Daily Archives: July 7, 2008

Goodrich Petroleum Taps Capital Markets (GDP)

Goodrich Petroleum Corporation (NYSE: GDP) has announced that it has commenced an underwritten public secondary offering of 3 million shares of its common stock.    J.P. Morgan Securities Inc. is acting as sole book-running manager for the common stock offering and it has an over-allotment option of some 450,000 shares.

The oil & gas company noted that it intends to use a portion of the proceeds from this offering to pay down the balance of its senior revolving credit facility.  The rest of the net funds raised are earmarked for general corporate purposes. Goodrich has also noted that such paid down funds under the senior revolving credit facility may be re-borrowed from time to time for general corporate purposes.

Based upon a 3% drop to $70.74, Goodrich Petroleum has a market cap of some $2.36 Billion.  This would raise an additional $210+ million on a gross basis if it closes today.  Its 52-week trading range is $16.63 to $86.18.

Jon C. Ogg
July 7, 2008

Posted on: July 7, 2008 – 3:16 pm in Oil & Gas, Secondary Offering,

The 52-Week Low Club (MNI)(BAC)(C)(MER)(GHS)(MI)(FRE)(FNM)

Fannie Mae (FNM) hit by rumors that it and Freddie Mac may have to raise $75 billion. Drops to $14.65 from 52-week high of $70.57.

Freddie Mac (FRE) sells down to $10.28 from 52-week high of $67.20.

Marshall & Ilsley (MI) Analyst predicts loss for company. Dips to $12.24 from 52-week high of $48.37.

Gatehouse (GHS) The plight of debt-laden newspapers gets worse. Sells off to $2.13 from 52-week high of $19.10.

Merrill Lynch (MER) may have to raise more money. Moves down to $29.84 from 52-week high of $89.23.

Citigroup (C) hits a new low almost every day. Drops to $15.80 from 52-week high of $52.97.

Bank of America (BAC) gets sucked under by sell-off in financials. Dips to $21.10 from 52-week high of $52.96.

McClatchy (MNI) Another newspaper company hits bottom at $5.11 from 52-week high of $28.73.

Douglas A. McIntyre

Posted on: July 7, 2008 – 2:50 pm in HI/LOW, , , , , , , ,

Earnings Kick Off With Alcoa (AA)

Alcoa, Inc. (NYSE: AA) is set to lead off Q2-2008 earnings season.  After looking around at many last minute sources, we’d caution against you falling for tying the overall bias of earnings season to the reaction based upon Alcoa.  Alcoa (results versus expectations) hasn’t been representative of metals, mining, finished metals, or the overall economy for longer than you’d probably like to hear about.

The good news is that the lows of recent years appear to be higher and higher lows.  The bad news is that you just can’t tell without knowing the insider activity and dealings whether or not Alcoa will be predator or prey.  You also don’t know if they will continue to divest smaller operations deemed non-core operations.

First Call has estimates pegged at $0.68 EPS on $7.37 Billion in revenues.  Estimates for next quarter are $0.74 EPS on $7.49 Billion, and fiscal Dec-2008 estimates are $2.73 EPS on $29.7 Billion in revenues.  Just keep in mind that these numbers may change and that Alcoa has a history of being all over the place on a "report vs. expectations" basis.

With a $27+ Billion market cap, it’s hard to imagine a deal being done where the company gets acquired.  But in today’s world of metals, miners, and finished metals having gone through the roof and with so many of the large international players now being exponentially larger than US operators,  it’s just too hard to call it impossible even when you consider the current credit environment.

Alcoa is up less than 1% at $33.08 min-Monday, and its 52-week trading range is $26.69 to $48.77.  Last year, the Times put this one in play and we all know Jim Cramer and other CNBC regulars have been calling perpetually for a merger in this name. 

Options traders appear to be pricing in a move of up to $1.48 to $1.65 in either direction, but that may change between now and the report.  Keep in mind that last minute changes may also change those consensus estimates.  Many headline attention grabbing media outlets will try to convince you that this is the key to the bias for earnings season.  We’d opine that any such truth is merely a coincidental indicator rather than any leading indicator.  We’d even take that a step further and make the same statement towards Alcoa’s impact and bias-setting power in the overall metals sector.

