Archive for March, 2007

• Buy List News Today
  Eddy Elfenbein, March 7th, 2007 at 5:16 pm

  Here are a few bits of news today regarding the Buy List.
  Erin Burnett talked with Dave Roberts, the CEO of Graco (GGG). He says he doesn’t see an immediate recession.
  Nicholas Financial (NICK) had a very good day today. The stock jumped 66 cents, which is an increase of over 6.1%. As far as I could tell, there was no news on the stock.
  WR Berkley (BER) announced that it’s increasing its dividend by 20% to five cents a share. Unless I have something wrong, the old dividend was four cents a share, so the increase is by 25%. Here’s the press release. Things must be busy there.
  Finally, Danaher (DHR) raised the lower end of its guidance today. The company now sees first-quarter profits of 75 cents to 77 cents a share. The previous forecast was for 72 cents to 77 cents a share.

• John F. Baugh 1916-2007
  Eddy Elfenbein, March 7th, 2007 at 2:00 pm

  John F. Baugh, the founder of Sysco (SYY), has died.
  The company’s press release said:

  John F. Baugh, the founder of SYSCO Corporation, the $33 billion Fortune 100 global foodservice marketer and distributor, passed away March 5, 2007. His passing was 37 years, almost to the date, of the corporation’s initial public offering on March 3, 1970.
  Richard J. Schnieders, SYSCO’s chairman, CEO and president, said, “His passing is indeed a profound loss. First and foremost, John Baugh was a man of commitment — to his wife, his daughter, his grandchildren and great-grandchildren, to his faith, his community and to the company he founded that touches so many lives today. A true visionary, a legendary entrepreneur, an inspiration to friends and colleagues and a generous philanthropist, his impeccable integrity and generosity of spirit have imprinted indelibly the character of our organization.”
  John F. Baugh was born February 29, 1916 in Waco, TX. Growing up in the Depression era, Baugh began his lifelong passion with the food industry at an A&P grocery store as a stock boy at the age of 13. Eventually, he became a store manager and in 1946, he and his wife Eula Mae founded a new company, Zero Foods, and began selling and distributing frozen foods to restaurants, hotels, hospitals, schools, fast-food stores and grocery chains.
  In 1969, Americans were eating out more than ever and industry studies predicted that half of all meals would be eaten away from home by 2000. Women who had entered the workforce during World War II were continuing to work; with less time to cook they wanted more food prepared by others. Baugh envisioned a national foodservice distribution organization and shared ideas with industry friends across the country.
  His dream became a reality when Zero Foods and eight other companies joined together to form SYSCO (an acronym for SYstems and Services COmpany). At the initial public offering on March 3, 1970, the nine companies had aggregate sales of $115 million and served a $35 billion market. In 1977 SYSCO became the leading foodservice supplier in North America and has since maintained this position. In 1988, an acquisition of its next largest competitor gave the company national coverage. SYSCO’s network of 172 locations and approximately 50,000 employees now serves an industry in excess of $200 billion. Mr. Baugh published a book about the company, “The SYSCO Story…Thus Far!” in 2003.

  Ulrich Boser of Slate recently profiled Sysco and its products.

• Does Media Alarmism Pose a Threat to Your Children?
  Eddy Elfenbein, March 7th, 2007 at 1:37 pm

  The Wall Street Journal is at it again. The newspaper ran an article today about possible back-dating of stock options after 9/11:

  Amid the stock-market swoon that followed the Sept. 11, 2001, terrorist attacks, dozens of companies granted stock options to top executives or other employees. Now, some of those companies are saying the grants were in fact made weeks later — and backdated.
  The disclosures are the latest wrinkle in a backdating scandal that involves more than 140 companies and has resulted in more than 70 firings or resignations of corporate officials. The new information suggests some executives profited from the market’s plunge following Sept. 11 by manipulating options grant dates.

  Larry Ribstein writes:

  Let’s put this in perspective. The fact that the backdaters picked a date that has been depressed by tragedy has nothing whatsoever to do with what the backdaters did or didn’t do wrong.

  I usually don’t pass along quotes like this without comment, but Ribstein says all that needs to be said.
  This isn’t the first time the WSJ has tried to attach 9/11 to back-dating. Last summer, the same three authors of today’s story wrote:

  On Sept. 21, 2001, rescuers dug through the smoldering remains of the World Trade Center. Across town, families buried two firefighters found a week earlier. At Fort Drum, on the edge of New York’s Adirondacks, soldiers readied for deployment halfway across the world.
  Boards of directors of scores of American companies were also busy that day. They handed out millions of bargain-priced stock options to their top executives.

  At the time, I wrote:

  Not very subtle is it? The soldiers readying for deployment was nice touch. Those evil corporate plutocrats just couldn’t wait to profit off 9/11.
  But hold up, how exactly did those boards know that the options grants were, as the Journal points out, “bargain-priced”? The answer is, they didn’t (assuming the options were at-the-money). More importantly, they couldn’t have known. The grants were based on nothing more than faith in the future, which was hardly in overabundance at the time.
  It’s true that stocks nosedived when the markets reopened, but that doesn’t by itself mean the options were a bargain. After all, the market had already been falling and it continued to fall for more than a year. In fact, the S&P 500 was still below its pre-9/11 level nearly three years after the attacks (and, of course, those soldiers readying themselves).

