Research in Motion Turtle Like Moves? $RIMM

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Research in Motion (Nasdaq:RIMM) announced drastically reduced earnings for Q4. Market reaction has taken a page or two from chicken little “the sky is falling” and then again for emphatic emphasis “the sky is falling”. Lets take a rationale look at some of the major issues.

  1. The new CEO just arrived 10 weeks ago. By the way he is looking for a new COO and the good news is he thinks he is close to hiring a new Chief Marketing Officer. Not to mention Jim Balsillie has just resigned from the board. The generals are still changing out. The guys that are leaving probably were not pushing at the wheel. Actually this was a good thing as most would agree they were not the winning team.
  2. Hey they only lost $128 million.  That ain’t nothing but a chicken wing in the technology space. This only begs the question. Big change holds hands with big write-offs. The year-end was just closed off. That means this year will see more pain and financial agony. The new guys will be hired not to protect the status quo. By the way inventories are up clocking in at $1 Billion. Can you see some write-offs coming.
  3. The only good thing is the large increase in their cash position moving some $610 million to $2.1 Billion. This is the necessary set up move for solution. The new whatever will cost big bucks. Watch for continued cash hoarding over the next few quarters. When they start drawing down cash will signal the back field is in motion. The earnings release led with this point. Subliminal advertising designed to encourage the deep value investor.
  4. The cash position is roughly equal to 30% of RIM‘s market cap.
  5. No discussion about the value of patents and intellectual property. Of course if management starts hammering in this point it would confirm they are holding themselves up for sale.

So given the cash position would you pay approximately $4 Billion for the operating assets with substantial cash flow and all the intellectual property.

George Gutowski writes from a caveat emptor perspective

Obituary for Common Sense #commonsense

An Obituary printed in the London Times…..Absolutely Dead Brilliant !!
Today we mourn the passing of a beloved old friend, Common Sense , who has been with us for many years. No one knows for sure how old he was, since his birth records were long ago lost in bureaucratic red … … tape. He will be remembered as having cultivated such valuable lessons as: – Knowing when to come in out of the rain; – Why the early bird gets the worm; – Life isn’t always fair; – And maybe it was my fault. Common Sense lived by simple, sound financial policies (don’t spend more than you can earn) and reliable strategies (adults, not children, are in charge).
His health began to deteriorate rapidly when well-intentioned but overbearing regulations were set in place. Reports of a 6-year-old boy charged with sexual harassment for kissing a classmate; teens suspended from school for using mouthwash after lunch; and a teacher fired for reprimanding an unruly student, only worsened his condition.
Common Sense lost ground when parents attacked teachers for doing the job that they themselves had failed to do in disciplining their unruly children. It declined even further when schools were required to get parental consent to administer sun lotion or an aspirin to a student; but could not inform parents when a student became pregnant and wanted to have an abortion.
Common Sense lost the will to live as the churches became businesses; and criminals received better treatment than their victims. Common Sense took a beating when you couldn’t defend yourself from a burglar in your own home and the burglar could sue you for assault. Common Sense finally gave up the will to live, after a woman failed to realize that a steaming cup of coffee was hot. She spilled a little in her lap, and was promptly awarded a huge settlement.
Common Sense was preceded in death, -by his parents, Truth and Trust, -by his wife, Discretion, -by his daughter, Responsibility, -and by his son, Reason. He is survived by his 5 stepbrothers; – I Know My Rights – I Want It Now – Someone Else Is To Blame – I’m A Victim – Pay me for Doing Nothing
Not many attended his funeral because so few realized he was gone. If you remember him, pass this on. If not, join the majority and do nothing.
George Gutowski writes from a caveat emptor perspective.

Facebook May IPO. Sell in May and Go Away with Record Wall St Fees $FB $AAPL $YHOO

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Facebook maybe (NYSE:FB) maybe (Nasdaq:FB) looks like it will go public in May. This will be the biggest internet offering yet. OMG does that mean the biggest Wall Street Fees ever. Well given an anticipated $5 Billion offering with a 1.1% fee yeah the fee is gonna be huge. Given that we have arrived at the end of March it comes as no surprise the go day will be some time in May. Probably early May as the market will not want to have the really big deal come down around Memorial Day. Can you imagine getting some Facebook shares as a Mother’s day present?

