Monthly Archives: October 2007

Coca-Cola (KO) Shown Disrespect For Desani Water

Consumers International give out annual prizes for the world’s worst products. Perhaps someone from Coca-Cola (KO) showed up a the award dinner to collect its prize.

According to the AFP news agency, one award went to drinks giant Coca-Cola for pushing marketing "into the realms of the ridiculous" in the United States and South America with its Desani bottled warter which is sourced from the same reservoirs as local tap water.

Kellogg’s (K) did equally well. "Kellogg’s are one of a number of international food companies that make money by selling products high in fat, sugar and/or salt," Consumers International said.

And, we can’t forget Chinese toys. Toymaker Mattel (MAT) was also named over the global recall of more than 19 million products made in China because of high lead levels and small magnets.

Let’s hope they display the awards in their HQ lobbies with pride.

Douglas A. McIntyre

Posted on: October 30, 2007 – 9:40 am in Consumer Goods, , ,

EA To Reap Rewards From LucasArts (ERTS)

LucasArts and BioWare Corp. today announced that they have entered into an agreement to create an interactive entertainment product.  Normally we wouldn’t cover this because both are private companies.  But BioWare is in the process of being acquired by Electronic Arts (NASDAQ:ERTS), and we have covered how EA wants to come up with more answers to the success of the Halo franchise.  This is not the first such agreement between the two companies.

The product, details of which will be unveiled at a later date, will be developed and published by BioWare and LucasArts, and will push the boundaries of the gaming market by utilizing the strengths of both companies to deliver an innovative, high-quality experience.

It sure sounds like a new MMORPG (massive multiplayer online role playing game) is coming down the pipe.  These and other companies are soon to be covered in our Special Situation Investing Newsletter because of some radical changes that are coming in the video game sector in 2008.  Bungie Studios is on the path to independence, at least somewhat.  Certain previews will be made to our free email distribution list.

Jon C. Ogg
October 30, 2007

Posted on: October 30, 2007 – 9:00 am in Video Games, , ,

Finally, Merrill Lynch Announced the Inevitable (MER)

Merrill Lynch (NYSE:MER) has finally announced a part of the inevitable.  Stan O’Neal is retiring effective immediately, which we all know is a mutual resignation and firing after the worst brokerage quarter out there.  The company said the board of directors has elected Alberto Cribiore as interim non-executive chairman, and he also will chair a search committee that will identify and evaluate chief executive candidates from within and outside of the company.

The company said Mr. O’Neal and the board of directors both agreed that a change in leadership would best enable Merrill Lynch to move forward and focus on maintaining the strong operating performance of its businesses, which the company last week reported were performing well, apart from sub-prime mortgages and CDOs. We won’t even bother noting the "thank you for your services" comments.

Ahmass Fakahany and Gregory Fleming will continue as Merrill Lynch co-presidents and chief operating officers.

This "retiring" rather than an outright firing will likely allow for quite a large retirement or severance package to remain in place.  Without an immediate succession plan being put in place, this is going to disappoint many skeptics.  The net result here really just boils down to whether you view change as a glass half-full or a glass half-empty.

Shares are down roughly 2% at $66.16 pre-market, and the 52-week trading range is $59.14 to $98.68.

Jon C. Ogg
October 30, 2007

Posted on: October 30, 2007 – 8:30 am in Brokerage Firms, Management Change,

Qwest’s Mixed Results (Q)

Qwest Communications (NYSE:Q) has posted earnings at $1.08 EPS diluted and $1.15 basic EPS on revenues of $3.434 Billion.  While the earnings number sounds huge for an $8.00 stock, this earnings number is not comparable on the surface because it includes the recognition of a $2.1 Billion tax benefit and $353 million in charges for litigation. This revenue number is also a slight drop from the $3.49 Billion for the same period the year before.

Unfortunately, the per share figures were not noted so the apples to apples data is up to independent calculations.

Qwest also added 111,000 high-speed Internet subscribers to raise its total to roughly 2.52 million.  Qwest added 62,000 net DIRECTV subscribers in the quarter. Qwest has      634,000 video subscribers through Qwest ChoiceTV and the DIRECTV      partnership up from a total of 350,000 subscribers a year ago. 2007 Cap-ex is expected to be roughly flat to 2006 levels and there hasn’t been any real change to free cash flow for the year.  Adjusted EBITDA is expected to be roughly a $250 million improvement to last year’s levels.

