ITW ignores balance sheet debt issues. Suspicious focus on sunshine earnings. Strange narrative tactic. $ITW

Illinois Tool Works

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ITW (NYSE:ITW) came out  with glowing Q4 results. In a suspiciously dense headlines it focused on increasing revenues and margins. In fact  Chairman and Chief Executive Officer David B. Speer. said”We produced strong top line growth, solid margin improvement and impressive free operating cash flow.” He felt it was a solid performance by Team ITW.

Then take a look at the balance sheet and lets look at a few fundamentals. Overall the cash position has not changed. So they are spending. Then look at dramatic increases in short-term and long-term debt. Approximately $1.3 billion. Large increases in debt are always dangerous. Bankers will want the money repayed.

If you read the earnings release you’ll notice a tension between organic growth and overall growth. They have bought growth but are wording the press release to give the impression that margins are improving; which makes it look as if management is working very hard.

Sounds like the PR strategy is to pretend growth is not from acquisition but from diligent management which is improving constantly. This is a dangerous narrative for investors.

George Gutowski writes from a caveat emptor perspective.

Carnival Cruise Line hides costs of Costa Concordia disaster in SEC annual report filing. $CCL

Costa Concordia {Malta 2008}

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Carnival Corporation (NYSE:CCL) released their annual report and buried the projected costs of the Costa Concordia disaster. close scrutiny of the SEC documents indicates they will take a hit between $155-million  and $175-million against fiscal 2012 net income because of the wreck of the Costa Concordia. They then make the comment that they have significantly curtailed marketing expenses since the untimely disaster. The last juicy tidbit is that management does not expect any long-term consequences from the disaster.

The manner of disclosure while technically legal is not investor friendly. Carnival management clearly wants to wipe the dodo off their shoes. Corporate management psychologically does not believe this is their fault and they want to position themselves in a no-fault zone. Very similar to the Captain who abandoned ship before passengers and crew were completely evacuated. Just do not take responsibility. The corporate culture does not reward responsibility or accountability; or so it seems.

The marketing spend curtailment could not possibly be a significant offset against the losses. If anything they will need to spend significant amounts to repair their brand. As to no long-term effects, think lawsuits, think about the problems involved in removing fuel from an unstable wreck and then think about the visuals of a partially sunken vessel.

This is a black swan event for Carnival. Carnival needs to call it for what it is.

George Gutowski writes from a caveat emptor perspective.

JetBlue fuel hedge strategy. You never know if it works out. $JBLU

jetBlue Airways

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JetBlue Airways Corporation (Nasdaq:JBLU) reported numbers which looked pretty good. “JetBlue’s solid fourth quarter results capped a very good year for JetBlue,” said Dave Barger, JetBlue’s CEO. Regular readers may discern I am not fond of airline stocks. Something about not covering your cost of capital as an industry really gets my goat. Well anyway airline companies live and die by their fuel costs. Most have hedging strategies. JetBlue explained where they are going forward.

But they never report how the hedges worked out historically. If you trade commodities, which this is, you have an account with regular reporting. Are you up or down? Loss or gain? Smart or stupid? JetBlue and most airlines never seem to report historically. The smart or stupid determination is never publicly reconciled. The idea is to hedge forward and control your costs. But there are hedging strategies. How good is JetBlue doing?

Airlines are commodity driven and should have more transparent reporting on how they manage this critical cost.

George Gutowski writes from a caveat emptor perspective.

SAP overhypes earnings. Playing Jedi mind tricks or maybe I just need a cigarette. $SAP $ORCL

SAP (NYSE:SAP) issued preliminary Q4 and year end numbers. The hyperbole in the headlines was amazing. Just in case investors cannot read management threw in these headlines:

  1. SAP Reports Best Ever Results
  2. Best Ever Software Revenue Performance
  3. Exceeding Revenue Guidance
  4. Exceeding Operating Profit Guidance
  5. Double-Digit Earnings Per Share Growth
  6. Record Operating Cash Flow
  7. Strong Contribution From Innovations

Is it just me or do we all need a cigarette.