Facebook does not seem to know about sell in May and go away. Facebook seems to forget that the six month lockup would expire in late Oct. If the stock has taken a dive, creating more selling pressure in the last two months is not wise. While underwriters insist interest and demand for Facebook is high what they cannot ascertain is how the market will pay for the shares. Will investors use unallocated cash reserves or will they trim positions in other technology stocks to make way for the new kid. As the inevitable flipping occurs the johnny come lately types will try to load up and need to finance the purchase. So maybe no definitely more selling especially from the smaller retail accounts.

So who is ripe for selling. Apple (NASDAQ: AAPL) has been in nose bleed country for a long time. Yahoo (NASDAQ: YHOO) probably not. Disenchanted investors have already bailed. You can just see the trim that may be called a rotation. Then again Facebook will become included in a lot of index funds and those portfolios that mimic them. But once that demand is covered money flow will taper off.

In the meantime buckle up.

George Gutowski writes from a caveat emptor perspective.

Walgreens Wobbly Narrative $WAG $ESRX


Walgreens (Photo credit: Wikipedia)

Walgreen (NYSE:WAG) reported top line growth for Q2. Stock pops a little. But lets take a look at some of the fundamentals that should be driving the narrative.

Firstly they lost their hook up with Express Scripts. Oh well everyone else will just have to work harder. Hmm tough to execute

Secondly they are complaining that this years cold and flu season was unseasonably mild. In this context they are posturing themselves according to  President and CEO Greg Wasson with a ‘Well at Walgreens’  strategy to become America’s first choice for health and daily living. From a marketing point of view the strategy may not be resonating as deeply as management may want. Flu shots are off by about 700,000. You take the flu shot in advance. Once you get sick it’s too late. Yes public anxiety does drive flu shots but Walgreen cannot sit back and passively wait for public anxiety. That is not congruent with becoming the first choice for health and daily living.

Thirdly prescription sales are down 4.2% yoy. Sure the front of the store picked it up. No information on any specific product line was provided. But you cannot rely on non pharma products driving record sales when prescription sales are tanking.  The wild card is Express Scripts (Nasdaq:ESRX) ability to take more customers out of the Medco transaction. Management was upbeat on the conference call but that could just be whistling through the graveyard.

Fourthly cash and equivalents has decreased from $2.2 Billion to $1 Billion. Debt levels have remaining relatively unchanged, which is not necessarily a good thing. Here is some of what they have done with the cash.  Dividend payments and stock repurchase account for about $1.4 Billion. Accounts payable have been reduced by $700 million so Walgreen must be very popular with the trades. Quite simply the business is using more cash than it is generating. The primary culprit is the repurchase of shares which of course is the financial engineering tool of choice to manage earnings per share.

Bottom line: Decreasing prescription sales cannot be masked by share re-purchases forever.

George Gutowski writes from a caveat emptor perspective.

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.

Morgan Stanley Vengeance Move Against Former Employee – Actions Speak Louder Than Words $MS $C $JPM $GS

Invitation to join the Morgan Stanley Alumni n...

Invitation to join the Morgan Stanley Alumni network (Photo credit: Lars Plougmann)

Morgan Stanley (NYSE:MS) recently won a court case against a former employee and has judgement for about $10 million. Maybe paper judgement but the judge has ruled in favour of Morgan Stanley. Whats this all about? $10 million at Morgan Stanley is a rounding error. Well usually it is but in this specific case Morgan Stanley is building corporate culture and drawing lines in the sand.

It seems that a former employee Joseph F. Skowron, the onetime star hedge fund manager is serving jail time for insider trading, and now needs to pay $10.2 million to his former employer Morgan Stanley. Not a rounding error for Joseph F Skowron. But wait the $10 million is still not enough for Morgan Stanley they are seeking $45 million in civil court.  The case becomes a lawyers delight.

