Groupon Major Global Technology Integration Initiative Has Started. Why Do They Need This Already? Silence on Costs! $GRPN

Logo of Groupon (Photo credit: Wikipedia)

Groupon Inc.  (Nasdaq:GRPN) announced some better results and encouraged the market to keep believing. Investor relations is subtly promoting the classic buy and hold lets us do the work approach to investing. OK so a new tech company out of the chute should be showing improvement that’s what investors have bought into, a rapidly improving story. Emphasis on “rapidly”.

In reading the conference call transcript  I was struck by a comment made by Andrew Mason CEO on the second page. He announced  Groupon had kicked off their first major global technology integration initiative. According the Andrew Mason there will be some foundational rebuilding in the short-term, but he believes that over the long-term, this project will allow Groupon to move much faster  and more easily apply technology.

Err excuse me. What does this all mean? Just what is a global technology integration initiative. You are a brand new tech company with a lot of answers supposedly. Everyone anticipated a global approach. Given that you are so brand new what has happened that you need a global integration initiative. What did or did not happen to your platforms.  Class action lawyers need to review the underwriting documents. Was this requirement identified.

At this point no mention of costs but Groupon does have the ability to say “As previously disclosed”. This gives them some wiggle room in the Reg FD challenged space. Not one analyst picked up on the point in the conference call. So we have no explanation as to the true scope and nature. Groupon can rightfully say we mentioned it in the conference call but no one wanted to talk about it.

Well Groupon in the interest of clarity and visibility why don’t you add more colour on that point. if it is important enough to mention from the CEO’s lips than it must have big costs and big impact. How can investors feel well-informed without understanding the scope, scale and costs.

George Gutowski writes from a caveat emptor perspective.

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JPM Morgan Humpty Dumpty Moment $JPM $XLF

CEO of JP Morgan (Photo credit: Wikipedia)

So by now even taxi drivers have heard. JPM Morgan (NYSE:JPM) lost $2 Billion in the last oh what was it about six weeks. Lots of speculation about the issue. This one will not go away soon. The political ramifications are about to resonate. Jamie Dimon is a disgruntled democrat who does not appreciate President Obama’s demonization of Wall Street. At one point there may have been thoughts of Dimon becoming a second administration Treasury Secretary. Even after some verbal pugilistics with central bank governors he may have been a consideration. But now that he has presided over an embarrassing trading loss well lets just say Treasury Secretaries need to be winners not losers on Wall Street. At the same time he was starting to flirt with Republicans. Republicans will not want to embrace a Wall Streeter with controversial losses. Romney just lost Dimon’s cell phone number.

Six weeks eh! Six weeks and nothing was said. Counter-parties knew. The trading fraternity had a pretty good inkling and that’s how the rumours started. But for the average guy in the street investor and even for normally well-informed institutions there was no inkling. This is Reg FD challenged. When does $2 Billion become material enough to disclose. Speaking of which at what point in the last six weeks did you realize you had a problem? Could you not have curtailed it at some point less than $2 Billion. The Board of Directors will need to commence their own independent inquiries. There does not seem to be a lead independent director and maybe this will be a governance epiphany. Who knew what and when as they say?

Regulators are already planning informally as it were. In the UK the FSA has already had conversations. In the USA the Fed and Treasury will want some answers. Get ready for some major explaining. This being a presidential election year partisanship is not far away. Congressional investigation(s) will be held on this extremely important topic. Jamie Dimon may become a political football. Can he keep his job? Will he want to keep his job?

In any event the risks that Jamie Dimon craved and relished have come back as negative events. Jamie Dimon says they did not execute very well. Did someone forget to do something. Did the quarterback throw a bad ball? Like there are still more questions than answers. And now the speculation starts that the losses can be much higher.

So can all the kings horses and all the kings men put humpty dumpty together again. I think not.

George Gutowski writes from a caveat emptor perspective.