Shares of Qwest are down a little over 2% at $7.97 on over 2 million shares after its conference call started.  Its 52-week trading range is $7.41 to $10.45.

Until the final breakdown of numbers is clarified or until some more formal forward guidance is shown, traders may want to consider any verdict as pending or unresolved.

Jon C. Ogg
October 30, 2007

Posted on: October 30, 2007 – 8:16 am in Earnings, Telecom,

Apple (AAPL) Mac OS Sets Sales Record

Apple (AAPL) today announced that it sold (or delivered in the case of maintenance agreements) over two million copies of Mac OS X Leopard since its release on Friday, far outpacing the first-weekend sales of Mac OS X Tiger, which was previously the most successful OS release in Apple’s history.

The PR people at Microsoft (MSFT) have not issued a press release saying whether they were worried about this hurting Vista sales.

Douglas A. McIntyre

Posted on: October 30, 2007 – 7:42 am in PC Companies, ,

Smith & Wesson (SWHC) Take A Bullet, Down 25%

Smith & Wesson (SWHC) angered the earnings gods and its shares are down 25% before the open to $15.

The gun company forecast second-quarter results below Wall Street’s view, hurt by lower demand for its hunting rifles and shotguns, and cut its fiscal 2008 outlook, sending shares down 25 percent.

Based on preliminary financial data, SWHC currently expects to report revenue for the second quarter of fiscal 2008 in the range of $69.0 million to $71.0 million compared with revenue of $50.8 million for the comparable quarter last fiscal year, reflecting revenue growth in the range of 36% to 40%. SWHC expects to report earnings for the second quarter of fiscal 2008 in the range of $0.05 to $0.07 per fully diluted share, compared with earnings of $0.07 per fully diluted share for the comparable quarter last fiscal year

Bad news all the way around.

Douglas A. McIntyre

Posted on: October 30, 2007 – 7:36 am in Earnings Warning,

Pre-Market Stock News (October 30, 2007)

(ADP) Automatic Data $0.45 EPS vs $0.43 est.
(BEAV) BE Aerospace $0.48 EPS vs $0.41 est.; stock indicated up $1.00 pre-market.
(CL) Colgate Polmolive $0.86 EPS vs. $0.85 est.
(COCO) Corinthian Colleges $0.05 EPS vs $0.05 est.
(CRDN) Ceradyne $1.16 EPS vs $1.36 est, but may have charges in that number; stock lower by 2%.
(EFJI) EFJ in pact with Cisco to combine Cisco IP Interoperability & Collab. Systems with land mobile radio solutions.
(ENZN) Enzon -$0.03 EPS vs -$0.04 est.
(FPL) FPL Group $1.23 EPS vs $1.22 est.
(GOOG) Google’s G-Phone supposedly coming to market by mid-2008.
(GT) Goodyear Tire & Rubber $0.67 EPS vs $0.53 est.
(HERO) Hercules Offshore $0.61 EPS vs $0.53 est.
(LIZ) Liz Claiborne $0.63 EPS vs. $0.71 est.; stock down over 4% pre-market.
(MEDX) Medarex and partner Ono announced allowance of Investigational New Drug Application for fully human anti-PD1 antibody.
(NVS) Novartis gets FDA approval for cancer drug.
(ONN) ON Semiconductor $0.20 EPS vs $0.22 est.
(PBI) Pitney Bowes $0.63 EPS vs $0.74 est.
(PG) P&G $0.90 EPS vs $0.89 est.
(PRXI) Premier Exhibitions subsidiary RMS Titanic Inc filed for a salvage award on Titanic recovery efforts; also buying back 1 million shares of common stock.
(RAIL) FreightCar America $0.73 EPS vs $0.53 est.
(SAF) SAFECO. $1.51 EPS vs $1.54 est.
(SIRI) SIRIUS Satellite Radio -$0.08 EPS vs. -$0.08 est.; subscribers hit 7.7 million.
(SOHU) Sohu.com traded up 10% after beating earnings and raising guidance.
(TLF) Tandy Leather lowered guidance.
(UA) Under Armour $0.40 EPS vs $0.34 est., but revenues were light; stock indicated down 4%.
(VTAL) Vital Images $0.05 EPS vs $0.05 est.
(X) U.S. Steel $2.50 EPS vs $2.63 est., but net after 3 line-items was $2.27.; cautious comments on seasonality in Q4.; stock indicated down 5%.

