Archive for June, 2006

• The Buy List So Far
  Eddy Elfenbein, June 23rd, 2006 at 9:06 pm

  The Buy List is down -0.20% for the year, and the S&P 500 is down -0.30% (not including dividends). The daily volatility of the Buy List is 7.15% greater than the S&P 500.
  Here’s the graph based on a $1 million equally weighted in the 20 stocks at the beginning of the year.
  
  By avoiding the heavy cyclicals, we avoided much of the pain of the correction.

• From Oracle’s Conference Call
  Eddy Elfenbein, June 23rd, 2006 at 8:50 pm

  Courtesy of Seeking Alpha:

  Kash Rangan – Merrill Lynch
  Larry, since we have you on, could you elaborate on your comments in the press related to getting into the Linux operating systems business? How should we think about that?
  Larry Ellison
  Well, I’m thinking a general comment about Open Source. The interesting thing about Open Source — and I don’t want to spend a lot of time on it today — the interesting thing about Open Source is it’s free to everybody, even Oracle. So, Oracle could choose to just take a copy of anyone’s Open Source, and as long as we could support it better than an Open Source company, we could suddenly leap frog them and become the number one distributor.
  It was just interesting. It is interesting to evaluate Open Source and understand that they don’t own any of their intellectual property. It is free for us to take and support, which we may in fact, do in the future.

• Lunch With Warren
  Eddy Elfenbein, June 23rd, 2006 at 10:04 am

  Get your bids in now. On eBay, a charity is auctioning off a lunch with Warren Buffett. The current bid is $455,100.

• Anadarko Buys Kerr-McGee and Western Gas
  Eddy Elfenbein, June 23rd, 2006 at 9:41 am

  This is a huge deal:

  Anadarko Petroleum Corp., the second- biggest independent U.S. oil and gas producer, agreed to pay $21 billion in cash for Kerr-McGee Corp. and Western Gas Resources, an acquisition that would more than double its sales.
  Anadarko said in a statement that it will pay $16.4 billion or $70.50 a share for Oklahoma City-based Kerr-McGee, which was forced by billionaire investor Carl Icahn to sell assets and buy back $4 billion of its stock last year. The price is a 40 percent above yesterday’s closing price. The company will pay $4.7 billion or $61 a share for Western Gas, 49 percent above yesterday’s close. Anadarko will assume $2.2 billion of debt.

• Google Sells Its Baidu Stake
  Eddy Elfenbein, June 22nd, 2006 at 5:06 pm

  From TheStreet.com:

  Shares of Baidu slumped after Google sold its 2.6% stake in the Chinese search engine.
  Baidu fell $4.86, or 5.8%, to $79.54 after Bloomberg and CNBC reported the sale. A Google spokesman and a U.S.-based Baidu representative couldn’t immediately be reached for comment.
  Google, which released a censored version of its service in China earlier this year, purchased a stake in Baidu in June 2004, before its public offering, according to Bloomberg. The news service estimates Google’s Baidu stake to be worth more than $63 million based on yesterday’s closing price.

• Medtronic Raises Dividend
  Eddy Elfenbein, June 22nd, 2006 at 3:39 pm

  From 11 cents a share to 14.3 cents a share. Medtronic (MDT) has raised its dividend for 28 straight years.

• Diworsify
  Eddy Elfenbein, June 22nd, 2006 at 12:48 pm

  Me running in slow motion.
  With beer sales flat,
  Waving my arms….
  Busch ponders
  “Noooo….”
  taking shot at
  “oooooooooo….”
  liquor.
  Why oh why do companies do this? Someone please tell me. Has this strategy ever worked? If people aren’t buying your crappy beer, what makes you think they’ll buy your crappy vodka? I really want to know who exactly is the target market for Budweiser Scotch? I don’t care if it’s just one guy, he needs to be severely beaten.
  Let’s look at Anheuser-Busch’s (BUD) situation. Earnings are down and the stock hasn’t budged in a bull market. Even for a defensive stock, shares of BUD have been slackers.
  The fact is that beer sales are flat. They’ve been flat for years. Brewers don’t sell more beer, they only steal market share. That’s why the advertising and branding is so intense (and moronic). In fact, a better way to think of Anheuser-Busch is not as a brew stock, but as a marketing and distributing company. That’s what they really do.
  (On a side note, every year in Silicon Valley, some really smart engineers get together with some really smart ideas. They meet some other really smart people who give them really smart start-up capital. But being a really smart engineer doesn’t make you a really smart businessperson. The start-ups bomb and the troubles are often due to marketing and distribution. Engineers don’t think that way. It’s amazing how dumb really smart people can be.)
  Selling the hard stuff won’t help any of Anheuser-Busch’s problems. It’ll probably make them worse. About 20 years ago, all the American car companies bought European luxury car companies. There was absolutely no reason for this. Within a few years, all three dumped them. Chrysler was eventually bought by a European car company.
  I’ll give you a great example of a company knowing how to use its brand—Harley-Davidson (HDI). Harley only makes the big bikes. They have nothing to do with the rest of the motorcycle market. Every few years someone suggests that Harley should “LEVERAGE” its “BRAND NAME,” and move into the smaller-weight market. There are lots of smart folks at Harley, and this idea has crossed their mind, but still, they never do it. Why? Because it’s not their market. They could do it They’d probably even make some money at it. But Harley’s attitude is that they aren’t like everybody else. They don’t make bikes–they make Harley’s. Bear in mind that a surprisingly large percentage of their revenue comes from clothing. Harley isn’t about to start diluting that brand.
  Harley knows exactly what business it’s in, and so do its customers. I have nothing against diversifying into good businesses. I’ll even look at other way at a brewer owning theme parks (that’s just marketing). But don’t fool anyone by thinking that you can brand your way out of troubles. Especially, don’t fool yourself.