OK the enterprise software business is doing well. This thing called the cloud is so sexy all major and minor companies will spend billions to upgrade to that they can be in the cloud. If you are a SAP investor or an Oracle (Nasdaq:ORCL) investor you already know that.

As always read very closely. go to the numbers and follow the comparisons. Last year Q4 they took a hit on something called TomorrowNow for 934 million Euro’s. It became their single largest expense item outweighing any other major category.

All financial commentary neglects to point out the differential. SAP management wants you to look the other way.

George Gutowski writes from a caveat emptor perspective.  

Research in Motion stealth take over. It clever, very clever.$RIMM $RY

Image representing Research In Motion as depic...

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Research in Motion (Nasdaq:RIMM) announced the supposed rearrangement of chairs on the Titanic. The two senior guys  Balsillie and Lazaridis announced that they will be stepping down tomorrow. They will still be on the board and they will still continue to hold huge personal investments in Research in Motion.

The key critical chess move is the appointment of former Toronto Stock Exchange chief Barbara Stymiest will become chairman of the board of directors. Ms. Stymiest has been a director since 2007. Royal Bank of Canada (NYSE:RY) had previously hired Ms. Stymiest to a new role of chief operating officer during a management overhaul in 2004 after a slump in the U.S. eroded profit at the bank. She was responsible for “strategic development,” with all corporate areas reporting to her, including finance and risk management.

Fortune magazine named her one of the 50 most powerful women in global business three times from 2006 to 2008, and she was named one of the “25 Most Powerful Women in Banking” in 2008 by American Banker.

Forget about the iPhone consumer battles. Research in Motion is all about security. Many countries want to access Blackberry networks internal systems so they can spy on supposed internal enemies. American and Russian security types have spoken very well of Blackberry security strength.

This strength in security is important to financial institutions and credit card operators. So with Ms Stymiest sitting at the top who is the very best to maximize shareholder wealth including Lazaridis and Balsille.

Hedge fund activists who want a strategy to compete with iPhone and other smart phones do not know what they are asking for.

George Gutowski writes from a caveat emptor perspective.

Union Pacific good news but leaves out a few items. Some cause for long term concerns. $UNP


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Union Pacific (NYSE:UNP) release good news and watched their stock trade at 52 week highs. The earnings release was very abbreviated in comparison to the earnings call. Management was more forthright on the conference call which is always annoying. But other than that everything is really good. I mean really good. They could not find one issue which was a problem.

So here are a few skeptical issues to worry over.

Firstly when you look at capex by managements admission 50% of the expenditure is replacement items. Replacing worn out track and equipment is always good but when 50% is just replacement you need to have disclosure on the capex program. How much track and equipment needs to be replaced and what kind of schedule are we looking at both in time and money. Good operating results and safety compliance is driven by adequate  capex in equipment refresh programs. Management was not even close to discussing these points.

Secondly the projected dividend yield is about 2.14%. The dividend has just been increased. the stock is trading at the 52 week high. What will management need to do to increase the dividend to keep the yield conscious investor happy with increasing dividends. Think about the dividend issue in the context of 50% of capex going on simple track replacement and not to revenue enhancement.

George Gutowski writes from a caveat emptor perspective.

GATX obsess about rail. But other asset classes created profits. $GMT

EMD GP38-2 locomotive GMTX 2146, owned by GATX...

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GATX Corporation (NYSE:GMT) announced very much improved numbers and attributed better results to a much improved rail market. Brian A. Kenney, President and CEO of GATX, said, “The North American rail market recovered more quickly than we anticipated in 2011.” How do you make such a bold-faced comment after Warren Buffett buys into Burlington Santa Fé and publicly trumpets what a great deal it really is. Where’s  Brian Kenney on thsi one?

In any event GATX was able to increase lease rates, keep their utilization rates up and place the largest order for new rolling stock in GATX history. All certainly a vote of confidence in the future.

But look closely at revenues and what really drove the improvement and you will conclude that rail was not the whole story. Asset remarketing income was up four fold in Q4. You cannot rely on trading profits for ever. Marine operating revenue was also up dramatically in Q4. While this is all good news the CEO cannot be ignoring these divisions and  claiming rail is the primary driver.

Why would the CEO direct market attention in this way?