Posted on: October 30, 2007 – 7:34 am in Pre-Market Activity

Raise the Titanic (PRXI)

Premier Exhibitions Inc. (NASDAQ:PRXI) has issued a press release with a move for a salvage award for its Titanic recovery efforts via its wholly owned subsidiary RMS Titanic.  This motion is in the United States District Court for the Eastern District of Virginia, Norfolk Division as compensation for its recovery efforts in recovering approximately 3,700 artifacts from the wreck of the Titanic during its expeditions conducted in 1993, 1994, 1996, 1998, 2000 and 2004.

This motion for a salvage award has no bearing on the approximately 1,800 artifacts recovered by RMST in its first expedition to the wreck of the RMS Titanic in 1987, for which title rests with RMST pursuant to a 1993 decree from a French maritime tribunal which gave it an in "specie salvage award" for all of those artifacts.

In 1994, the United States District Court for the Eastern District of Virginia, Norfolk Division (the "Court") declared RMST to be the sole and exclusive Salvor-in-Possession of the wreck and wreck site of the RMS Titanic. As such, RMST is the only entity to have ever legally salvaged artifacts from the famous wreck site. RMST has continuously remained as Salvor-in-Possession for over thirteen years, and it intends to continue presenting its blockbuster exhibitions, "Titanic: The Artifact Exhibition" in museums and other non- traditional venues throughout the world and likewise intends to continue its unprecedented historical and archaeological work in conserving the artifact collection.

In the October 16, 2007 Memorandum Opinion and Order, the Court declared invalid a claim by RMST that it acquired through a recent transaction with Liverpool and London Steamship Protection and Indemnity Association, Ltd. additional ownership rights to certain artifacts recovered from the wreck, and further suggested that such claim of ownership by RMST was misleading to the investors of Premier Exhibitions, Inc.

A copy of the Memorandum Opinion is located on Premier Exhibitions’ website located at www.prxi.com under the heading "the Company" and the subheading "Investor Relations."

The company subsequently has also issued notice that it would repurchase up to 1 million shares in a stock buyback plan.  Shares are trading up on very thin trading volume pre-market.

Jon C. Ogg
October 30, 2007

Posted on: October 30, 2007 – 7:22 am in Law, ,

Vulture Investors Still Not Ready To Take On Mortgage Pools

Distressed debt investor TCW Group and hedge-fund firm Marathon Asset Management have begun looking at buying assets in the mortgage market. But, they have not moved in yet, as far as anyone can tell. But, as CNN Money points out "the feeding has not yet begun in earnest – and that’s not a good sign for the housing and credit markets."

That means that the smart money, or a big piece of it, thinks mortgages and mortgage-backed financial instruments have further to fall. That, in turn means that some of these pools of capital carried on the balance sheet of companies like Merrill Lynch (MER) and Countrywide (CFC) may not have been written down far enough.

Douglas A. McIntyre

Posted on: October 30, 2007 – 7:00 am in Housing, ,

Pre-Market Analyst Calls (October 30, 2007)

ACTU raised to Outperform at JMP Securities.
ATHN started as Neutral at Goldman Sachs.
AYI raised to Outperform at Baird.
DVW cut to Hold at Jefferies.
FORM raised to Buy at Citigroup.
GM raised to Buy at UBS.
HEP started as Mkt Perform at Wachovia.
HMIN cut to Hold at Brean Murray.
KGS started as Outperform at Wachovia.
KMX started as Underperform at Bear Stearns.
LSI started as Buy at Kaufman.
MAN raised to Buy at Citigroup.
MMLP started as Outperform at Wachovia.
PCZ raised to Outperform at FBR.
PTP raised to Buy at B of A.
SLE started as Neutral at Goldman Sachs.
SU raised to Mkt Perform at FBR.
TGP raised to Outperform at Wachovia.
TOO started as Mkt Perform at Wachovia.
TUP started as Buy at Jefferies.
USBE raised to Buy at UBS.

