Friday, January 26, 2007

Honeywell Transport Systems Not Impressive

Honeywell (NYSE:HON) released some pretty nice looking numbers. EPS growth was 28% after taking into account discontinued operations. Transportation Systems continues to under-perform other entities and appears to have continuing diminishing status. Turbo Technologies continues to win the overwhelming majority of passenger and commercial platforms.

Unfortunately these wins will come on line in 2008 and later. The press release is very quite about anticipated margins and potential earnings impacts. Mention was made of new product launches in consumer products.

The stock is trading near its 52 week highs and is not included as a high yield Dogs of the Dow member. Look for divestitures in this area as Honeywell works to maintain shareholder returns.

Thursday, January 25, 2007

Ford Twitches and Twists

Ford (NYSE:F) released bad news of course. While the troubles are real much of it reflects a new CEO who needs to clean house, as well as potential pre-merger tweaks and fix ups. A few comments about the excuses.

Overall they partially attribute losses to unfavorable volume and mix. I assume that’s product mix. The excuse is almost standard from company to company. Every company with poor performance has this unfavorable mix. This usually means that the higher margin offerings are not working out which means poor strategy. The plan A had to work because plan B does not make money. This cannot be solved by cost reduction. The market is saying we do not want to buy your products.

Under the Mazda category less than clear language was used to explain a drop in profitability. Have a read .

“Mazda: For full-year 2006, Ford's share of the pre-tax profit of Mazda and associated operations was $168 million, compared to $255 million a year ago. The decline was more than explained by the non-recurrence of gains on Mazda convertible bonds in 2005.” Non-recurrence of gains is an interesting financial concept meaning just what exactly?

Under the financial services sector they served up this convoluted rationale “…These were partially offset by market valuations primarily related to non- designated derivatives and reduced operating costs.” No further comment on the significance of non-designated derivatives.

Ford has serious problems and needs to change its ways. Everyone agrees on this point. In doing this investors do not need convoluted language.

Wednesday, January 24, 2007

B of A Credit Quality

Bank of America (NYSE:BAC) may be whistling through the graveyard when commenting on its credit quality. The press release states “Credit quality remained stable. Consumer credit costs rose in the fourth quarter from the third quarter of 2006 reflecting portfolio seasoning and the trend toward more normalized levels post-bankruptcy reform.”

Some would view the stable comment with skepticism and conclude this is not stable but perhaps mildly deteriorating. No B of A is not going to hell in a hand basket. But every single credit quality criteria has slipped. Provision for credit losses up. Net charge-offs are up. Total managed losses are up. Non-performing assets are up. The allowance for loan and lease losses was also up.

Some of these criteria are measured in hundreds of a basis point. Huge banks live and die by small changes in their spreads and expense ratio’s also calculated in hundreds of a basis point. Management needs to further comment on the changes. The silence is deafening.

Tuesday, January 23, 2007

Pfizer Anxiety

Well the big Pfizer (NYSE:PFE) press release came and went. We all knew they were going to make a big splash. They had to. The communiqué was structured with five priority points. The first three were predictable and most people probably understood them. Reading on my skepticism started to kick in.

“Priority Four: Actively and more meaningfully engage with customers, patients, physicians and other collaborators to provide them with greater value”. The press release went on to say that they would seek out new approaches to bring products to market.

As best I can tell the FDA and drug regulators in other countries have not changed how they operate. The whole area of pharmaceutical marketing remains controversial and some would say ethically challenged. Also an awful lot of your sales force is becoming unemployed and have lost the employment lottery. Those who keep their jobs may have lost motivation.

Investors clearly need to know how priority four is to be implemented. Right know we only know what they will not be doing.

“Priority Five: Make Pfizer a great place to work.” This is just a motherhood filler which does not have any integrity. You are axing committees and flattening the organizational structure. That will make the place more efficient. Sounds like a run on comment to priority point three, which is to create smaller, more focused and entrepreneurial business units.

Pfizer is still taking tentative steps and is not truly as confident as it seems. A focused three-point plan would have more convincingly indicated strategic clarity of purpose. Perhaps the most critical line in the press release was “Long Term Outlook -- 2009-10 Resumption of Revenue Growth Given Contribution of New and In-Line Products and Dissipation of Loss of Exclusivity Impact” Its still a little ways out before the good times have permission to roll. The market is going to need some more good news

Monday, January 22, 2007

Algorithmic Musings: Advertising Challenge or Strategic Mergers

Google (NASDAQ:GOOG), Yahoo (NASDAQ:YHOO) and Microsoft (NASDAQ:MSFT) continue to strategize it out in the text search field. Yahoo and Microsoft are protecting notable franchises in the financial and investment worlds. Google still covets the space and is expected to become increasingly important. Real time securities pricing, close to being implemented, should dramatically increase viewer-ship.

Text ads promise a laser focus so as to eliminate unnecessary expenditure. The entire process is supposedly algorithmically controlled. The entire process misses the subtle and intuitive channels that frequently leads to a consumers pocket book.

Watch for algorithmic add ons. Google, Yahoo and Microsoft all want to make money. As certain markets mature and even shrink somewhat the natural imperative is to search out new territory. The new value proposition will connect investor eyeballs to selected lifestyle offerings. Investors should have money so why not offer them cars, travel, high end high margin consumer goods. (The travel leisure gambling stretch will be interesting to observe).

Imagine today’s hot stock also serving text ads for its products and services. Imagine troubled marketing campaigns testing and market researching their way out of a troubled business plan.

The critical construct of business is that your customer must have money to buy your product or service. Mere interest is difficult to monetize. Individuals who spend time on investment sites fit the profile. The challenge will be to convert portions of the savings ethic to spend-able dollars.

The competitive statures contrast sharply. Google is considered to be the text ad leader. Yahoo and Microsoft have strong offerings in the investment space. The question may become who will make strategic alliances with Dow Jones (NYSE:DJ), Reuters (NASDAQ:RTRSY), Bloomberg et al. and establish the dominance. Or more to the point who will make a huge take-over offer and attempt to buy the dominance. Look at who is already making alliances with traditional print media.

Post Script
I am also prepared to argue that independent financial blogs also are incredibly valuable.