George Gutowski writes from a caveat emptor perspective.

Tim Hortons kidney busting changes to addictive behaviour $THI $MCD $SBUX

Tim Hortons Coffee & Bake Shop

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Tim Horton’s (NYSE:THI) recently announcing some drastic kidney busting changes to the Java strategy. Namely a cup of coffee is no longer the same cup of coffee that the consumer is used to purchasing. Whats he talking about? Tim Horton’s one of North America’s largest quick service restaurant operations is introducing a new 24 oz cup of coffee. Not sure of the exact total and most kidneys would not find it relevant.

Here is what is relevant.

If you have a coffee addiction and are used to a double double or even a triple triple x-large to go, you now have to order it up in a different way. Same with the large, medium and small. When you finish understanding the changes you may go running out screaming for a Star Bucks (Nasdaq:SBUX) or even a McDonalds (NYSE:MCD).

Tim’s is trying to change a fundamental consumer behaviour based on addictive habits. Good luck buddy. Why take the risk? If you want to introduce a new large mega size just do so. Rearranging your entire sizing is confusing and will disengage the customer. Small will now be called x-small and so on. Consumers will now get stupid looking stickers on their coffee lids explaining what new behaviours are required.

If you were to introduce a new size why not come up with a separate new name that really hits the nail on the head. I’m thinking “kidney buster”.  Have your lawyers call my lawyers and we’ll get it all going. I’ll take payment in kind for the rest of my life if it makes it any easier for you.

George Gutowski writes from a caveat emptor perspective.

Citi misses, disappoints, confounds, annoys, fumbles, enrages and fiddles loss reserves. $C

English: Vikram Pandit, Chief Executive Office...

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Citigroup (NYSE:C) may become the world record holder for manic-depressive value plays. There is a school that continues to believe there’s a pony in here somewhere. We know there is, we can sort of smell it.

In the meantime Vikram Pandit, Citi’s Chief Executive Officer, said, “Overall, we made solid progress in 2011.”…..”Clearly, the macro environment has impacted the capital markets and we will continue to right-size our businesses to match the environment.”

Ok so  we have the classic mixed message conundrum. The macro situation stinks. Everyone gets that except Euro bureaucrats and labour unions. Citi will be firing thousands more to cut head count and right size operations. But at the same time Citi is reversing loan and credit loss provisions and boasting income. That only happens when the economy is getting better. Thats when the macro situation has improved and looks good.

Citi’s numbers really stink when you back out credit loss reversals. No one was expecting Citi to come in with flying colours. Financial institutions (NYSE:XLF) are still hurtin real bad. But me thinks the pony may have drowned in too much BS.

Citigroup still needs to find a path for the future. Right now they do not have the foggiest notion. Watch for more bold moves. It will be difficult to separate the desperate from the strategically brilliant.

George Gutowski writes from a caveat emptor perspective.

Carnival emergency disclosure begs many questions about Costa Concordia $CCL

English: The "Costa Concordia" in Pi...

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Carnival Corporation and PLC (NYSE:CCL) issued a supposed Reg FD disclosure about the financial impact of the Costa Concordia sinking. The press release went out on Martin Luther King day when markets are closed. The ship is expected to be out of commission for the rest of this fiscal year. If you look at media pictures of the ship lying on its side that’s not a surprise. What Carnival did not quantify was the impact in dollars. They did offer some information on insurance and deductibles. They also admitted that they are self-insured for loss of use. This means EPS will take a hit as a normally productive asset disappears.

Somewhere the CFO has the information as to what that ship brought in. They are chosing not to identify it.

How do you salvage a large boat of this nature. Discovery channel will probably be filming a documentary chronicling the whole sordid affair and creating a recurring PR nightmare as the cruise market is constantly reminded of the disaster. 

Carnival is also silent on how the Captain and navigation crew/systems could allow such a disaster to occur. This question will be closely followed by how does Carnival manage the selection of their captains and ship officers. The Mediterranean is well known navigationally. Rock outcroppings, currents, depths and other critical navigational issues are well documented. How did this happen?

Carnival has some huge questions that need to be answered. What are they doing about it?

George Gutowski writes from a caveat emptor perspective.