Jon C. Ogg
October 30, 2007

Posted on: October 30, 2007 – 6:51 am in Analyst Calls

Global IPO Activity Dropped In Q3, But Not In China

The number of Global Initial Public Offerings (IPOs) dropped by 22% in the third quarter compared with the second quarter of 2007, according to the quarterly Global IPO Report from Ernst & Young.

Globally, US$57 billion was raised in 428 IPOs in the third quarter, and the amount of capital raised decreased by 36% compared with the previous quarter.

IPO activity was driven by the emerging markets; Brazil, Russia, India and China, which together raised US$27 billion in a record 118 IPOs and accounted for seven of the 10 largest IPOs in the third quarter, according to the report.

Overall, China, Brazil and the US led activity by capital raised, and made up 56% of the global total.

China also led number of IPOs with 77, surpassing last quarter’s leader Australia (50) and the US (36).

Data from E&Y

Douglas A. McIntyre

Posted on: October 30, 2007 – 6:37 am in IPOs

Sirius (SIRI) Reports, Subscribers Hit 7.7 Million

Analysts expected Sirius’s (SIRI) revenue to hit $244 million, which would be a 46% improvement over the same quarter last year. EPS expectations are for a loss of $.08 compared to a $.12 loss last year.

The satellite radio company had a 45% increase in revenue from the year ago quarter to $241.8 million, and strong subscriber growth of 524,938 net additions during the quarter, driving ending subscribers up 50% from a year ago to approximately 7.7 million.

SIRIUS’ net loss improved by 26% to ($120.1) million, or ($0.08) per share, for the third quarter of 2007, from ($162.9) million, or ($0.12) per share, for third quarter 2006.

SIRIUS today issued the following guidance for the full year 2007:

    — Total revenue approaching $1 billion
    — More than 8 million subscribers at year-end
    — Average monthly subscriber churn of approximately 2.2%-2.4%
    — SAC per gross subscriber addition approaching $100

Douglas A. McIntyre

Posted on: October 30, 2007 – 6:22 am in Earnings,

Under Armor (UA) Beats

As 24/7 Wall St. wrote yesterday, Under Armour (UA) was expected to see $0.34 EPS on $190.95 million revenues according to First Call’s consensus estimates; and next quarter is also expected to see $0.34 EPS but on revenues of $179.3 million.

Well, things went a lot better than that. Net revenues increased 46.3% in the third quarter of 2007 to $186.9 million compared to net revenues of $127.7 million in the third quarter of 2006. Third quarter net income increased 25.4% to $20.0 million compared to $16.0 million in the same period of 2006. EPS hit $.40.

Gross margin for the third quarter of 2007 remained steady at 50.6% compared to 50.6% in the prior year. Selling, general and administrative expenses decreased to 32.5% of net revenues in the third quarter of 2007 compared to 33.4% in the prior year.

The stock traded up after the results were released.

Douglas A. McIntyre

Posted on: October 30, 2007 – 6:17 am in Uncategorized,

P&G (PG) Reports

P&G (PG) announced net sales growth of eight percent to $20.2 billion for the quarter. Analysts were looking for $20.21 billion.

Earnings per share were up 16 percent to $0.92 per share, including a one- time tax benefit which increased EPS by $0.02 per share. The company’s EPS growth, excluding the one-time benefit, was 14 percent. Earnings per share grew primarily behind strong sales growth and a 30-basis point improvement in operating margin. The company raised its fiscal year EPS outlook by $0.02 to reflect the one-time tax benefit. Wall St was looking for $.89.

Operating cash flow was $3.2 billion, an increase of nine percent versus the base period. Working capital used $220 million more cash versus the base period, primarily due to business growth. Free cash flow as a percentage of net earnings was 87%, roughly in-line with the year-ago level. Capital expenditures were 2.7% of net sales during the quarter.

Douglas A. McIntyre

Posted on: October 30, 2007 – 6:09 am in Earnings,

Why The Fed Won’t Cut Rates

The two major reasons given in the media for the Fed to cut rates tomorrow are that fact that the stock market wants them to and that it might help the housing market.