  John Carney sums it up nicely:

  Yelling “9/11” in an argument is usually a sure sign you’ve already lost it. It’s a desperate, pathetic move. So maybe there is something hopeful about the resort to it on the front page of the Journal. Maybe it means that the official backdating storyline is becoming less plausible.

  Exactly.

• 1987 Redux Redux
  Eddy Elfenbein, March 7th, 2007 at 11:45 am

  The New York Times ran an article saying that the bulls retreat was turning into a “rout.” Not to be outdone, Barclays Capital put out a report which compared the current market to the one in 1987. Yikes! And the Financial Times piled on saying that the sell-off “appear to have been exacerbated by an unusual wave of derivatives activity on the part of hedge funds and big banks.”
  Heavens! Scary stuff. The good news is that all these articles came out during last spring’s correction.
  You say you forgot about that one? Well, I don’t blame you — it only lasted a month, but no matter. The media can easily recycle these stories. Just use the “find/replace” function. Take out May, add March and…Presto!…you’re on your way.
  On the bullish front, the FT’s Alphaville Blog notes some recent comments by Abby Joseph Cohen:

  • No changes to Goldman’s baseline forecasts.”These already reflect a notable deceleration in economic and profit growth in 2007, but there is no recession on the horizon.”
  • Valuation support is intact for US equities. “Our estimated fair value for year-end 2007 remains 1550, suggesting that the S&P 500 is now about 11% under priced…The strength of US corporate balance sheets, especially among the companies in the S&P 500, and strong ROEs, should also offer some ballast in a rocky market environment. We assume that margins will move lower in many industries this year, but from record-high levels to still-high levels.”
  • GS forecast has long presumed a deceleration in economic growth this year. “Importantly, core inflation is not expected to rise dramatically.”

• The Obama Portfolio
  Eddy Elfenbein, March 7th, 2007 at 9:52 am

  
  Check out the senator’s portfolio.

• Suze Sits in for Cramer
  Eddy Elfenbein, March 7th, 2007 at 9:10 am

  Courtesy of WallStrip.
  

• UnitedHealth Restates Earnings
  Eddy Elfenbein, March 6th, 2007 at 10:35 am

  UnitedHealth Group (UNH) finally restated its earnings to account for all the stock options charges. Bear in mind, this has no impact on the company’s future direction, it’s merely restating what has already happened.

  Health insurer UnitedHealth Group Inc. said Tuesday charges to correct accounting for backdated stock option grants reduced profit by $1.55 billion. The company has filed restated financial results for 2006 and prior years, bringing it up to date in its filings with the Securities and Exchange Commission.
  UnitedHealth reported 2006 earnings grew 35 percent to $4.16 billion, or $2.97 per share, from $3.08 billion, or $2.31 per share in 2005. Revenue rose 54 percent to $71.54 billion from $46.43 billion.
  Results were helped by the acquisition of PacifiCare in late 2005, pricing of risk-based medical coverages and cost cutting.
  UnitedHealth said it will make cash payments for additional corporate income taxes of about $100 million, and will record a charge of $55 million, or 4 cents per share, in the first quarter of 2007 for a settlement relating to some employees who exercised options in 2006.
  Under the company’s current accounting method, corrections to stock option granting methods lowered profit by $414 million, including $57 million for 2005, $44 million in 2004 and $313 million for the 10-year period ended Dec. 31, 2003.
  Under its historic accounting method, the company said charges reduced previously reported profit by $1.13 billion, including $238 million in 2005, $158 million in 2004, and $738 million for all prior years through Dec. 31, 2003.

  UnitedHealth has already forecast 2007 earnings between $4.7 billion and $4.75 billion. The problem was that we didn’t know exactly what that worked out to on an earnings-per-share basis. Now we can say that it will be about $3.47 to $3.51 a share.
  So now we have a clearer picture. EPS was up 29% last year. It should be up around 17%-18% this year, and the shares are going for about 16 times earnings. Sounds like a bargain to me.

• Topps Goes Private Equity
  Eddy Elfenbein, March 6th, 2007 at 10:01 am

  Topps Co. Inc. (TOPP), the company known for baseball cards and Bazooka bubble gum, is going the private equity route. Topps agreed to be bought out for $385 million by a group that includes Michael Eisner’s firm, The Tornante Co. LLC.
  Most people didn’t know this company was publicly traded. I remember how popular the shares were in the late-1990s, but Topps hasn’t done much over the long haul.
  

• I Told You Sell-Offs Aren’t Healthy
  Eddy Elfenbein, March 6th, 2007 at 7:28 am

  From the Telegraph:

  Goldman Sachs warns of ‘dead bodies’ after market turmoil

  I’m confused. If they’re already dead, what do we have to worry about?

• Conan on the Sell-Off
  Eddy Elfenbein, March 5th, 2007 at 4:19 pm