Jon C. Ogg
July 7, 2008

Posted on: July 7, 2008 – 12:05 pm in Earnings, Metals,

Dune Energy: Shrinking to Grow (DNE)

Dune Energy, Inc. (Amex: DNE) is selling off its Barnett Shale assets located in Denton and Wise Counties, Texas, for $41.5 million.  The effective date of the sale will be May 1, 2008, with closing expected to occur on or before July 31, 2008.  Dune’s Barnett Shale at 12/31/2008 had proved developed reserves of 19.3 Bcfe in 35 producing wells, plus 6 wells with behind pipe pay awaiting fracture stimulation.  An additional 13 proved developed locations contained an estimated 14.1 Bcfe of net reserves.  This sale area covers about 19% of Dune’s total proved reserves, but only about 6.8% of Dune’s year end 2007 SEC Present Value discounted at 10%. 

The company noted that the first quarter 2008 revenue attributable to Dune’s Barnett Shale operations totaled $7.64 per Mcfe, while expenses were $4.36 per Mcfe.  Dune’s Gulf Coast operations yielded revenue of $12.14 per Mcfe, while costs totaled $4.14 per Mcfe.  Its operating profit for the Barnett Shale and Gulf Coast were $3.28 and $8.00 per Mcfe, respectively.

Proceeds from the sale will be utilized to eliminate outstanding borrowings under its credit revolver and for general working capital.  The Company will continue its active exploitation program in its Gulf Coast fields during 2008 and the company expects to replace the production lost stemming from the sale of its Barnett Shale assets, with fourth quarter volumes expected to exceed current levels.

More interesting than the sale itself is the relative value this is compared to the overall size of the company.  The company has a market cap of around $78 million.  With shares up 2% at $0.98, this is still at the bottom of the last 52-week trading range of $0.94 to $2.45.

Dune is shrinking its existing operations no matter how you cut it, even if it is short-lived.  But it will now get to focus on growing its higher margin operations and will get to clean up its balance sheet.  There have been some recent changes made to its convertible debt structure, so some of these numbers on a fully diluted basis may be different than they appear on a remedial look. At the end of last quarter, cash was a mere $14.59 million, while it carried $303 million in long-term debt and $441 million in total liabilities.

Jon C. Ogg
July 7, 2008

Posted on: July 7, 2008 – 11:40 am in Oil & Gas,

BusinessWeek: Close The Magazine, Go Digital

BusinessWeek, which has been losing advertising pages at the rate of 15% or 20% for well over a year had a total of 24 ad pages it its most current issue. It is the summer, but that is not really the problem.

BusinessWeek has about 150 editorial staff members, based on a count of its masthead. There are probably another 75 people on the publishing side. Since the publication is part of McGraw-Hill’s (MGP) magazine operations, it may be hard to break out all of the discrete costs of operating BusinessWeek. It is safe to say that the print version of the publication is up against insurmountable odds if it ever wants to make money like it did a decade ago.

Many magazine do not make money on their circulations, which includes subscription and newsstand sales. Getting new subscribers often involves expensive direct mail. The offer to new BW subscribers is as low as $20 for 26 issues. It is probably tough to make money on that. Renewing subscribers may be tempted to cancel their print editions and get more of their financial news from the internet, including visits to BusinessWeek.com. The majority of the content on websites which compete with print business magazines is free.

The distribution costs of publications is only going to rise. Gas prices will move postage and trucking prices up. Paper mills are pushing up their charges to offset increasing costs. The business of moving paper magazines around the country, and the world, is a losing game.

Advertising revenue has made up for the fact that the circulation end of publishing is a P&L drain. Circulation brought in the bodies and the advertising sales staff used them as the basis of their pricing. But, between the slowing of the economy and the migration of marketing dollars to the internet, that part of the publishing model is failing as well. BusinessWeek may get back some of its advertisers when the economy improves, but, over time, more and more ad revenue will move to online sites.

BusinessWeek has the opportunity to move completely to the interenet and take out all of its circulation acquisition costs along with printing and distribution expenses. The publication would give up a significant amount of print ad revenue, but most of that is likely to disappear in the next few years anyway.

Based on comScore data, BusinessWeek.com’s unique monthly user base, at 2.5 million a month, is smaller that those at Forbes, CNNMoney, Reuters, TheStreet.com, and The Wall Street Journal’s online edition. BusinessWeek would free up a fair amount of money by eliminating its circulation promotion programs. Some of those marketing dollars could be pushed online to increase the internet audience.

According to Keith Kelly at The New York Post, BusinessWeek lost money last year. That means it will probably lose money this year as well. Moving totally online might change that, perhaps not in the first year, but relatively soon.