• Dell Focuses on Customer Service
  Eddy Elfenbein, June 22nd, 2006 at 11:19 am

  Business Week talks with Richard Hunter, the new head of Dell’s customer service:

  How and why did Dell’s service deteriorate?
  In the quest for efficiency, we became efficient but quite ineffective. Management has put rules and regulations and hurdles that the phone agent has to jump through. They’re in the interest of cost, but not the interest of consumers.
  For instance, we set up specialized phone queues for consumer Dimension hardware tech support only, and another for small-business Dimension hardware tech-support only. So you would call and a desktop tech would answer, but you have a laptop.
  The net result: We were transferring, and still today, are transferring close to 45% of calls. That’s out of a half a million calls from consumers a week. That’s a lot. That’s terrible. It’s like delivering materials to the wrong factory 45% of the time. You could be transferred to four countries. That’s not a good way to do it.
  You’ve done a lot of new hiring in the call centers to help cut down the hold times. Just how bad did hold times get?
  In the past it was seen as O.K. to hold for eight to 10 minutes. But my goal is to never be on hold more than four minutes. We’ve made great strides. In November, we answered 20% of calls in four minutes or less, and 3,000 callers in a week waited more than 30 minutes. Now, we’ve got 80% answered in four minutes or less. And last week, 80 people waited more than 30 minutes.

• Writing Annual Reports
  Eddy Elfenbein, June 22nd, 2006 at 10:59 am

  A University of Michigan study looks at why annual reports are hard to read (via Tyler Cowen):

  Apparently there’s a simple reason why annual reports are hard to read: managers, in many cases, are trying to hide something.
  The study, Annual Report Readability, Earnings and Stock Returns, found that the annual reports of underperforming companies are harder to read than those of companies that are performing well.
  Feng Li, an assistant professor of accounting at the university, measured annual report “readability” using a sample of more than 55,000 company reporting years. He examined syllables per word and words per sentence in reports filed with the Securities and Exchange Commission.
  He used two readability measures.
  First, the “Fog Index” indicated the number of years of formal education a reader of average intelligence would need to read the text once and understand it. Fog = (words per sentence + per cent of complex words) x 0.4. Complex words were defined as words of three syllables or more.
  Second, the Kincaid Index rated the reports on a US primary school level.
  According to the study, annual reports of companies with lower earnings were more difficult to read. Similarly, companies that had volatile earnings were more likely to produce abstruse reports.

  Of course, there’s always this:
  

• Bed Bath & Beyond Taking a Bath
  Eddy Elfenbein, June 22nd, 2006 at 10:45 am

  Shares of Bed Bath and Beyond (BBBY) are getting hammered this morning (down about -5.5%). The stock has been cut by Bear Stearns. The company’s earnings report was inline with expectations, and the guidance for this quarter was also inline. Still, the stock made fresh 52-week lows this morning.
  Here’s a sample negative view from an analyst:

  In a note to clients entitled “Q1 Could Have Been Better,” UBS analyst Brian Nagel said costs weighed on the retailer.
  “Given (same-store) sales growth at the upper end of plan we would have expected stronger earnings growth at Bed Bath & Beyond in the first quarter,” Nagel said. “Recent expense pressures seem unique to Bed Bath & Beyond and are not indicative of higher costs in retail.”
  While net earnings had a slight gain, operating profits dipped to $148.8 million from $150.9 million. Costs escalated to $805.9 million from $723.6 million, led by a 19% rise in sales, general and administrative expenses.
  Further, the company’s cash assets were cut to nearly a third of their former levels a year ago.

  Seeking Alpha has a transcript of the conference call.
  The good news for us this morning is that Varian Medical (VAR) is up strongly on an analyst upgrade from Oppenheimer.