Daily Archives: May 2, 2008

Warren Buffett: A Media & Watcher’s 360 Review Into Annual Meeting (BRK.A, BRK.B, C, WWY)

Everyone loves covering Warren Buffett, rain or shine.  His long-term shareholders love him, the media follows his every move, and everyone on Wall Street either cares about his potential next buyout or cares about the stock positions he discloses in his latest filings.  This weekend is the Annual Meeting for Berskshire Hathaway Inc. (NYSE: BRK.A) (NYSE: BRK.B), so you can just about count on steady weekend coverage too.

There are two important coverage pieces that Buffett fans and financial viewers will want to see today and this weekend.  CNBC has been airing bits of a Becky Quick interview with Warren Buffett on and off today from Omaha ahead of the meeting.  This weekend and on Monday, Fox Business will also be showing some interviews of their own and a live weekend blogging from Liz Claman there in Omaha as well.  But one interview is going to stand out sharply today that is different than others, as Fox Business gets a chance to interview John Freund from Citigroup (NYSE: C) around 3:00 PM EST (media times always subject to change).  This is said to "Buffett’s stock broker."  You can bet money he won’t be giving up any of the Oracle of Omaha’s secrets, but this may be a real first as far as a close Buffett industry source.

This annual meeting We are probably not that far away from seeing the latest round of Berkshire Hathaway’s quarter-end holdings, but here were his last holdings broken down in alphabetical order in 3 groups:

The current climate is actually more of the sort of market that Buffett can thrive in since his buyouts time frame deals with a projected hold time of FOREVER.  He’s plunked down $11 Billion over the last couple months between Marmon Holdings and on his share of the Wm Wrigley Jr Co. (NYSE: WWY).  Earlier this week, Warren Buffett already noted "We are in a recession", noting the difference from the man in the streets versus what the National Bureau of Economic Research gets around to saying.

The real question people may be asking for this weekend is "Will Warren announce a successor?"  While we hope so, we doubt it.  This may stay just as "the four replacements" (three of whom are internal).

Lastly, Mr. Buffett will be heading to Europe mid-month to go tour closely-held companies that can be rolled up or where opportunities are.  He never did do his true "Whale of a deal," but that doesn’t mean it’s ever entirely off the table.

Jon C. Ogg
May 2, 2008

Posted on: May 2, 2008 – 1:27 pm in Buffett, , , ,

Sun Microsystems (JAVA): A Letter To James Barksdale, Kenneth Oshman, And Anthony Ridder

While it may be a foregone conclusion, it is time for Jonathan Schwartz to leave as the CEO of Sun Microsystems (NASDAQ: JAVA). He has done absolutely nothing for the company since taking over from Scott McNealy other than play shell games with your shareholders. The reverse split of the stock and changing the ticker symbol to JAVA had the feel of a carny show.

The acquisitions of StorageTek, MySQL, and SeeBeyond have done nothing to improve the company’s prospects. They certainly have contributed little to Sun’s growth. The company has been modestly profitable at times. Thousand of employees have lost their jobs in the name of these positive operating margins.

The amount of shareholder wealth which has been destroyed over the last several quarters is extraordinary, nearly $11 billion. In October 2007, Sun’s shares traded at roughly $25. After last night’s earnings catastrophe the shares are below $12.75 and it is hard to imagine that improving soon. Sun’s comments about prospects in future quarters have been a joke.

According to the Sun proxy, a typical director made $42,000 in the last fiscal year and and received options awards of about $20,000. Those amounts have been raised for the current year. For what? Is the board actually pleased with its performance?

The share ownership of many board members is modest. Mr. Ridder is shown as owning a grand total of 10,000 shares. Mr. Bennett owns 50,000. It should be hard for Sun shareholders to look at this without feeling some level of disgust.

Mr. Schwartz had a fabulous year in fiscal 2007. His total compensation was over $14 million. Much of that was in stock, but he also received a generous salary and bonus.

Investor and employees, particularly those who lost their jobs, will be happy to note that Mr. Schwartz received over $94,000 for use of aircraft and almost $49,000 for a home security system. The only reason he would need home security would be to protect him from his own employees.

Keeping Schwartz on as CEO is an embarrassment to the board and an injury to shareholders.

As Leo Amery said to Neville Chamberlain after his disastrous time as prime minister "You have sat too long here for any good you have been doing. Depart, I say, and let us have done with you."