Could BusinessWeek keep 150 people on its editorial staff if it existed only on the internet? The answer to that actually may be "yes", if the online property is properly promoted and run. Recent media reports indicate that the magazine is already cutting people to save money. A "digital only" model might save some of the current people their jobs.

A reader going through the current magazine will notice that a good portion of the content is "news". Much of that is old before it reaches subscribers. That problem does not exist online. Longer pieces probably play just as well in either format. And, the internet allows readers to get a huge amount of information on a subject that the print medium cannot offer. And, that makes the digital product even more attractive to readers and advertisers. 

Douglas A, McIntyre 

Posted on: July 7, 2008 – 10:25 am in Old Media,

Ballmer To Icahn: Give Me A New Yahoo! (YHOO) Board, The Perfect Trojan Horse

Steve Ballmer, CEO of Microsoft (MSFT), thinks the current board at Yahoo! (YHOO) are buffoons and wants them out before he negotiates to buy all or part of the company. That is according to a letter Carl Icahn sent to Yahoo! shareholders.

Ballmer’s concern is that between committing to a contract to buy the company and the date of closing, which he reckons could be nine months, the current board and management could do a great deal of damage to the portal firm. Icahn’s letter puts it this way: "During that period, if the current board and management team of Yahoo! mismanage the company (and their recent track record is far from reassuring), Microsoft would be putting its money at risk and a great deal could be lost."

Ballmer may simply be using Icahn as a tool. Pushing Yahoo! management and its board out may do much more to damage to the company than the status quo. It would take a new "team" several quarters to make any meaningful changes at Yahoo!. While new management learned its way around, the company would be rudderless.

Microsoft is now working on getting Yahoo! cheap, and Icahn may be the best tool to accomplish that.

It’s Ballmer inside that Trojan Horse

Douglas A. McIntyre

Posted on: July 7, 2008 – 8:33 am in Mergers and Buy Outs, ,

Top 10 Pre-Market Analyst Calls (APKT, ARMH, BRCM, CPN, DIS, JNPR, KND, MRK, ONT, SU)

These are ten of the analyst calls with upgrades and downgrades we are focusing on this Monday morning in pre-market trading:

  • Acme Packet (NASDAQ: APKT) cut to Underweight at JPMorgan; cut to Neutral at Piper Jaffray.
  • ARM Holdings (NASDAQ: ARMH) raised to Buy at UBS.
  • Broadcom (NASDAQ: BRCM) raised to Buy at Piper Jaffray.
  • Calpine (NYSE: CPN) downgraded to Equal-Weight at Lehman Brothers.
  • Disney (NYSE: DIS) cut to Underweight at Lehman Brothers.
  • Juniper Networks (NASDAQ: JNPR) raised to Buy at Piper Jaffray.
  • Kindred Healthcare (NYSE: KND) raised to Outperform at Friedman Billings.
  • Merck (NYSE: MRK) downgraded to Neutral from Buy at UBS.
  • On2 Technologies (AMEX: ONT) downgraded to Neutral from Buy at Merriman Curhan Ford.
  • Suncor Energy (NYSE: SU) raised to Overweight at JP Morgan; raised to Outperform at Friedman Billings.

Jon C. Ogg
July 7, 2008

Posted on: July 7, 2008 – 6:36 am in Analyst Calls, , , , , , , , , ,

InBev And BUD: Pushing Out Another Board

Perhaps this will be the year when replacing corporate boards hits a record level. Carl Icahn wants to do it at Yahoo! (YHOO). Several large investors have been taking a run at AIG (AIG). Now, InBev, which is trying to buy Anheuser-Busch (BUD) wants to replace the representatives of the shareholders there.

To rub salt into the wounds of BUD’s management, the "alternative board includes Adolphus Busch IV, the great-grandson of the Anheuser-Busch founder and the uncle of the current Anheuser-Busch chief executive, August Busch IV, according to MarketWatch.

Perhaps InBev does not need to go that far if the current board will do the right thing. The InBev bid has taken the BUD stock up to over $62. Over the last five years, the 200-day moving average of the shares has usually been well below $50.

Perhaps it seem simplistic, but a bird in the hand is worth two in the bush. That becomes even more true when the economy gets bad. BUD faces a very significant increase in its transportation costs as the price of gas moves up.

BUD’s earnings have not been outstanding over the last three years. A recession would make that worse, especially if the element of rising inflation is added. Moving up beer prices may be hard to do if the consumer has a dwindling supply of money. He may have to turn to cheap wine of moonshine.