At some point a pact may have been made between investors and the Fed, but the part about keeping the stock market high must not have made it to public attention yet. As far as anyone knows, the Fed does not owe the stock market a thing.

On the housing side of the ball, there is no strong evidence that a quarter point cut in interest rates is going to help people who have watched their home values drop 10% or seen their adjustable mortgages reset at much higher rates.

The Fed claims that it is concerned about inflation. And it should be. Gas prices are likely to rise. Employment levels are good and so is wage growth. Most Q3 earnings were OK, so corporate profits are not taking a beating outside the banking sector. The stock markets are at or near multi-year highs. In other words, the classic warning signs of the economy grinding to a halt are not there. Not now. If they start to come into view, the Fed can always move in December.

The other "hidden" reason that the Fed might want to cut rates is to help shore up pools of mortgage-backed securities. Whether this will work is impossible to say. The financial instruments built around them are too complex. The banks are already creating a "super-fund" to help their own cause.

Even if banks have to go through another round of very painful write-downs on mortgage-related securities and LBO debt, it is not the Fed’s role to put an artificial net under the country’s largest financial institutions. Both Buffett and Greenspan have said that there is no way for the market to know what kind of mess it is in until investors get to see the evidence. Short term loans to keep weak pools of money from being marketed to market is the antithesis of that philosophy.

The Fed does not need to cut rates. The economy and markets are too good. And, if holding rates flushes out the largest problems in the financial markets, let it be so. It is a boil and needs to be lanced.

The Fed should let the cards fall where they may.

Douglas A. McIntyre

Posted on: October 30, 2007 – 5:57 am in Economy

Europe Markets 10/30/2008

Markets in Europe were lower at 6.20 AM New York time.

The FTSE was down .6% to 6,667. BT (BT) was down 1.5% to 322.25. Nothern Rock was down 1.5% to 186.4. Vodafone (VOD) was down 1.3% to 191.5.

The DAXX fell .3% to 10.13. Infineon was off 1.6% to 10.13. VW was up 1.2% to 188.82.

The CAC 40 was down .5% to 5,810. France Telecom (FTE) was down 1.2% to 25.46. ST Micro (STM) was off 1% to 11.83.

Data from Reuters

Douglas A. McIntyre

Posted on: October 30, 2007 – 5:24 am in International Markets, , , ,

The Rise Of The Blackberry Killers (RIMM)

AT&T (T) and T-Mobile are about to introduce portable e-mail devices that work just like the RIM (RIMM) Blackberry.

According to Reuters AT&T said its new Pantech "duo" runs on Microsoft Corp’s mobile phone operating system and has a miniature computer-like keyboard, as well as a standard phone keypad. T-Mobile has a similar device.

The trouble with trying to unseat the Blackberry is that most of its service is run through corporate IT departments who get Blackberry e-mail servers so that they can provide a secure and seemless environment for all of their employees using the little device. There are some people who just use the Blackberry without company support and use their wireless carrier to store and send e-mail, but they are probably a modest part of the device’s user base.

RIMM’s shares have gone from $38 to $122 in the last year. Is that because users like the Blackberry? Yes, But, corporate IT departments like the system that runs the Blackberry as well. And, getting all of those IT departments to change out the software is not going to happen.

Douglas A. McIntyre

Posted on: October 30, 2007 – 5:15 am in Consumer Electronics, ,

NBC Is Not For Sale, Again (GE)

Between taking pot shots at Apple’s (AAPL) pricing model, NBC Universal CEO Jeff Zucker said that his unit of GE (GE) is not for sale. Period. Under any circumstances.

Referring to what he has been told by his boss, Jeff Immelt, Zucker pointed out to Reuters that "He has said numerous times that NBCU is not for sale. It is not for sale after the Olympics." The Financial Times was rude enough to say that GE might dump its entertainment unit once it made it big profit on the Olympics.

What Zucker may not have noticed is that GE’s stock, after a nice run, has underperformed the S&P for the last quarter. The big growth overseas and improvement in results at it huge infrastructure division have not made a difference to Wall St.

NBC Universal will have revenue of about $15 billion this year, and an operating profit of about $2.5 billion. The Olympics may push that up some. CBS (CBS) has remarkably similar numbers. It has a market cap of $21 billion and $7 billion in debt.