 

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Chesapeake Energy Update and Correction. What Does Step Down really Mean! Investors Still Screwed $CHK

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Chesapeake Energy (Photo credit: Wikipedia)

Numerous readers including David J. Chamberlin Executive Vice President / General Manager, Dallas for Edelman who I presume is engaged by Chesapeake (NYSE:CHK) have pointed out that Aubrey McClendon did not resign as the CEO but he did step down as Chairman. In my earlier post I wrote “The recent resignation of Aubrey K. McClendon – Chairman and CEO will not extinguish the fire storm`. The reader comments are correct; Aubrey K McClendon did not resign as CEO. My apologies about a technical issue which may beg the real question.

Aubrey K McClendon also did not step down as CEO. But he did step down as Chairman. So what does step down really mean! The public relations guys see a really big difference. Step down has a softer less harsh connotation than such words as resigned, relieved, pushed out, fired, dismissed, replaced, disciplined or god forbid terminated.

Step down does not adequately address the issue of destroyed shareholder value. Mid March investors valued the company at a few pennies over $25.50. The close on May 3, 2012 $17.19 which was up on the day. That`s just over $8 per share loss! Now that`s a step down. Investors are still wondering if there are more step downs to follow.

But let’s be clear about the facts. Aubrey K McClendon is currently the CEO. The board of directors seems to be OK with Aubrey K McClendon staying on as CEO.

I also still stand by the gist of my earlier post about when you should consider investing in Chesapeake. Mr Chamberlin I hope your OK with this clarification.

Oh by the way Mr Chamberlin of Edelman do you have any comments about Chesapeake confirming a SEC Informal Inquiry. The SEC was careful to point out an informal inquiry does not mean any securities laws were broken or violated. But they have requested that both the company and Mr McClendon retain certain documents. Hey no problem as he is still the CEO.

George Gutowski writes from a caveat emptor perspective.

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Groupon Slithers Away Friday Night $GRPN $FB $GOOG

Logo of Groupon (Photo credit: Wikipedia)

 

Groupon Inc (NASDAQ: GRPN) announced a material weakness in its accounting policies. It tried to assuage investors that the real numbers like cash flow and real profits are still the same. Also the critical guidance was going to stay the same so hang on investors stay with the cause. Personally I have to disclose to you that I originally signed up for Groupon deals identifying myself as a solvent white educated male in my very late 50′s interested in fine dining, wines, scotch, cigars and very cool stuff for my grand-daughter. I received a slew of offers for nail extensions and nothing for my grand-daughter. Nothing I tell you. So I have been dubious about the underlying business case as it did not work for me.

 

So when I learn that this high flier has a serious problem with its accounting controls somehow I’m not surprised. What is surprising is managements expectations that this can be shrugged off. They claim to be working with another global accountancy to establish the correct policies. The claim says they have been working on the issue for several months. Ahem investors look at this point. If the new boy accountancy has been hired several months ago it means Reg FD has been violated. Groupon management knew about the problem but did not want to disclose or failed to disclose. Governance Governance Governance.

 

The smoking gun will be the terms and reference of the engagement agreement between Groupon and the third-party accountancy. They must have been hired to fix the problem because that’s what the updated guidance said they were hired to do. Do you think Groupon’s legal department see’s it that way? Why did they sign off on the press release and let them walk into the REG FD buzz saw? Do they understand Reg FD and securities litigation? Many class action lawsuits have been announced so maybe not. At this point  there are seventeen announced actions so maybe the legal side is catching on.

 

I just find it very odd that they chose not to name the third-party accountancy firm that is investigating the material weakness. What could the damage be? Ernst and Young will do the audit. But given the responsibility that auditors now have what are the odds that Ernst and Young are reaching for their pen to sign off on the numbers.

 

We may have an interesting discussion about materiality. It’s only some $35 million that’s nothing for a fast growing company with rapacious shareholders. But to someone like a Google (Nasdaq:GOOG) or a Facebook (FB) who have an end game mentality a $35 million anomaly which depresses the price just might be the best piece of news their boards have heard in a long time.

