Friday, February 15, 2008

Abercrombie & Fitch Will It Do?

Abercrombie & Fitch (ANF) released results indicating increases in profitability and increases in EPS. The board declared a dividend giving its stamp of approval to the current activities. Wall Street analysts have an overall buy rating on the stock and obviously view the company in a favourable light.

But look at a few items. Comparable store sales for the year just completed in almost all categories are down one or two percent. The low end of the earnings guidance reflects a negative 1% comparable store sales scenario for the first half of Fiscal 2008.

While management can hide behind comments that the economy is difficult, they are spending approximately $420 million in capital expenditures to improve formats and or build new stores. They do not back up the plan with any disclosure about marketing expenditures. The marketing number is combined with general and administrative expenses and is impossible to isolate when reviewing the press release.

Declining same store sales, large Capex and an impossible to find marketing number does not equal transparency.

Thursday, February 14, 2008

Goodyear Cakewalk

Goodyear (GT) reported year end numbers. The press release reads like a sports report for a home run derby. Everything is good if not significantly better. Admittedly the company does recognize that much of the financial improvement is because last year Goodyear had a long strike and lost approximately $318 million in sales.

The problem with the press release and probably the way management chooses to communicate with the financial markets is that they do not describe market conditions or provide any information on market share or competing products.

Therefore when you read the press release you have to wonder if management is really kicking it or has the elastic band just snapped back and they got a gimme?

Wednesday, February 13, 2008

Jones Apparel What Improvements ??

Jones Apparel (JNY) issued Q4 results and wants the investment world to believe that the losses are narrowing and therefore are better.

Wesley R. Card, Jones Apparel Group President and Chief Executive Officer, stated, “As we enter 2008, we expect to begin to realize the benefits of many of the turnaround and recovery initiatives that have been implemented throughout the Company, including enhancing our product offerings, streamlining of our supply chain and distribution networks, as well as jettisoning several of our marginally profitable businesses.

John T. McClain, Jones Apparel Group Chief Financial Officer, commented, "Our financial position remains strong. We ended the year with $303 million of cash and $783 million of total debt, which is $107 million less debt than at year-end 2006.

OK so what really happened? If you read the sources and uses of cash you will see that they off loaded Barney’s and realized approximately $845 million on this exit. Barney’s was a bad deal and the exit was the right thing to do. The company does take $100 million and reduces debt (Banks probably insisted). An overwhelming $497 million was spent on buying back stock. The net cash realized is $248 million from these three items. Which is about what the increase in cash is reported as?

Everything else had no significant effect. The stock has been declining throughout the year. Share repurchases have been increasingly a poor idea and have not been successful in propping up the share price.

It’s hard to understand what they have invested in and why investors should be optimistic about their future in this stock. Management comments are not to the point in this release.

Tuesday, February 12, 2008

Curtiss Wright Powers Up Without Cash Flow

Curtiss-Wright Corporation (CW) announced year end results. They made much noise about the following Sales up 24%; Operating Income up 27%; Net Earnings up 30%; 12th Consecutive Year of Revenue Growth. Does sound rather good especially in a tough market.

The not so silver lining is in the cash flow. The corporate press release put out this paragraph

“Net cash provided by operating activities for the full year 2007 was $139.1 million, down slightly from the $143.9 million in 2006. Our 2007 free cash flow, defined as cash flow from operations less capital expenditures, was $84.7 million for 2007 as compared to $103.7 million in 2006. Higher capital expenditures, inventory, and receivables to support increased sales were partially offset by higher earnings and advance payments.”

Curtiss Wright is investing heavily in its own operations and they as yet are not generating increasing levels of cash flow. Receivables are up 38%. Inventories are up 50%. Pre paid pension costs are down 19% (have we deferred a problem here) Accounts payable are up 43%. Long term debt is up 42%.

The stock has been trending downwards since late Oct. corporate management needs to better explain how their financial model is working. The current format cannot continue for too much longer before they crash and seriously burn.

Monday, February 11, 2008

Sherwin Williams Glosses Over Details

Sherwin Williams (SHW) signed an agreement to acquire the liquid coatings subsidiaries of Inchem Holdings Asia (SGX:ICHM). Christopher M. Connor, Chairman and CEO of The Sherwin-Williams Company, said “this acquisition reaffirms our commitment to growing globally through organic growth accelerated by strategically important acquisitions.”

OK this sounds important and really good. So if its worthy of a press release to comply with regulatory disclosure requirements why not provide the details. Things like purchase price and terms and conditions if any should be disclosed. Investors who like to focus on earnings per share would most likely appreciated substantive information on the financial aspects of the acquisition. Management even neglected to provide comment as to if the acquisition would be accretive and when.

Global expansion is great but reports which focus only on which flag has been captured without the financial backup are inadequate.