Would GE sell NBC for $28 billion? Maybe not. But, if it had an offer for $30 billion or more, the GE board might take a dim view on passing on the chance to sell a non-core asset for a nice premium

Douglas A. McIntyre

Posted on: October 30, 2007 – 5:06 am in Conglomerates, , ,

Countrywide (CFC) Won’t Make Money In Q4

After Countrywide (CFC) reported its third quarter loss last week, the company said that it would make money in Q4 and next year. There is really no way for the firm’s management to know that, but the news took the stock up late in the week.

Countrywide is offering good rates on deposits, as the Wall Street Journal points out. The mortgage bank may be able to make some money on that spread. However, as one analyst pointed out :Countrywide has yet to show that it can "earn above its cost of capital" under this new model at a time when the outlook for losses from defaults is unclear,"

Countrywide has the Merrill Lynch (MER) problem. It does not know exactly what its balance sheet is worth. It doesn’t have buyers for its assets. As default rates on mortgages and home equity loans change, so does the value of the loans, and the potential for write-downs.

Merrill had to make a multi-billion adjustment in its losses. And, that was over a period of only a few weeks. Over the course of an entire quarter, Countrywide could face a huge write-down in its assets.

Countrywide could also report a preliminary profit in Q4 and send the results to its auditors. Image having the job of auditing Countrywide. Would the results be ultra-conservative? Investors can bet on it. And, that means a restatement which would not be favorable to the company is entirely possible.

Countrywide won’t make money in Q4

Douglas A. McIntyre

Posted on: October 30, 2007 – 4:54 am in Financial Stocks, ,

Remembering MarketWatch, Now Ten Years Old

I remember the launch of MarketWatch. I was the CEO of FutureSource then. One of our customers was DBC, an early shareholder in the then new financial news site. Larry Kramer was brought in to be the head editor. CBS (aka Viacom) was a partner, and, DBC sold its interest off. Pearson, the British publisher became a partner.

Most people probably forget what a huge risk it was to launch an online financial news site then. Ten years ago, investors got their information from newspapers and business magazine. Financial TV was in its earliest stages.

MarketWatch was a public company for six or seven years. The CBS and Pearson interests did not always see eye-to-eye. Famous investment banker Bob Lessin was on the board of directors and seemed to have the roll of balancing the interests of the two sides. And, eventually, in 2005 the entire company was sold to Dow Jones. I was a member of the board at TheStreet.com then. We were always impressed at how big MarketWatch got in a short period, and what it was worth when it was sold. Five hundred million dollars seemed like a lot of money then, but I still think MarketWatch is worth more than Facebook.

One impression of MarketWatch should be unchanged after all of these years. The website was always the best destination for breaking financial news. There were really no exceptions to that. During the dial-up era of 1997, the interfaces and graphics at the site were not as fancy. But, there was no other place to turn on the internet to get information as the daily financial news raced by.

TheStreet was more of a commentary site, even then, although it had started out reporting more news. The financial sections of the portals like Yahoo! were geared toward personal investing and pulling together news from the AP and Reuters. The Motley Fool had almost no news. The founding brothers there cared about giving the personal investor good solid advice about making money in the markets.

All of this is to say that MarketWatch is today what it was when it started. I used to visit the site several times a day back then, and I do today as well. Financial news has a short shelf life, sometimes just a few minutes. MarketWatch has made those minutes count. It readers never had to sit and wonder what was going on. The journalists at MarketWatch got it to the front page of the site within minutes.

I don’t remember what the front page of MarketWatch looked like ten years ago. I do remember that most of us in the industry thought the launch was an audacious undertaking. We probably believed the company would not make it. But, the amount of time we spent on the site put lie to that.

And, now that the site is big and successful, most of us are still coming back. The competition now may be financial TV, Portfolio.com, Forbes.com, and The Wall Street Journal Online. But the fastest way to the best financial news is still through MarketWatch.

Happy birthday.

Douglas A. McIntyre was the editor-in-chief of Financial World. He was also president of Switchboard.com and financial news and date company FutureSource.

Posted on: October 30, 2007 – 4:38 am in Internet