 

George Gutowski writes from a caveat emptor perspective.

 

 

 

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Peabody Energy Drowns Q1 Forecast $BTU $BHP

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Peabody Body Energy (NYSE:BTU) the world’s single largest coal company announced their Q1 guidance would probably come in at the very low-end of the guidance range. Peabody which provides 10% of US coal supplies and 2% of global coal supplies is citing torrential rains and later flooding in Queensland Australia. The extreme weather events are negatively impacting everything. Port and rail operations, surface mines and underground mines.

OK so when everyone is swimming around operations are not a smooth as anticipated. Not good news but investors get that. One quarter due to weather, hmm! At the same time  Peabody Energy Chairman and Chief Executive Officer Gregory H. Boyce said  “Peabody continues to target significant increases in its Australia coal exports in 2012 to serve rising global demand for both metallurgical and thermal coal products.” So that means in the next three-quarters Peabody will make up the shortfall? Yes no. Just what did that macro strategic comment really mean? But if you cannot get existing operations to run smoothly just what is it that you are targeting that will create a positive impact in the next nine months. Baby its got to be Big to even out the numbers.

Oh by the way the stock is trading at 52 week lows. Interesting to note that the guidance adjustment came after the stock dropped about 10% in the past few days. Just saying. But the weather in Queensland is not just one little cloud burst. Three days before the guidance adjustment Queensland did have some extreme weather. So why did it take Peabody three days to adjust guidance? The press release threw out a nice round number of $50 million for early estimates of impacts. We all know that early estimates tend to be underestimates.

CEO  Gregory H. Boyce. did comment about the supply disruption saying it  all points to the tight supply demand balance  for seaborne metallurgical and thermal coal. So is this a set up comment? Will Peabody continue to have reduced earnings as Queensland tries to dry itself up? Is the weather event causing the spot price of coal to increase? Has Peabody which claims to have trading capability been able to capitalize and mitigate some of the earnings losses.

Last but not least what disruption to client deliveries are anticipated. If your rail and harbour facilities are completely shut more than one boat load has been interrupted.

Assessing impacts after an extreme weather event are always difficult. But management should not take three days to realize they are flooded and facilities are inoperable. The next earnings call should prove to be very interesting. They have set the tone for negative earnings consequences.

In the mean time other mega commodity companies show no particular impact. BHP Billiton (NYSE:BHP) admittedly a very diversified commodities player possessing significant coal interests seems to be unaffected or at least is keeping quiet like a church mouse. Anglo-American which has five mines in Queensland also is not reporting any substantive problems. Anglo-America trades in London, Johannesburg as well as pink sheets. While their facilities may not have experienced the same extreme weather event/consequences if supply balance is being affected their share prices would have been affected. So far it seems like a pure Peabody problem.

George Gutowski writes from a caveat emptor perspective.

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Boeing Late Fees Become Material. Reg FD Implications $BA

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Boeing (NYSE:BA) is arguing with Air India and the Indian government over late fees that may be applicable over the much delayed but finally flying 787 Dreamliner. The Indian Government is asking for $1 Billion. Boeing is offering $500 million. Depending on the options package this amounts to about one free dreamliner.

Boeing is not arguing the late fee rationale. They are just negotiating the size of the delay fee. The Dreamliner program is much delayed and Boeing may be looking at billions in late fees. Currently the Indians are asking for 10% of Boeing’s cash on hand. Boeing has countered with 5%. Thats just India. Would it be too racist to accuse them of a nickel and dime mentality? What about side deals and special arrangements which Boeing is only too happy to make. Why do you need to press for the big cash?

