of its market cap in cash and equivalents. The dividend yield is under 2%. Who cares if Apple’s (AAPL) market cap exceeds Microsoft. At this stage in the game Microsoft has decided not to send a dividend signal. Its either growth or value. At 1.7% yield and the stock bouncing off the 52 week high it has become neither.

Sure Windows 7 is growing nicely and Office 2010 should do well. But what do the shareholders get? And when will it be?

Disclosure: No position in this stock

Blackstone -- Just Go Private

2010-04-22T13:19:00.002-04:00

Blackstone (BX) released results, declared the world is getting better and watched investors drop kick their stock price. What’s it going to take? The whole dividend thing is very controversial. The yield is stratospheric. Anything over 5% is suspect. The market for some reason does not scrutinize bonuses at Blackstone to the same degree that Goldman Sachs (GS) gets. But this financial engineering firm exists to create wealth for itself first and then its shareholders.

The market cap is some $4.7. Why not take it private and stop this silly public company stuff. Wheeler dealers do best in closed door meetings. The Blackstone model does not play well in transparent glass wall markets.

Disclosure: No position in this stock

"Diligent Board Member" Hard to Understand. Why?

2010-04-21T12:04:00.001-04:00

Diligent Board Member trades on the New Zealand Stock Exchange NZX under the symbol DIL. They caught my eye with a Business Wire press release announcing their 300th customer.

Congratulations. That sounds really good. I had to hit a few clicks to follow up.

DIL provides services for members of Board of Directors to keep their board books under control. I think. I’m still waiting for the brochure but after reading the web site this sounds right.

DIL provides terrible investor information. Cannot figure out who the board is, who the officers are, who are we getting into bed with? All this is buried in turgid SEC filings. Cannot figure out what their numbers are but they are supposedly publicly traded. The head office seems to be in both New Zealand and NYC. Some venture capital or was it hedge funds invested some money and took some board seats last year.

They are represented by BlissPR. BlissPR has a web site with a guy sitting in a chair floating and defying gravity. BlissPR claims a large list of clients in financial services. Hmmm

OK so to deal with this company you have strategic inside information and the DIL background information comes up in the “I find it hard to accept department”. But hey if you are the lawyer reading this calm down. I am not saying that you are a bad guy. But you sure do not present very well either. Hope to get my brochure and see what’s going on. Wonder what the liability insurance is for these guy’s?

Disclosure: No position in this stock

Paulson Screams Not Guilty

2010-04-21T11:05:00.000-04:00

John Paulson screams not guilty in the latest fiasco with Goldman Sachs (GS). Well what else was he going to say?

In law there is the concept of “guiding mind”.

The guiding mind orchestrates and constructs the alleged malfeasance. Given that he has made billions on an idea that he generated; given that other i-banks turned him down and Goldman Sachs went for it, strengthens his role as the guiding mind. He did pound the pavements looking for the correct partner in this one.

Legally Paulson wants to shake this one off. Economically if you believe in creative destruction and the value of short sellers in capital markets you have to thank Paulson for declaring “Emperor wears no clothes” Paulson did the job the SEC failed to do. He regulated the market and took his bounty.

Of course he cannot argue the point in this fashion. The system is on trial.

Disclosure: No position in this stock or with Paulson & Company

JNJ Investors Fly Blind on FX Guidance

2010-04-20T13:02:00.000-04:00

Johnson & Johnson (JNJ) which deservedly has an excellent reputation with investors adjusted 2010 guidance citing foreign exchange fluctuations.

JNJ is a huge global company operating in hundreds of jurisdictions around the world. For investors to follow the foreign exchange driven earnings guidance it would be better if JNJ actually explained what the adjustments actually were.

JNJ reports geographical market share, product groupings and we can get information on margins and pricing. But this time FX moved the guidance not the traditional business inputs. Global companies need to be understood in global terms. That means foreign exchange. Right now JNJ investors are flying blind.

Disclosure: No position in this stock

Warren Buffett Embarassed By Goldman Sachs?

2010-04-19T11:20:00.000-04:00

Berkshire Hathaway (BRK.A, BRK.B) the Warren Buffett wealth machine cannot be happy with Goldman Sachs.(GS) It’s $5 Billion investment earning 10% dividends just lost $1 Billion in value. Ron Olsen a director of Berkshire and supposedly speaking with Warren Buffett’s acquiescence just days before the SEC filed civil charges, put his foot in his mouth in defending integrity.

The 10% dividend is problematic. This is a superior return which other investors could not negotiate. Warren Buffett got a really big piece of pie from Goldman Sachs. Goldman Sachs is generating huge returns and huge personal bonuses over the dead financial bodies of sophisticated yet seemingly stupid investors. Warren Buffett was paid for risk. He took what he thought was a big fat pitch.

Goldman is in the fight of its life. As more comes to light many clients will curtail if not stop using Goldman Sachs. No one will want to be tainted by association. No one will trust. Everyone will second guess. The competition cannot believe the luck of this Black Swan as they try to pick away at Goldman and steal some damn good business.

