the SEC's Naughty list

Led by chief executive Reed Hastings, Netflix (NASQQ: NFLX) delivered one of the biggest PR blunders of the year. In July 2011, the video streaming and content provider unexpectedly announced a 60 percent price hike to its nearly 25 million subscribers, followed by news of a decoupling of DVD-by mail delivery (renamed Qwikster) and online services. Faced with a slew of cancellations, the company revised its third-quarter guidance downward by one million subscribers on September 15. In a letter to shareholders, Hastings acknowledged that the initiative to split services had upset many subscribers – “which we don’t take lightly,” he wrote – but management nonetheless said it would stand by its decision. “We believe this split will help us make our services better for subscribers and shareholders for years to come,” opined Hastings. Less than a month later, in a Netflix blog posting, the CEO informed customers the company had abandoned plans to spin-off the DVD-by mail service. In a regulatory filing on October 24, the company admitted (begrudgingly) it had misjudged customer expectations and that the price changes had resulted in the loss of more long-term subscribers than expected. “Investors and members will be relieved to know we are done with pricing changes,” said Hastings. Shareholders are likely more “pissed off” than relieved: From a 52-week high of $304.79 a share hit on July 13, the common stock has lost more than 75 percent in market value.

Bob Evans Farms (NASDQ: BOBE) reaffirmed fiscal year 2012 EPS guidance of $2.36 to $2.44 a share and annual earnings growth guidance of approximately 7 to 10 percent during the next five years. More pressing issues concern significantly higher sow costs and expenses associated with an expanded Bob Evans Restaurants remodel program. The only gadfly in the restaurateur’s cookbook remained the Humane Society of the United States, a group of health food activists looking to push Bob Evans to “phase in” cage-fee eggs (to be used in consumption). The Society opined that cage-free facilities would not only improve the lives of hens, but also reduce public health risks (such as, materially lower rates of food-borne illnesses like salmonella.) After several delays, at the company’s annual meeting held on July 14, shareholders overwhelming voted down a resolution that good animal welfare practices, such as banning of caged eggs, would improve supply and health conditions longer term.  Contrary to the do-gooder society goal, it was a righteous win for Bob Evans shareholders. For a company trying to stay steady on its feet, and demonstrate it can deliver sustainable and consistent operating profitability, more talk of range-free eggs should be viewed as nothing more than a gossamer-like distraction – to be blown away with the next spring breezes. Bob Evans business strategy is on track for 2012, especially when “do-gooder” chicken activists are marginalized to the sidelines.

Related Posts: The 10 Worst of the Bad 10-K Filings in 2011

-David Phillips

Sponsored: Tips for Investing

A financial advisor can help you understand the advantages and disadvantages of investment properties. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Investing in real estate can diversify your portfolio. But expanding your horizons may add additional costs. If you’re an investor looking to minimize expenses, consider checking out online brokerages. They often offer low investment fees, helping you maximize your profit.