There has been no attempt at financial guidance from Boeing for late fees. Looking at it from the profit and loss viewpoint. The $1 Billion Indian position is equal to 25% of last years $4 Billion net profit. Note to regulator check for short sales position ultimately controlled by Indian Government or associated cronies. Note to other regulator review disclosure in the context of REG FD and determine when Boeing splained that this big number and perhaps other big numbers may become detrimental to Boeing’s shareholders in the very near future.

The entire quandary is becoming a gaming theory conundrum. Play poker with the Indian government. Do not alarm shareholders in real-time. Ignore the regulator now while you jaw down a major client who is also a sovereign country. Extraterritoriality is a nice touch. So far Prashant Sukul, joint secretary of the country’s aviation ministry told reporters that they have asked for more. Boeing has not said a thing. So perhaps they can argue that until the negotiations are a done deal they did not have the basis for accurate material disclosure. So Thank You to the Indian government who has taken this out into the public domain.

George Gutowski writes from a caveat emptor persepctive.

 

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Smith & Wesson CEO Hyperbole Read This $SWHC

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Smith & Wesson Holding Corp (NASDAQ:SWHC) reported Q3 results. As a firearms manufacturer they attract a lot of rabid attention at times. so the communications people work hard on the messaging. But give me a break and read this quote from the senior guy.

James Debney, Smith & Wesson Holding Corporation President and Chief Executive Officer, said, “Our third quarter results demonstrated the positive impact of our concentrated, strategic focus on firearms.   

When would Smith and Wesson not be focused on firearms. Strategically or otherwise. Corporately are they over focused on politically correct terminology. They are still a for profit company looking to maximize shareholder wealth.

George Gutowski writes from a caveat emptor perspective.

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H&R Block Stuck in Muck. Poor Marketing DNA is Achilles Heel $HRB

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H&R Block Inc (NYSE:HRB) issued Q3 numbers and proved they were stuck in the muck and did not have a break out strategy in place. Death and taxes are inevitable. H&R Block is not able to differentiate themselves from the other myriad tax prep services. H&R and the industry is transitioning from physical walk-in store fronts to on-line services. The transition seems to be following the model many newspapers have. Poor and slow.

Yet they manage a 5% dividend yield which allows many investors to hold their nose while they wait for something better. The question becomes what is better. Currently they make a few nickels by financing tax refunds. This attracts a low-end financially desperate consumer who lives from pay cheque to pay cheque. How do you sell these consumers more financial services? They tend to be maxed out on plastic. The up-sell potential is narrow.

Taxes are the nexus of personal financial planning. Taxes are a highly charged political football. Yes vanilla tax prep is a commodity business. So why not attempt the classical marketing exercise of product extension and attracting a larger more profitable ticket. Admittedly much of the board and senior executives are newly installed. But you do not get a sense of financial services marketing in the career DNA’s or recently appointed individuals.

Also you do not see or hear of any R&D product development style spending. You do not hear about strategic reviews. You do not hear or see any signs of  thinking beyond the current products. There seems to be a lack of urgency.

In the meantime investors are being paid to wait. The current 5% yield looks attractive. But as the company starts to spend on new product development or tries to acquire its way out of the current problems the dividend coverage will become stressed. The concept of steadily increasing dividends will not manifest as the company hits potholes.

So watch the strategic development of this company. If they stay narrowly focused on the low-end they face the transition risks as they migrate from physical to on-line. As they maintain their dividend yield they may become attractive as a take over candidate to another financial services oriented company who wants to offer a tax prep services to capture their client holdings.

George Gutowski writes from a caveat emptor perspective.

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Korn/Ferry Broken Windshield – Conflicting Narratives between Investors and Clients $KFY

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Korn/Ferry International (NYSE:KFY) reported mediocre Q3 results. Gary Burnison, CEO of Korn/Ferry International stated “We had a solid seasonal quarter despite an uneven economic recovery,” and then went on to say “As the recovery carries forward, we will continue to drive our differentiated strategy and solutions to help our clients not only attract, but engage, develop and retain the talent needed to effectively execute their business strategy.”