Douglas A. McIntyre

Posted on: May 2, 2008 – 12:12 pm in Corporate Governance,

Sirius & XM See Result From FCC Letter… Is Approval Any Closer? (SIRI, XMSR)

Shares of both Sirius Satellite radio (NASDAQ: SIRI) and XM Satellite Radio (NASDAQ: XMSR) are trading higher in pre-market trading today.  You could say it is the market, but it could also be tied to a letter that went out the FCC.  House Commerce Chairman Dingell (D-MI) and Telecommunications Subcommittee Chairman Markey (D-MA) sent a letter to FCC Chairman Martin calling for an "Open Device" condition should the FCC approve the merger.

The letter sent to Chairman Martin also calls for an adherence to "at least" the pricing structure and pricing locks that have been already shown.

The stated goal of the letter is consumer protection.

Interestingly enough, and something that none of the "consumer defenders" have ever said is that if this merger is blocked, then prices for raw purchases and new monthly subscription prices will go up sharply.  The companies won’t be able to lift the contracts that have in place with auto makers, but for any new subscribers the cost of being able to listen to unregulated commentary will go up. 

These companies have been in business for years and are still running at unprofitable levels.  If "protecting consumers and their pocketbook" is the goal, then the FCC should capitulate and approve this deal.

Jon C. Ogg
May 2, 2008

Posted on: May 2, 2008 – 8:36 am in Mergers and Buy Outs, Regulation, Satellite, ,

Up & Down the Oil & Energy Patch (CVX, DUK, PTEN, PXD, MUR)

Chevron Corporation (NYSE:CVX) reported earnings of $5.17 billion and $2.48 EPS for the first quarter of 2008.  First Call had estimates at $2.41 EPS. This compared with $4.72 billion and $2.18 EPS for the same period a year ago. Revenues jumped to $65.95 billion, up about 38% from $48.23 billion. Analysts were looking for revenues of $75.64 billion and $2.41 EPS. Refining earnings dropped from $1.62 billion to $252 million, due to higher crude oil costs and lower refining margins. It’s a repeat of the same story from all the integrated oil companies. CVX stock is up almost 1% at $95.80 in pre-open trading.

Duke Energy (NYSE: DUK) may be more of an electricity play, but when you look at its break-down you will understand why it’s included in energy stocks this morning.  It is trading up over 3% after earnings of $465 million or $0.35 EPS, compared to $0.30 EPS a year ago and compared to First Call estimates of $0.31. Revenues grew 9% to $3.337 billion, and First Call had estimates at $3.25 billion. 

Even though Duke’s numbers beat the estimates, it took an accounting change to make it happen. Duke changed the way it accounts for the impact of mark-to-market hedges in its Commercial Power segment. Beginning in the 2008 first quarter, the company will exclude its commodity hedging from earnings. Adjusted earnings, compared with the first quarter of 2007, is exactly $0.05/share. So, EPS is flat compared with last year, and 70% of the earnings boost is attributable to this exclusion. The company reiterated its guidance for $1.27 EPS in 2008.

Elsewhere, analysts have made a few calls regarding the oil and energy stocks this morning with calls in Patterson-UTI (NASDAQ: PTEN), Pioneer Natural Resources Company (NYSE: PXD), and Murphy Oil (NYSE: MUR):

  • Patterson-UTI (NASDAQ: PTEN) was raised by Credit Suisse, although the prior "Underperform" rating was raised only to a Neutral.
  • Pioneer Natural Resources Company (NYSE: PXD), in the exploration and production of oil and gas, was also raised to a Buy from a Hold rating over at Deutsche Bank.
  • Murphy Oil (NYSE: MUR) was downgraded this morning over at Bernstein’s research department.  Its prior "Outperform" rating was given a new "Market Perform" rating.

Paul Ausick
May 2, 2008

Posted on: May 2, 2008 – 8:11 am in Oil & Gas, , , , ,

Investools Hit By Double Whammy (SWIM)

Investools Inc. (NASDAQ: SWIM) is under serious fire this morning from traders.  The company posted net income of $0.17 EPS, but First Call was at $0.21 EPS.  This is on a record revenue with a gain of 39% to $91 million. 

A miss on earnings is one thing, but this disclosure is something different entirely:

  • "The Company is cooperating with a non-public, informal inquiry by the SEC relating to representations by certain presenters in certain portions of their presentations at some of the Company’s seminars. The Company has been cooperating with and intends to continue to cooperate with the SEC. Because it is ongoing, the Company cannot predict the outcome of this informal inquiry at this time, and, as a result, no conclusion can be reached as to what impact, if any, this inquiry may have on the Company or its operations."

This stock rose exponentially over the last 4 and a half years and had gone more range bound over the last year-plus.  An SEC inquiry after a miss is not going to be welcomed by any stretch of the imagination.

