Friday, June 19, 2009

Smuckers Needs More Jam

Smuckers (NYSE:SJM) announced year end results which included Folgers for two quarters and off course make the numbers look very good. The acquisition has added debt which will become a factor in EBITDA over the long run. Just when you start patting management on the back for a job well done you read in their outlook that they really have nothing more to add.

The question becomes will they try to grow by acquisition which is always risky or will organic growth carry the day. My bet is that once the deal making thrill gets you will always welcome the visit from an investment banker who has been hired to peddle something. The risk becomes a deal making risk as opposed to an operating risk which is more easily defined.

Thursday, June 18, 2009

General Motors Will Be Juiced

General Motors (GMGMQ) Chief Fritz Henderson is making noises about coming out of chapter 11 sooner than the 60-90 day time frame. Ford Chief Alan Mulally (NYSE:F) says people want to deal with a company that is stable. GM says they anticipate oil to hit $130 @ barrel and are designing cars to reflect that. When the Chapter 11 thing is over it will be interesting to watch competition. Ford will be very quick to shout foul and unfair advantage. Ford probably has a dedicated strategic legal team warming up right now. The new GM has to work so watch them juice it. Can the federal government be culpable in economic manipulation? Of course that’s what they do best.

It may be a long time before you are able to invest in this sector without the whiff of government involvement. Remember the good old days when you could just assess an investment’s prospects and go from there. Most investors will not be able to follow the story as it unfolds so watch for irrational activity.

Richard Scrushy Found Guilty

Richard Scrushy who did his best to damage HealthSouth Corporation,(NYSE:HLS) a global health care company was found guilty in his civil trial. He has to pay $2.8 Billion. Nice judgement but where is this guy going to get the money.

Air Canada Goes To The Dogs

Air Canada (TSE:AC) announced they will allow small pets to travel with the passengers for a small fee $50 to $100. The law of unintended consequences is about to kick in followed by lawsuits. When I travel I do not want a barking or whimpering dog annoying me. If you have allergies, dogs and cats may set them off. Then there is the whole sanitary issue as the poor little dears will not be able to use the facilities like everyone else. I can actually see people selecting an airline for people and not for animals.

Wednesday, June 17, 2009

Fedex: Relax It's ....Losing Money

Fedex (NYSE:FDX) Reported Q4 and year end numbers. They played out the Dow theory that transportation has to confirm. We do not have a confirmation. Furthermore management is suggesting the future looks bleak. Hard to disappoint after this announcement as nothing was promised or implied. What could they do differently? Take a look at the fuel costs which just went up off the graph. They produce stats on revenue per package and per lb of freight. They need to track fuel costs in the same fashion. They need to acquire fuel strategically not just when the truck runs empty. The entire thinking is horizontal. Buy Watkins, buy Kinkos and then you control the customer. But you need to control the cost to be truly successful.

If Fedex can become the fourth largest airline why can it not become something significant in the fossil fuel business and control costs while protecting profit.

La-Z-Boy Do You Trust Inventory Valuation

La-Z-Boy (NYSE:LZB) announced Q4 and year end results. They are showing all the correct moves despite drops in revenues. Inventories are down, debt is being reduced, leverage is very low, cash is being generated, they are exiting expensive manufacturing and getting a plant going in Mexico. OK so why is this stock not doing better. The economy is terrible and people are not buying furniture. OK so let’s look at the future strategy and we see it’s still the same. They are relying on their own retail network and they are attempting to cut costs by going to Mexico. Basic business school stuff nothing outstanding.

But look at inventories. They seem to turn at about 8x to 9x latest annual sales. If you crank up Mexico to produce more cheaply and then face cut throat retail pricing pressures you will need to write down the inventory. So the question becomes why inventories were not yet written down. Is this a side door view of the costs in the Mexican plant?

Tuesday, June 16, 2009

Smithfield Negotiates With Lenders

Smithfield Foods (NYSE:SFD) announced Q4 and year end losses. Nothing to be surprise about at this point the problems are well documented. The press release attributed several comments to a Mr. Pope who we assume is the President and CEO. He was not introduced in anyway. (Clever search engine management, perhaps?)

But here is the comment he made:

“Turning to the company's financial condition, Mr. Pope stated, "We are constantly evaluating options associated with pushing off near term maturities, seeking permanent covenant relief and reducing our overall debt levels. Toward that end, I am pleased to report that we are continuing discussions regarding refinancing with various lenders, well in advance of current maturities. In addition, we have made significant progress on improving our balance sheet, reducing debt and increasing liquidity."

OK so you are talking to your lenders. That’s nice but what are you getting in return?

Monday, June 15, 2009

Del Monte - New Speak

Del Monte Foods Company (NYSE:DLM): Del Monte speak is truly a wondrous thing. They have done well in controlling costs, improving margins and increasing revenues. But for some reason they cannot bring themselves to say that. Read this quote which was placed immediately after comments by Richard G. Wolford, Chairman and CEO

“The 14.1% increase in net sales was driven primarily by pricing actions, as well as new product volume across the portfolio. These gains were partially offset by existing volume declines in Consumer Products (primarily due to the volume elasticity from the pricing actions). “

I wonder if the bonus clause in the executive compensation contract has the same type of language.

ArcSight - What is The Strategy?

ArcSight, Inc. (NASDAQ:ARST), a leading global provider of compliance and security management solutions that protect enterprises and government agencies, today announced financial results for its Q4 and fiscal year ended April 30, 2009. The company admittedly did well compared to last year. They are positioned in compliance and security management solutions which sounds like a good place to be.

When you check out their cash position you find a $90 million bank account which in relation to current operations sounds very high. Then you check R&D and see that for a new company offering new ideas the R&D spend is very low. So the question becomes what does this company provide in this space that is so unique that will let them survive or thrive. $90 million dollar bank accounts are peanuts in this space.

Management has not spoken to the future in this context. This begs the question as to what their long term strategy really is; if there is one.

Sunday, June 14, 2009

Six Flags Bankrupt Surprise Surprise

Six Flags, Inc (OTC:SIXF) announced bankruptcy to avoid a huge debt repayment in Aug. The new management team did inherit a ridiculous balance sheet which was saturated with debt and are now doing the only thing possible. The timing is savvy and if investors are surprised then shame on you. This one has been marinating for a long time. Summer is here people are starting to spend money at the amusement parks but this year the spend will be down because the economy stinks.

The question becomes do you believe in amusement parks as an investable business model or should it be taken private by savvy investors who know how to maximize value and do not freak out if the gate is low on any particular day.