Did Warren Buffett make the worst investment of his life? Is the $5 Billion at risk? Remeber the market is a manic depressive entity.

Disclosure: No position in this stock

Gannett Cost Cutting Pays Taxes Not Dividends

2010-04-16T12:41:00.001-04:00

Gannett Co (GCI) reported improved earnings because they can cut expenses faster than revenues shrink. The TV side had the added boost of the Olympics which unfortunately was not enough to offset other losses. The bizarre aspect of Gannett’s income statement is their high tax rate in the face of declining revenues. They are cutting costs but 41% goes to the tax man. The cost cutting exercise is not tax effective. Paying the tax man does not generate cash.

Disclosure: No position in this stock

Limited Brands Conflicting Messages

2010-04-15T13:50:00.000-04:00

Limited Brands (LTD) has a few messages contradicting each other. Limited Brands owns Victoria’s Secrets and recently bought Montreal based La Senza for some C$ 710 million. Dow Jones Newswires reports that they are opening up a new unit in Montreal that will

“support all Limited Brands retail stores and strategic expansion in Canada, including La Senza, Bath and Body Works, Victoria's Secret Pink and Victoria's Secret, which is launching later this year.”

Joanne Nemeroff has been named president of the new unit

The Globe and Mail carried a Canadian Press Newswire story stating that Limited Brands is looking to move 50 creative and merchandising jobs from Montreal to its main office in Ohio.

“It is about pooling all of resources together in one place and being able to attract the best possible talent,” said Martin Waters, president of international for Limited Brands.

The messages obviously conflict and you have to wonder if Limited Brands knows what it is doing. By the way concentrating creative resources is a good idea. The head office is in Columbus Ohio which is not as sexy as Montreal. But wait; when you check the web site Limited Brands also has significant offices in New York. 1114 Ave of the America’s 24th floor if you were wondering. So if you are really good at creative and merchandising type of work do you want to live in Columbus Ohio?

So where are the resources really going and will they manage cost effectively? Will this be another creative driven venture with poor cost controls?

Disclosure: No position in this stock

JPMorgan Chase Huge Litigation Reserves Anemic Dividend

2010-04-14T11:51:00.000-04:00

JPMorgan Chase (JPM) reported improved results. Or did it? The improvements come from the gunslinger side of the business investment banking and treasury & security services. The bread and butter lend money to an individual did not fare as well. Quite frankly they are still losing money in retail and card services.

JPMorgan slipped in a $2.3 billion in additional litigation reserves, including those for mortgage-related matters under corporate results. When you consider they made some $3.3 billion in the same quarter that’s a lot of money for arguing about something. That’s also a lot of money for something that is not a credit loss.

Money talks. B*LLSH*T walks. Financial institutions can twist their accounting around forever. The dividend yield says it all. It’s well below half of one percent. For a blue chip money center bank that still stinks.

Disclosure: No position in this stock

Infosys -- Naked Foreign Exchange Risk?

2010-04-13T14:32:00.000-04:00

Infosys Technologies (INFY) announced earnings in a very bare bones earnings release. More questions are raised than answered. The corporate narrative is we are an outsourcing solution transferring expensive functions to inexpensive jurisdictions. OK Capitalism manifest in its raw form.

But consider this issue. For two years in a row Infosys trade receivables are exactly 16% of revenues. For a growing company operating in multiple currencies that is amazing. One of the reasons customers use Infosys is that trade finance is available. In the past customers had a payroll to meet constantly. Now you can drag your payments.

Keep thinking; multiple currencies and the customer decides when to pay. This cannot work out to Infosys’s advantage. Customers will pick the best scenario for themselves. Infosys becomes an inadvertent counter party to foreign exchange fluctuations.

Infosys Technologies is more of a commodities trading concern. The commodity is labour. What is it doing to protect itself? Currently is seems there is huge naked exchange risk.

Disclosure: No position in this stock

MasterCard -- New Boss -- Better Dividends?

2010-04-12T14:17:00.000-04:00

MasterCard (MA) announced an new CEO. Richard Haythornthwaite, chairman, MasterCard Board of Directors anointed Ajay Banga as President and CEO effective July 1 replacing Robert W. Selander, who has been MasterCard’s chief executive officer since March 1997. The appointment was expected. Ajay Banga employment contract included a special multi-million dollar fee just in case he was not appointed by the Board. He also immediately becomes a member of the Board of Directors.

The real issue is what course will the new pilot plot for investors. CEO’s are similar to quarterbacks on NFL football teams. They make or break the team. There is precious little information about his intention or initiatives. There is precious little information about what the board sees as the future. We do know one thing the field is cut throat competitive. What does MasterCard have to offer that Visa, American Express and others are not already offering?

Trying to figure out MasterCard is like guessing what the Vatican will do. If you see too many consultants being hired for high level strategy look out. If you see a shoot for the moon expansion look out. If you see no change in dividends look out. MasterCard has a $33.9 billion market cap with an anaemic dividend yield of 0.23%. Weak and could use much improvement.

Disclosure: No position in this stock