Shares closed at $12.48 and the 52-week trading range is $9.29 to $18.23.  Unfortunately, that was the 52-week trading range.  Shares are now down almost 35% pre-market at $8.20 on very active volume of more than 500,000 with an hour to the open.

Depending on what these position claims are, this will either end up with a slap on the wrist… or a kick in the you know where.  So far traders are kicking.

Jon C. Ogg
May 2, 2008

Posted on: May 2, 2008 – 7:42 am in Brokerage Firms, Regulation, SEC,

April Unemployment Classified as “Less Bad”

The Labor Department just released the April 2008 unemployment numbers.  While these are negative, they aren’t as bad as estimates.

The unemployment rate came in at 5.0% versus estimates we had marked as as 5.2%.

The change in non-farm payrolls came in at -20,000 versus and estimate we had of about -80,000.

Average hourly earnings came in at +0.1%.

There numbers aren’t exactly good by any stretch.  But quite often, "less bad" is good enough.

Let’s just hope that Elaine Chao’s computers at the Labor Department are working and counting figures properly.

Jon C. Ogg
May 2, 2008

Posted on: May 2, 2008 – 7:37 am in Economy

Is the Viacom Turnaround Afoot? (VIA, CBS)

Viacom Inc. (NYSE: VIA) posted earnings of $0.44 EPS on $3.12 Billion in revenues. First Call consensus estimates were $0.41 EPS and $2.97 Billion on revenues.

This shows that revenues rose 14.7% year over year, and now the company is forecasting a three-year period from 2008 through 2010 where Viacom plans to deliver low double-digit annual growth in diluted earnings per share from continuing operations. This is based on 2007 adjusted diluted EPS of $2.36.

Interestingly enough for 2008, if we take the low-double digit face value and say 11%, we’d get $2.62 EPS and if we take 13% then we get almost $2.67 EPS.  First Call is at $2.66.

If we split the bar there and go for 12% and then plug in the same 12% for 2009, we’d get $2.96.  If we use 13% growth compounded then we get to $3.01 EPS.  First call is at $3.03.

The company has to grow by more than 13%, which is still within the "low double-digit" EPS growth plans.  If tyhe company can achieve that, then Wall Street may be hard pressed not to cheer.  Media is changing big time and the economy is still softening on the surface.

Sumner M. Redstone, Executive Chairman of Viacom, said, "Viacom entered 2008 at an aggressive pace….. We continue to unlock new value…. with our unparalleled entertainment brands. I am more confident than ever that we have the right strategies and the best management to deliver on our commitment to grow shareholder value over time."

Viacom shares closed at $39.92 yesterday and the 52-week trading range is $36.00 to $45.03.

Its ex-property CBS Corp. has recovered almost 10% from the lows of the last 5-days since its earnings came out as well.  CBS closed at $24.05 yesterday, and its 52-week trading range is $20.68 to $35.75.

Maybe Redstone and friends are turning the ship….. assuming they live up to their own internal forecasts.

Jon C. Ogg
May 2, 2008

Posted on: May 2, 2008 – 7:21 am in Earnings, Media, ,

Ford (F) To Sell Volvo And Mercury?

Jerry York, henchmen for Kirk Kerkorian, has told Automotive News that it is time for Ford (F) to dump Volvo and Mercury. The former car exec said that the No.2 car company should keep luxury operation Lincoln.

York is probably right. Ford has enough problems, Maintaining four brands keeps design and production costs high. Last month, Mercury sales fell 26%. The brand only sold 8,872 cars for the period. Sales of it Grand Maquis were off 51%.

Volvo sales were down 12% for the month

Douglas A. McIntyre

Posted on: May 2, 2008 – 7:19 am in Autos,

Top 10 Pre-Market Analyst Calls (AGN, SCOR, BOOM, EQ, GPS, HRC, JWN, MORN, PCLN, RSH)

These are ten of the analyst calls we see impacting shares this Friday morning:

  • Allergan (NYSE: AGN) cut to Hold at Jefferies.
  • ComScore (NASDAQ: SCOR) raised to Outperform at Oppenheimer.
  • Dynamic Materials (NASDAQ: BOOM) cut to Neutral at JP Morgan.
  • Embarq (NYSE: EQ) raised to buy at Deutsche Bank.
  • Gap Inc. (NYSE: GPS) cut to Neutral at Banc of America.
  • Hill-rom (NYSE: HRC) started as Outperform at Oppenheimer.
  • Nordstrom (NYSE: JWN) raised to Outperform at Credit Suisse.
  • Morningstar (NASDAQ: MORN) raised to Outperform at Keefe Bruyette
  • Priceline.com (NASDAQ: PCLN) cut to Hold at Citigroup.
  • RadioShack (NYSE: RSH) raised to Buy at Banc of America.

