News Corp Possible Split Has Surrealistic Angle $NWS

English: Re-creation of current logo of Sky Ne...

English: Re-creation of current logo of Sky News (2008 – current). (Photo credit: Wikipedia)

News Corp (Nasdaq:NWS) announced that it is possibly seeking a way to break itself in two. The announcement came only after the Wall St Journal which is owned by New Corp broke the story and started beating the jungle drums very hard. Not sure what News Corp thought they would achieve by not making the announcement themselves.

A couple if issues with that of course. The whole wire tapping governance issue with police investigations and some arrests is still very much around. Buying or selling other assets will not make it go away. It will probably just complicate the transaction as investigators politically motivated or just curious will keep asking everyone to open up their kimono on more than one occasion.

The whole BSkyB may benefit according to many commentators. At this point it is so politically charged, the BSkyB transaction is not likely to break Murdoch’s’ way. Doesn’t matter what other assets are sold off.

The whole move reminds me of a wolf whose paw is stuck in a steel trap. desperate and not able to conjure up a better strategy it starts to gnaw away at its paw in order to extricate itself from the problem at hand. except in this case the wolf is making an announcement that it plans to gnaw off its paw before it has actually done so. Probably with the secret hope of not really having to do so.

It’s all just a bit too surrealistic and Machiavellian. Simple valuation metrics will not work in this context.

George Gutowski writes from a caveat emptor perspective.

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Burger King Fast Return Flip. Something Spooked 3 G Capital $BKW $WEN $YUM $MCD

Current "blue crescent" logo (July 1...

Current “blue crescent” logo (July 1, 1999–present) (Photo credit: Wikipedia)

Give me a break. Burger King (NYSE:BKW) returns to the investment stage claiming that it has revamped its stores and menu. Also the last quarter sales were very encouraging so they thought they would rush back into the markets. Give me a break, a very big break.

Just recently the Brazilian group (3 G Capital)  takes them private because the hard restructuring is best done in private. Also the Brazilian group controlled a lot of cattle farming. So creating an integrated supply chain from birthing calves to flipping big whoppers to depositing money in the bank made sense.

Quite frankly do not see too many refurbished stores out there so the capex budget still needs to be big. Menu change well what is new. I am not lovin it because I cannot spot it.

This is a disguised short move. Private equity usually needs more time to fix the problems which were substantial. They seem to have panicked and are now off loading.

So what made them panic.

George Gutowski writes from a caveat emptor perspective.

FedEx Aircraft Capacity Misunderstood. Chairman & CEO Punts Discussion to Fall. Transparency Failure $FDX

Fedex

Fedex (Photo credit: erikleenaars)

FedEx (NYSE:FDX) reported Q4 results. A big part of their story is fleet replacement. Old aircraft and engines are being retired. New more efficient gear is coming on board. OK makes sense. At the same time the company mentions labour costs are still high and pension costs are substantial. Part if the reasoning is low discount rates which balloon up unfunded pension obligations. Not really a new piece of news. Anyone with a pension plan knows this argument inside out. FedEx puts it out there again.

The question becomes have they maxed out on employee efficiency. A driver can only carry so many parcels and make so many deliveries in a day. If they are noticing employee costs to the point where they comment about it in disclosure there needs to be cause for concern. During the conference call the analysts did not really do a good job covering the point.

The analysts did attempt to discuss the whole issue of fleet replacement and upgrade. The lead off analyst from JPMorgan (NYSE:JPM) Tom Wadewitz attempted to ask about fleet reduction and what it means to utilization. Reasonable question under the circumstances. Frederick W. Smith – Chairman, President and CEO shuts him down with this comment: ”  I think we’ll wait until the fall to talk about that because it’s a comprehensive program. I’m not sure we could do it just as here on a telephone call.”

Not really the best approach to Reg FD. The chairman is now on record dodging a major issue. Clarity, visibility, transparency are all fails. Surprising for a company like FedEx but here you go anyway.

FedEx created itself on the basis of air freighting everything. The fleet upgrade will have strategic impact over the next seven to ten years before the equipment starts an obsolescene decline and needs a new equipment cycle. Investors need to understand the aircraft strategy to understand FedEx.