Blah Blah Blah. OK This is my take on the matter. Despite having a supposedly premier position the head hunting market is shrinking. Some growth is occurring in Latin America but it’s not enough to lift all boats. The key driver is how many successful consultants you have on staff. In Kon/Ferry’s case they had a drop of approximately 10%. Whether the consultants were pushed out or left of their own volition is a matter of conjecture. But a growing successful revenue generating firm would be growing not shrinking. Also they do not talk about average billings per consultant growing. For all the supposed prestige of executive level head hunters they are revenue streams, pure and simple. The more and bigger the better. Korn/Ferry did not have more or bigger. The business model is not being maximized.

This is why I say Korn/Ferry’s windshield is broken and they are ignoring the key driver which maximizes shareholder wealth. Management does not speak to the issue; to the chagrin of investors.

And now for the other side.

Hiring executives is a positive move. They are expensive and damn hard to place. If Korn/Ferry publicly reports that the market sucks then they will lose credibility with potential clients. People want to deal with winners not losers regardless of the reasons for wins or losses. If Korn/Ferry publicly reports they are not doing well they will miss on the next assignment and create a negative virtuous circle as they are sucked down the drainpipes of increasing irrelevance.

Korn/Ferry has a conflict between its obligation to accurately disclosure to investors and its public posturing to potential clients. The two narratives do not match very well.

The final problem is the departure of the incumbent CFO Mike DiGregorio who plans to pursue other interests.  Robert Rozek has been appointed Chief Financial Officer in his stead. This sort of transition between CFO’s is always difficult and has never proven to create shareholder wealth.

George Gutowski writes from a caveat emptor perspective.

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US Banks Caught in Disclosure Quandary $XLF

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Big banks (ARCX:XLF) are running scarred. The Clearing House Association, a bank lobby group is advocating that the Fed Reserve not disclose as much information in upcoming stress tests as was done in 2009. The Fed reserve is planning to release more information this time around. Something about transparency seems to resonate in the offices of bank regulators.

The big banks which most likely qualify for the still existing and going strong category of “too big to fail” have serious concerns. Apparently in a letter from The Clearing House Association the banks are concerned that the additional information “could have unanticipated and potentially unwarranted and negative consequences to covered companies and U.S. financial markets,”

The very reason why the Fed has stress tests is to try to weed out circumstances that can lead to unanticipated negative consequences to the US financial markets. The bank lobby group is a cut out for the banks. If a senior officer were to make such a comment in public the ensuing firestorm would engulf that individuals career while at the same time creating substantial doubt about that particular financial institution.

The individual financial institutions also have a looming disclosure quandary. Every quarter they report. Recently they have been reporting better earnings driven primarily by improved reversed and or decreasing credit losses. Risk management signed off. Auditors signed off. Will the Fed sign off?

As a regulator they have no interest in saying everything is fine. Regulators are not declaring the system to be safe and sound. There will be dirty laundry. The devil is in the details and the details are to see the light of day. Many senior executives will have their credibility challenged. Governance standards will be questioned. Class action lawsuits will commence as litigation lawyers will be able o use the rear view mirror of Fed Reserve Stress Tests.

It is very difficult to impossible to analyze a large financial institution solely by relying on their statutory reporting. Most salient information comes from oblique angled discernment. Macro economic data is the primary driver providing insights into such items as credit card receivables, mortgage and other consumer products. Capital market activities give clues on probable trading income outcomes. and so on and so on.

There are still many closed doors on Wall Street. Most bank investors are other large financial institutions such as pensions, mutual funds and financial institutions themselves. I do not know of any large effective lobby group of financial institution investors who can counter lobby.

Will we see regulatory failure again? The small individual investor who does not have the resources to navigate the shark infested waters of large financials should sit this one out. If you must put your toe in the water do so cautiously and be well diversified. One blue suit looks like the other.

George Gutowski writes from a caveat emptor perspective.

 

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