Jon C. Ogg
May 2, 2008

Posted on: May 2, 2008 – 6:55 am in Analyst Calls, , , , , , , , , ,

Europe Markets 5/2/2008 (SI)

Markets in Europe were rallying at 6.30 AM

The FTSE was up 1.1% to 6,151 Cadbury was up 8.7% to 630. Prudential was up 3.4% to 721.

The DAXX rose 1.2% to 7,033. BMW was up 4.6% to 36.86. Siemens (SI) was higher by 2.2% to 77.25.

The CAC 40 was higher by 1% to 5,046. Credit Agricole was up 3.2% to 22.34. Societe Generale was up 2.8% to 77.27.

Data from Reuters.

Douglas A. McIntyre

Posted on: May 2, 2008 – 5:36 am in International Markets,

Bond-Holders At Countrywide (CFC) Sweet The Buy-Out

Bond-holders who own debt in Countrywide (CFC) have assume that Bank of America (BAC) would take those obligations on and that they would get paid out. Maybe not.

According to Bloomberg. “There is no assurance that any such debt would be redeemed, assumed or guaranteed,” the Charlotte, North Carolina-based bank said in an April 30 regulatory filing.

If the bond-holders push to be taken care of, the matter could end up in court. And, the deal to buy Countrywide could be killed.

Douglas A. McIntyre

Posted on: May 2, 2008 – 5:19 am in Mergers and Buy Outs, ,

Utilities And Commodities Prices Kill Alternative Cars: The Coal-Powered Auto

Owning one of those new cars that runs on ethanol or electricity may be more expensive than the old-school gas versions, even if petrol stays at $3.50 a gallon.

The math wizards at The Wall Street Journal have figured out that battery-powered cars "will need ready access to inexpensive, plentiful electricity. That means the new vehicles "will make utilities more important than the oil companies" to many drivers, " Of course, utilities are less interested in making money than oil companies so they will keep prices down.

The same issues are about to plague hybrid cars that run on biofuels. The price of a bushel of corn is now higher than a pound of platinum. That may make the trip to the grocery store worth about $500.

What has been plentiful and cheap is not so any longer. That means the billion of dollars put into newfangled autos may be, at least in part, a poor investment for the likes of GM (GM) and Toyota (TM).

The only energy sources which are cheap now are nuclear and coal.

The coal-powered car is probably only a few years off.

Douglas A. McIntyre

Posted on: May 2, 2008 – 5:10 am in Autos, ,

Wal-Mart (WMT) Pushes The Wii Fit For Mom’s Day: Call A Doctor

Wal-Mart (WMT) has decided Mom does not want flowers or candy this year. It is aggressively marketing the new Nintendo Wii Fit as a way to pull reluctant and impoverished shoppers into its stores.

According to Reuters "the Walmart.com homepage will be dominated by the Wii Fit — a physical exercise program that uses a pressure-sensing board as a controller — including a link to order the product now, ahead of its May 19 U.S. launch".

It may be perverse to think that women who were not varsity athletes in their earlier years could use the Wii Fit. But, retailers are grasping at straws to try to make a sale, even if Mom ends up in the emergency room.

The new marketing plan actually may work, but not for the reasons which Wal-Mart has stated. Many Mother’s Day gifts are bought by children and teenagers, often with money from Dad’s pocket. The youngsters may sneak off and buy that Wii Fit for themselves and stop by the florist on the way home.

Wal-Mart wins either way and for capitalists, the is what counts, Mother’s Day or not.

Douglas A. McIntyre

Posted on: May 2, 2008 – 4:58 am in Retail,

Yahoo!’s (YHOO) Failures Now Drive Its Value

Trying to make sense of all the rumors about Microsoft (MSFT) buying Yahoo! (YHOO) and Yahoo! making a search deal with Google (GOOG) is senseless.. Only three or four people are actually playing the cards and they are all lying to one another. Steve Ballmer may be the biggest liar of all but he controls the most chips.

The only thing for certain is that, once this is all over, Yahoo!’s shareholders will be better off. Either it cuts a deal to outsource search to Google and that get approved by the government, or Microsoft puts Yahoo!’s long-time shareholders out of their suffering and buys the portal company for $31 or something in that neighborhood.