The entire case may not seem strategic but as reported by NYT Dealbook the stakes are high. Morgan Stanley is taking the opportunity to show other employees who may consider some form of malfeasance that they will be subject to both civil and criminal proceedings. You can make rules but for some people it’s not about the rule it’s about the consequences. So while Morgan Stanley could have relied on its insurance policies or just written a cheque and hoped to keep it quiet it now is embedding into its corporate culture that if you are found guilty of securities infractions you will be prosecuted. You will be persecuted. You will be hounded. And if you are married and have children we will not be taking care of them. jail time will not be an embarrassment.

Usually I write negatively about publicly traded companies and I have not been a big fan of the bulge bracket firms. But in this case I appreciate what Morgan Stanley is doing to protect investors and themselves.

Just by way of quick summary if you are not aware of the timeline:

  1. Joseph F. Skowron is a former star hedge fund manager for  Morgan Stanley-owned FrontPoint Partners.
  2. Joseph F. Skowron  is a Yale educated doctor who was lured into the hedge fund world.
  3. FrontPoint partners was acquired by Morgan Stanley in 2006.
  4. Skowron tried to bribe another French  doctor to reveal the results of confidential clinical trials.
  5. Skowron who was also called “Chip” was caught, sent to prison for five years and was ordered to pay $5 million.
  6. No evidence if he has been able to write this cheque or others from his prison cell.

So note to employees who are thinking about it. Don’t do it. especially if you work for those bastards at Morgan Stanley. They’ll come after you.

A short news search of Goldman Sachs (NYSE:GS), Citigroup  (NYSE:C) and JPMorgan (NYSE:JPM) failed to identify a similar situation. Or perhaps it failed to identify a vigorous defence of corporate culture and therefore mitigation of future and embarrassing losses.

George Gutowski writes from a caveat emptor perspective.


Markets are Manic-Depressive Just Contrast Tiffany and Jeffries Group $JEF $TIF

727 Fifth Ave, New York City - Tiffany Flagshi...

727 Fifth Ave, New York City - Tiffany Flagship store (Photo credit: Wikipedia)

Both Tiffany & CO (NYSE:TIF) and Jefferies Group (NYSE:JEF) announced results and when read together give investors pause for concern. Tiffany the long-established purveyor of expensive but useless baubles reported increased revenues of 18%. Thats good considering the economy is supposedly shaky and high paying Wall Street jobs are shrinking. Somehow wealthy men continue to spend large on both wife and mistress. The blue box has turned many a women’s anger into well something else for now.

The Jefferies Group which is touted as a mid level investment bank dealing with interesting middle market clients is not doing as well as they would like. The markets continue to rise as measured by Nasdaq and S&P indices. So how come the returns are worsening. If Jeffries is beating expectations but not making more money than the last comparable quarter than you have to wonder how much money the Jefferies Group producers can afford to drop at Tiffany.

Here is the kicker. Everyone agrees that unemployment will drop and stay low when small and mid size businesses start to hire. If Jefferies is losing ground; they are either not finding the mid market opportunities or they are not able to convince their clients to invest in the mid market narrative. In any event Jefferies is not feeding Tiffany. But Tiffany is thriving without Jefferies.

The macro-economic question for Tiffany becomes is Jefferies the canary in the coal mine. What is the real health of the financial sector. As you stand at the jewelry counter and ask to see that just perfect necklace how much anxiety are you experiencing. No not about will she like it. She has been signalling you long enough on the necklace. No the anxiety question becomes will you have the bonus to cover the American Express bill.

This has been an open book exam. Please correct your own test papers and continue forward into the unknown future.

George Gutowski writes from a caveat emptor perspective.