The BUD board has the chance to drop the company’s problems into the lap of someone else. It should sell out to InBev as soon as possible.

Douglas A. McIntyre

Posted on: July 7, 2008 – 5:37 am in Management Change, , ,

Oil At $200 And A Two-Year Recession

The predictions of $200 oil have made it to the front page of The Wall Street Journal. They have been hanging around in less prominent places, but now they gain some further legitimacy. According to the paper, "Oil’s historic ascent from $100 to nearly $150 a barrel in just six months is lending weight to a far grimmer prediction: Crude could reach $200 a barrel by the end of the year." The Journal predicts this would push gas prices to $6 a gallon.

If gas goes that high, several industries will be toast. Airlines and auto companies are obvious. The bankruptcy courts will be filled to overflowing with their lawyers and creditors’ counsels. The result could be one of the largest restructuring in the recent history of the US economy. Where the capital will come from to do this is anyone’s guess.

The falling of the dominoes does not end there. Gas and oil prices at unprecedented levels may well push energy costs to 20% to 25% of the income of many middle class households. In regions where the weather gets particularly cold in the Winter, that number could go even higher. Consumer spending would be completely arrested. Retail sales would be damaged beyond all but the most negative predictions.

Any industry which relies on transportation, whether it is newspapers or forestry products, would face costs which could easily wipe out gross margins. The impact could be so profound that it could effect the way that some people get most of their daily news.

Oil at $200 would seize up the economy to the extent that virtually no industry would me immune. Fixing the problem could take a year, and, perhaps, much longer. The US has not seen anything like it and has no experience with remedies, which makes solving the trouble all the harder.

Douglas A. McIntyre

Posted on: July 7, 2008 – 5:22 am in Oil & Gas

Toyota’s (TM) Poor Call: No Prius In The Garage

The Toyota (TM) Prius, the most successful hybrid car in the world, is about to become even more fuel-efficient. According to Reuters, the company "plans to install solar panels on some Prius hybrids in its next remodeling, responding to growing demand for "green" cars amid record-high oil prices." That will probably make the little vehicle get some insane miles-per-gallon figure, perhaps 100.

The trouble is that almost no one can get a Prius. Supply of the cars is very, very short because Toyota did not anticipate the demand that high oil prices would cause. It may take a number of months to retool production to meet demand. In the meantime, one of the standard factors in periods of short supply has come into play. Dealers are ripping off customers with above sticker prices. According to the FT, "Waiting lists for Priuses have expanded sharply as demand outstrips the Japanese carmaker’s capacity to build the petrol-electric hybrid vehicles."

It is a great irony that US car companies are being hurt by having too many gas guzzlers while Toyota is being damaged by under-production of a model which gets tremendous mileage.

Right now, customers who want the Prius are sullen but not mutinous. For the sake of Toyota’s image, it needs to change that for the better, if it can.

Douglas A. McIntyre

Posted on: July 7, 2008 – 5:01 am in Autos,

The Worst Earnings Season In More Than Twenty-Five Years? (AAPL)(GE)(CSCO)(INTC)(T)(VZ)(MSFT)

The market took big dips in 2001 and 1987. One was due to a national catastrophe and another was focused on Wall St.’s impression that the market had run too far, too fast.

The US experienced a fairly deep recession in 1981 and 1982. By most measures, this lasted for over five quarters. Downturns in 1991 and 2001 where less severe and lasted, at most, six months.

The question now is whether consumer spending has been so badly hurt and the credit markets so badly damaged that earnings could fall at a level not seen since the early 1980s. According to The Wall Street Journal, "analysts estimate S&P 500 operating earnings — income excluding one-time items — fell 11.5% in the second quarter."

To a large extent, whether earnings will be down by 12% or more will depend on the "swing" industries in the economy. It is already a given that auto, airline, and financial numbers will be awful. Retail companies are also likely to turn in bad figures due to drops in consumer spending. Large companies like GE (GE) with broad exposure across the range of several industries may also do poorly.

For the most part, that leaves tech and commodities stocks to pull the average of earnings up. Big oil will almost certainly do well. Whether it does as well as expected may depend more on thin refining margins than the high price of oil.