Yahoo! has a chip in the game because it was so poorly run. Ironic, but true. If it had pushed its search business harder five years ago, it might not have been overtaken by Google. If it had not gone through three CEOs over that period, it would be a sign that it had some long-term plan which was working.

Yahoo!’s value now is in its failures The have pushed its market cap down to $30 billion on most days. That would put it in the same league with CostCo (COST).

But, CostCo does not get anyone 20% of the US search market. For Yahoo! that figure could have been 40%, but, because it is not, Microsoft or Google may get lucky.

Douglas A. McIntyre

Posted on: May 2, 2008 – 4:47 am in Mergers and Buy Outs, , ,

Dow 14,000: A Rally For The Ages (AAPL)(CAT)(MSFT)

As hard as it may be to believe, the Dow is withing 200 points of where it was a year ago, and above where it was last August. There is now plenty of talk that the recession may not be very deep, if there is one at all. The Wall Street Journal wrote that job cuts in this downturn could be modest.

The market may be back in rally mode. Part of the euphoria is due to the fact that corporate earnings were not awful. Big companies like Caterpillar (CAT), Microsoft (MSFT), Google (GOOG), Intel (INTC), and Apple (AAPL) did fine. The Fed has cut, just enough. The tight credit markets may be less tight

Even in the face of ugly credit news and rising oil prices, the Dow moved from 12,846 on August 16 of last year to 14,280 on October 9. All that in seven weeks.

If the employment numbers are good over the next month and retail sales for major store chains are not too bad, the Dow may start another ascent toward the summit. It will not be climbing a wall of worry at that point, It will be scaling the ladder of relief.

A sucker rally? Almost certainly. The fact that banks and brokerages are still raising money and hitting the Fed discount window like stick-up men is a clear sign that the financial world thinks it will have to weather more bad quarters. How many months can car sales drop 14%. Oil may be off slightly from its peak, but it still trades at $114. To saps, that looks good.

If the dollar actually starts to recover, hedge funds and wonks and quants will begin to go long the Dow. The Dow will start to go long. But, out on the unemployment lines and at gas stations and bank branches they know the truth better. It is always the guy in the caboose who finds out about the train wreck last.

Douglas A. McIntyre

Posted on: May 2, 2008 – 4:34 am in Index, , , , ,

Media Digest 5/2/2008 Reuters, WSJ, NYTimes, FT, Bloomberg

According to Reuters, the CEO of Microsoft (MSFT) says that the company is close to its next move in its attempted takeover of Yahoo! (YHOO).

Reuters reports that Wal-Mart (WMT) will use the Wii Fit from Nintendo to boost Mother’s Day sales.

Reuters writes that auto sales dropped 14% in April.

Reuters writes that Exxon (XOM) profits disappointed Wall St. despite the high price of oil.

Reuters writes that Craigslist has accused Ebay (EBAY) of hypocrisy in its suit against the classifieds company.

The Wall Street Journal writes that Microsoft (MSFT) will probably launch a hostile bid for Yahoo! (YHOO).

The Wall Street Journal reports that Sun (JAVA) swung to a loss and will cut about 2,000 jobs.

The Wall Street Journal writes that investors have become skeptical about BHP Billiton’s (BHP) bid for Rio TInto (RTP)

The Wall Street Journal reports that a deal for Google (GOOG) to handle Yahoo!’s search advertising may be close.

The Wall Street Journal writes that job cuts may not be as deep as those in past recessions.

The Wall Street Journal writes that sovereign funds are meeting with the IMF to set guidelines for their investments.

The Wall Street Journal writes that the push for plug-in cars could be hurt by utilities charging more for electricity.

The New York Times reports that big retailers are shutting stores and cutting back expansion.

The FT reports that Apple (AAPL) set a big download deal with major movie studios

According to Bloomberg Warren Buffett may spend $40 billion on investments in companies while other investors are on the sidelines because of the credit crunch.

Douglas A. McIntyre

Posted on: May 2, 2008 – 2:51 am in Press Digest, , , , , , , , , ,

Asia Markets 5/2/2008 (HMC)(SNE)(LFC)(SNP)

Markets in Asia were sharply higher

The Nikkei rose 2.1% to 14,049. Honda (HMC) rose 3.9% to 3430. Sony (SNE) rose 2.9% to 4920.

The Hang Seng rose 1.8% to 26,225. China Life (LFC) rose 3.9% to 35.10. China Petroleum (SNP) rose 5.2% to 8.70.

The Shanghai Composite was up 4.% to 3,693.

Data from Reuters

Douglas A. McIntyre

Posted on: May 2, 2008 – 2:27 am in International Markets, , , ,