Go! Go! Ackman (Photo credit: Wikipedia)
Proctor & Gamble (NYSE:PG) fireworks may soon be going off. Long considered a marketing machine from which all others emulated or just copied they have attracted the attention of activist hedge fund owner Bill Ackman of Pershing Square. As in $2 billion dollars of interest. With his track record many already view P&G suspiciously.
Lets take a look at a few issues that probably attracted Pershing Squares attention.
Five members of the board (out of ten) are active serving CEO’s of major companies. It is highly unlikely that they have the time to really scrutinize P&G. Also serving CEO’s are unlikely to rock the boat and undertake lobbying campaigns to proactively change issues. They also fill nine of fifteen committee memberships on the board’s three key standing committees
Since Robert McDonald became CEO of P&G in July 2009, operating income has collapsed 12% from $15.2 billion in 2009 to $12.3 billion in 2012 EPS is also collapsing have fallen from $4.49 to $3.82 (down 15%) over the same time period. Clearly this is not creating wealth. Robert McDonald has announced a major restructuring and cost cutting program. but you have to wonder why it took so long.
In 2012, P&G insiders have sold over $38.5 million of shares. In fact, since the beginning of August, insiders have already dumped over $33 million worth of stock. Last year insider sales at Procter & Gamble totaled less than $3.7 million. Money does talk the loudest.
George Gutowski writes from a caveat emptor perspective. Follow him on twitter@financialskepti
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Target Corporation (NYSE:TGT) reported Q2 results and believes investors should be encouraged. But listen to this masterful spin by the senior guy. And I quote
“We’re very pleased with our second quarter financial results, which benefited from an acceleration in the pace of our comparable-store sales growth,” said Gregg Steinhafel, chairman, president, and chief executive officer of Target Corporation. “We continue to focus on strong execution of our strategy, preparing Target to perform well in a variety of economic environments.” [bolding is mine]
There are good environments and there are bad environments and then there is the stuff in the middle which elicites lots of buzzwords as we all fumble around until someone turns on the economic lights.
Target is a retailer with inherent cyclical risk. Merchandise decisions are made quarters in advance. Christmas has already been decided for the most part. Sure there are a few outs in some of the buying orders. Then you can discount and trash your margins if you still have it wrong.
By saying that Target will do well in a variety of environments that’s a pretty big promise. In a bad environment people stop spending money. What do you do then? I know you have an activist shareholder who thinks he can manage your stores better than you can. Bill Ackman of Pershing Square wants to tell you what to do. Just look at Eddie Lampert and Sears and see how difficult merchandising really is.
CEO’s need to be careful when they are trying to be careful about how they manage mixed messages into the market place.
Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in thsi post. I have no plans to initiate new positions within the next 72 hours. I do on occassion shop at Target.
- Target’s Earnings Secret: Wealthier Customers (TGT, WMT, COST, HD, LOW, XRT, VCR) (247wallst.com)
- Target finds some consumer bright spots (marketwatch.com)
- Target’s 2Q profits up 3.7 percent (seattlepi.com)
- Target’s 2Q profits up 3.7 percent (seattletimes.nwsource.com)
- Ackman & Pershing Square, More Formidable With More Capital (TGT, JCP, FDO, BBY, FO, C) (247wallst.com)
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J.C Penney (JCP) is working to free itself from the sweet embrace of Pershing Square and Vorando Realty which disclosed on Oct 8, 2010 respective holdings of 16.5% and 9.9%. The two private equity companies are working to unlock value. This is were Vorando Realty comes into play. They want to realize the full value of JC Penney’s real estate.
JC Penney sits on top of billions of dollars worth of land and buildings. The narrative states JC Penney does not know how to manage real estate. Vorando knows better. JC Penney needs real estate as an inexpensive cost input. Real estate is where they display their inventory until consumers come in with cash. What will Vorando do for the JC Penney shareholder in the long term? Higher rents and occupancy costs as real estate value is unlocked.
JC Penney can set up their own REIT with someone other than Vorando and unlock the value themselves. Or they can keep their cost inputs down and remain as merchants which is what they really are all about. Pershing talks a great story about governance. Where is the governance of huge rent cheques payable to Vorando Realty?
Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post.