George Gutowski writes from a caveat emptor perspective.

Microsoft Challenges Apple in Tablets. Is This Real? Grand Strategy vs Product Tactics $AAPL $MSFT $YHOO $GOOG

Image representing iPad as depicted in CrunchBase

Image via CrunchBase

Microsoft (Nasdaq:MSFT) seems to be challenging Apple (Nasdaq:AAPL) in the Tablet market space. Apple with its uber cool iPad and seemingly unassailable market dominance does not look like the weak sissy in the school yard that everyone can punch out whenever they want.

So what does Microsoft see that they can take down and create some shareholder wealth. The contrast is more about the strategic battle than any specific shoot out on product features. Apple has its fabled eco-system of developers who feed into the iPad value proposition. Much momentum comes from this without any overt moves from Apple. Others just feed into it. Apple can be expected to constantly release new and improved offerings and thereby maximize revenue over and over and over.

Microsoft on the other hand is supposedly moving closer to Yahoo (Nasdaq: YHOO) and reportedly will take over their search engine and create a mash-up with Bing. (BTW you have to love the pictures on Bing). So with the obvious exception of Google (Nasdaq:GOOG) they will become very strong in search. Apple as cool as the iPad is, does not rely on Safari to the same extent. Search revenues for Apple are low to the point of being strategically non-existent. As we all know it’s all about search revenues. Investors do not really care how slick the iPad is. What we do care about is how many search dollars are generated.

As best can be determined from the rumours about Apple nothing major is coming from Safari. Despite the huge cash position of Apple not much R&D dollar has been allocated to turning Safari into something stronger.

We all glibly talk about the post PC environment where it’s all hand-held and mobile. Microsoft needs to get a large piece of that to maintain a strong hold on devices to make sure they are well entrenched after Google. Microsoft thrived because everyone put their browser in. Now with iPad and Apple in a near monopoly position they need to be throwing some competitive punches.

Will they blow away Apple in the next year or two. No. Can they make Apple change its offering and maybe pull a punch or two, certainly. The strategic battle is about tipping points and leverage. So when you look at the Microsoft product it will not be primarily about customer experience. It will be about what can Microsoft do to make Apple changed.

The battle is in the back room strategy sessions. The noise will be in the consumer market place as we all slavishly expect new offerings.

One day Apples trajectory will bend. Nothing goes in a straight line forever. This could be the beginnings of change.

George Gutowski writes from a caveat emptor perspective.

Pier One Internal Conflict Between On Line Capex and Share Repurchase $PIR

English: Pier 1 Imports Logo

English: Pier 1 Imports Logo (Photo credit: Wikipedia)

Pier One (NYSE:PIR) announced better numbers and extended their saviours personal employment contract. Sounds like President and Chief Executive Officer, Alex Smith deserves the three-year extension. Sales are up, margins are improving, costs are being wrestled downward and the shareholder favourite earnings are improving rather smartly.

Whats to worry about? Well the market was concerned about the new on-line presence scheduled to roll out in literally weeks. These things usually cost a lot of money. Management says do not worry all is good. go back to sleep investors and forget about it.

I may be old-fashioned but companies with improving fundamentals should be seeing their cash balances grow. Cash is king, all others bow down as a sign of respect. Cash is not growing it is being consumed. Management did not really speak to the issue, why would they its a big negative.

So here is what is happening. In the past quarter cash decreased by some $70 million. Accounts receivable and inventories increased some $16 million. Accounts payable increased some $17 million so cash was not consumed. Capex was around  $12  million which presumably includes the spend on the upcoming online venture. Not that much when you think about it. They spent $4.3 million on dividends to give themselves a small dividend yield of around 1%. Then they blew the wad on share repurchases of $49 million. Which of course digs into the cash account.

Share repurchases outweigh dividends by a factor of 10:1. Share repurchases outweigh capex by a factor of 4:1. Share repurchases outweigh net profits by a factor of over 3:1.

These fundamentals are not sustainable. Sure the merchandise may be fresh and slick. But the balance sheet fundamentals are cruising for a bruising.