Apple Declares Golden Apple Dividend But it’s Not a Dividend Stock $AAPL

Image representing Apple as depicted in CrunchBase

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The long-awaited dividend announcement came down from the Apple Tree. Apple (Nasdaq:AAPL) will skim a little bit of cash and line the pockets of investors. The dividend yield at the currently stratospheric price point is just under 2%. If you are a true dividend oriented investor this will not turn your head. Yield hounds who must surely know rising interest rates and probably inflation are just around the corner will not be truly impressed with a 2% yield.

Coupled with the cash dividend will be a share buy back to fund employee share purchase plans. A nice touch of financial engineering. Can you blame them everyone else is doing it? This allows them the flexibility of manufacturing EPS.

The market is applauding for now. But this is not the Golden Apple as everyone contemplates. True dividend paying stocks return capital to their shareholders in a defined and systemic manner.   Dividend levels while not contractual obligations become matters of trust. When dividends are reduced or cancelled share values erode deeply reflecting the drastically eroded business model. Dividend payout ratios are usually established in advance. Apple has done of these things. The dividend is being justified as something that will not erode the pile of cash that Apple has accumulated. No one is looking at dividend coverage ratio’s and assessing business risk. So therefore Apple is still not a dividend stock.

You would not set your stock selection screens for a 2% dividend  yield and then hit the buy button.

Microsoft (Nasdaq:MSFT) with 50% of Apple’s market cap has a dividend yield of approximately 2.5%. Microsoft’s cash balance is around $52 Billion. Yet Microsoft is starting to be viewed as a senior with an established cash flow base from its Office Product and enterprises services. There is real pressure on Microsoft to act more like a utility and pay up. Microsoft has made a few acquisitions and is probably glad the Yahoo thing (Nasdaq:YHOO) didn’t real work.

Apple has had to eat its own babies to develop new compelling products. Microsoft has eaten the neighbours children several times over and can point to a more entrenched product line. Apple is one marketing failure away from disturbing their slavish clientale. Microsoft can launch Vista and shrug off the problem.

The real comparison is IBM (NYSE:IBM) Big Blue currently has a dividend of under 1.5%. The market cap is just behind Microsoft and the cash balances are nowhere near what Apple or Microsoft have to offer. In short they are a dividend stock. The CFO   needs to watch earnings and cash flow to ensure he can cover the dividend. Apple simply is not in that category.

Which is why Apple has Golden Apples but not Golden Dividends.

George Gutowski writes from a caveat emptor perspective.

Dole Foods Transitions to Packaged Goods Do They Have The Brains? $DOLE

Dole Food Company

Image via Wikipedia

Dole Food Co (NYSE:DOLE) reported great numbers and the market bid up the price of the stock. Yeah for the investors. In reading the annual report and reading the conference call transcript one cannot but help be struck about the transition Dole is experiencing. As a food company dealing with the ultimate perishable fresh fruit with the financial complication of foreign currency and energy costs Dole was all about commodities and execution. high wire acts within high wire acts.

The company is moving toward more value added higher margin brand driven offerings. Packaged salads, smoothies and other packaged offerings are still being discussed clinically in the context of operations and financial impact. Management did not provide a context from a consumer perspective and discuss say nutritional aspects, trends in consumption, household spending, convenience for the family unit. Something along the lines that a grocery store would pursue trying to engage the consumer.

So the question becomes can Dole continue to transition in higher margin value added package goods products? Or will they always be beholden to the market price of iceberg lettuce? Looking at the board there is no marketing end customer expertise. As a matter of fact the board is skimpy and does not have depth. so management is probably keeping th board at bay and running matters they way they want to.

The key executives listed on Morningstar do not show any marketing or packaged goods expertise. So you have the inexperienced leading the unknowing. Somewhere you have the potential for an expensive learning experience that shareholders may not appreciate. Food at the consumer level has a high degree of faddish and branding. Why do people buy one brand of frozen pizza vs another? The packaged goods professionals know the customer mindset better than the commodity purveyors. Dole Food needs to acquire this intellectual property immediately if not sooner.

George Gutowski writes from a caveat emptor perspective.

Boeing Late Fees Become Material. Reg FD Implications $BA

English: Boeing 787 Dreamliner at roll-out cer...

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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.