Tech and telecom are the line of defense that the market hopes will not be breached. Companies which serve the consumer, especially perennial winners like Apple (AAPL) and the providers of tech to big business lead by Intel (INTC), Microsoft (MSFT), and Cisco (CSCO) are among the few companies which could pull the earnings averages for the S&P 500 companies up. Cellular growth will have to sustain AT&T (T) and Verizon (Z)

Tech earnings are a thin line. A pull-back in consumer spending may halt the astonishing rise in numbers at Apple. Tight business conditions could cause large corporations to defer some of their tech spending. A slowing in either enterprise or consumer spending could ding the big telephone companies.

The consumer is already feeling very poor and has closed his wallet. If big business looks ahead and sees poverty, earnings could be as bad as they have been in almost three decades.

Douglas A. McIntyre

Posted on: July 7, 2008 – 4:46 am in Earnings Warning, , , , , , ,

GM (GM) Tries To Save Itself

GM (GM) will try to save itself again. It may be too late. The company may already be in hospice

The nation’s largest car company is considering dumping thousand of white collar workers and selling or closing some of its brands. GM is has begun to re-evaluate whether it can be profitable in 2010. The answer is almost certainly "no".

According to The Wall Street Journal, "Management may also present the board with options for raising additional cash to help GM make it through the downturn." The paper reports that most brands beyond Cadillac and Chevy are being reviewed for significant changes or elimination.

The potential revolution in how GM manages its brands and costs may come too late, especially for the company’s shareholders. The firm’s stock has already dropped from from a 52-week high of over $40 to $10.

GM’s problems are obvious, but the solutions are not. Shutting down brands by no means insures that the company’s North American operations can make money. GM is still weighed down by having a large percentage of its models in the SUV and pick-up categories. The car company may not be able to change that for a number of quarters. Throughout that period, it is likely to lose billions of dollars.

While GM may be able to repair some of the damage done by its product development and marketing high-margin, high-mileage vehicles, the firm’s stockholders are certainly looking at the price of GM’s shares dropping another 50%. With a market cap of under $6 billion, an infusion of $10 to $15 billion would push GM’s stock price through the floor.

GM’s new plans are a long shot. The damage to shareholder value is a sure thing.

Douglas A. McIntyre

Posted on: July 7, 2008 – 3:10 am in Autos,

Media Digest 7/7/2008 Reuters, WSJ, NYTimes, FT, Bloomberg

According to Reuters, NBC Universal and partners will by The Weather Channel for $3.5 billion.

Reuters writes that Toyota (TM) will add solar panels to some of its Prius cars.

Reuters writes that broken buy-out deals have strained trust among corporations, banks, and prvate equity firms.

Reuters reports that Merrill Lynch (MER) is considering selling its stakes in Bloomberg and Blackrock.

The Wall Street Journal reports that GM (GM) is considering thousands of job cuts and the sale or closing of some of its brands.

The Wall Street Journal reports that the rising price of oil is causing more fear that crude will hit $200 by the end of the year.

The Wall Street Journal reports that vacancies are rising in retail centers.

The Wall Street Journal writes that plans to revise the bond rating system may not go far enough.

The Wall Street Journal writes that energy and materials stocks may follow the rest of the market lower.

The Wall Street Journal writes that analysts believe S&P 500 earnings will drop 11.5% in Q2, but that number may underestimate problems.

The Wall Street Journal reports that automakers are pushing back on steel surcharges.

The Wall Street Journal writes that Immelt of GE (GE) will have to continue to defend the conglomerate structure of the company.

The New York Times writes that Google (GOOG) must challenge rules of competition and antitrust as Microsoft (MSFT) has done over the last two decades.

The FT writes that InBev has selected an alternative board for Anheuser-Busch (BUD).

The FT reports that delays in making more Toyota Prius cars are testing customer patience.

Bloomberg reports that the LBO market is getting a push forward with the successful buy-out of BCE.

Bloomberg reports that US profits probably fell in the last quarter lead by Citigroup (C) and Merril Lynch (MER)

Douglas A. McIntyre

Posted on: July 7, 2008 – 2:52 am in Press Digest, , , , , ,

Asia Markets 7/7/2007 (LFC)(SNP)(NTT)

Markets in Asia were mostly higher.

The Nikkei moved up .9% to 13,361. NEC was up 2.4% to 587. NTT (NTT) was down 2.5% to 527000.

The Hang Seng rose 1.7% to 21,784. China Life (LFC) rose 4.2% to 26.60. China Petroleum (SNP) rose 4% to 7.31.

The Shanghai Composite was up 4.6% to 2,792.

Data from Reuters.

Douglas A. McIntyre

Posted on: July 7, 2008 – 2:29 am in International Markets, , ,