George Gutowski writes from a caveat emptor perspective.

$Dell Curious Dividend Strategy. True Religion, Just Another Magic Trick or Incredibly Good Strategy. $IBM $HPQ

Image representing Dell as depicted in CrunchBase

Image via CrunchBase

Dell (Nasdaq:DELL) announced the birth of their dividend strategy. Something like $0.08 @ share quarterly beginning in Q3. Year end Jan 31 just like all retailers. The dividend yield comes in at around 2.7% is designed to attract a new classification of investors. Those of the yield and income persuasion are being targeted. Of course the dividend yield is based on a 52 week low.

So the question becomes is this true religion or just a magic trick from a Board of Directors desperate to appear relevant.

Companies which see themselves as dividend yield vehicles execute business models designed to produce stable predictable earnings and cash flow. This usually means being dominant in your markets, offering compelling product offerings which are relevant to customer needs and having control over your cost inputs and supply chain. Dell does not score very high in these categories.

Dell sources two-thirds of revenues from end point devices such as lap tops and desk tops. It is nowhere in tablets and hand-held devices, which as we all know is where the action resides. Also as we all know the field is dominated by huge giants who also have execution problems.

Dell does have big ambitions in the enterprise solutions business. Hewlett Packard (NYSE:HPQ) and IBM (NYSE:IBM) are already there and probably will not roll over anytime soon. So lets look at a few of the challenges Dell will encounter.

Dell market cap is $21 billion with a stock at a 52 week low. If they are successful in increasing the share valuation will the cash flow move in tandem allowing dividend increases to reward investors.

Hewlett-Packard market cap is $43 billion also near its 52 week lows and with a similar dividend yield. However its seasoned and hopefully past a lot of drama. Meg Whitman still needs to bring home the bacon but holds better cards than Michael Dell.

IBM market cap is $227 Billion and the stock is at the upper range of its 52 week pattern. The yield is 1.75%. Admittedly much lower than the others but you have to admit creating a 1.75% on $227 Billion is more impressive qualitatively.

IBM total cash clocks in around $12.3 Billion, HP cash registers around $8.3 Billion and Dell clocks in at just under $14 Billion. Dell clearly has a larger cash stash for now.

So why the conversion to dividend yield. Yes it seems to be the trend. Investor relations departments have finally figured out that the buy and hold investor is the preferred shareholder base. Buy and hold is motivated by dividends.

Dell will need to make acquisitions to meet its ambitions in enterprise solutions. Cash is always nice but most companies would prefer to use their own stock as a currency. Enterprises looking to sell to Dell will be concerned about the long-term strength of a volatile stock. Putting in the dividend stabilizes the beta. It also makes your stock comparable to others and keeps you in the game of buying others.

The problem dividend investors will have will be dilution and a radically changing business model. Will the dividend be safe and sustainable. Time will tell. But Michael Dell is playing a big, very big poker hand.

George Gutowski writes from a caveat emptor perspective.

Navistar Sweeps House or Why So Silent $NAV

English: 2010 NaviStar International LoneStar ...

English: 2010 NaviStar International LoneStar Tractor-Truck (Photo credit: Wikipedia)

Navistar (NYSE:NAV) recently announced they have problems. Financial results are unacceptable according to Daniel C. Ustian, Navistar chairman, president and chief executive officer. Red ink always is. He admits to negative impact of  “speculation surrounding our engine certification for our Class 8 engine, which is why we are working tirelessly with the U.S. EPA to get resolution.”

The main solution seems to be a mass reassignment of senior officers. Something nice to put into sa press release but a little late in the day to reassign the generals.
Share values are a function of future earnings. For Navstar future earnings will be driven by the Class 8 engine which the EPA needs to certify. It’s just that simple.  It will boil down to regulatory issues. Why did it get so bad? Did Navstar just assume its name and rep would be enough or have they walked into a regulatory environmental buzz saw.
The earnings release is painfully light on regulatory comments. Just saying that conversations are ongoing does not create a sense of security.
George Gutowski writes from a caveat emptor perspective.