• The Trend Away from Earnings Guidance
    Posted by on March 22nd, 2006 at 10:35 am

    Pfizer is doing it. Motorola said it will do it too. Companies like Citigroup, Google and General Motors already do it.
    More and more companies are no longer giving earnings guidance.

    Now senior corporate managers and corporate-governance activists are debating the pros and cons of issuing or scrapping guidance. Some say discontinuing updates boosts investor confidence in corporate accounting, since it removes the temptation to rearrange the books to meet earnings targets. Others criticize tight-lipped companies for keeping owners in the dark, highlighting the importance of providing as much information as possible to the marketplace.
    To be sure, investors can extract a toll from companies who remain silent about their future prospects. Google, which has never issued forecasts, experienced a 7 percent drop in its stock price on February 1, when its fourth-quarter results didn’t meet the markets’ expectations. Some have argued that if the Internet search engine had issued forecasts, expectations would have been more realistic, according to McKinsey.
    A number of companies, however, have managed to stave off negative investor reactions by putting a positive spin on their guidance cutbacks. In 2002, for instance, Coca-Cola explained that it stopped updating the market on its earnings projections as a way to focus on the company’s long-term performance. Even though investors had been slamming Coke for its alleged lack of business progress and its declining stock price, they didn’t react negatively to the news that no guidance would be forthcoming.
    Similarly, when Intel’s Otellini cited the company’s intent to focus on the long-term, the market seemed to accept that explanation. The company’s stock closed only pennies lower on the day Intel announced it would curb the frequency of its guidance.
    Indeed, there’s no evidence that frequent guidance positively affects valuation multiples, boosts shareholder returns, or curbs share-price volatility, according to the McKinsey study.

    People love to blame the companies for the “quarterly earnings game,” but how come no one blames the investing public?
    A few years ago, employees at Cisco were madly loading boxes onto trucks as midnight approached on the final day of the quarter. If the boxes were on the trucks, it would then count as a sale. Despite their best efforts, the company failed and for the first time in 11 years Cisco had to report that they missed earnings guidance.
    The next day, the stock plunged 13%. Cisco knew what it was doing. I don’t blame them, I blame the investors.

  • What’s Wrong with the Newspaper Biz?
    Posted by on March 22nd, 2006 at 10:17 am

    Holman Jenkins in today’s WSJ:

    Peter Drucker once pointed out that new business models are seldom pioneered by old companies, because old companies are loath to cannibalize their existing businesses. On the specific case of voting lockups, a study by Harvard and Wharton economists found that such companies have lower share prices than their peers, and invest less in R&D and advertising. The authors conclude that a “misalignment of incentives leads dual-class firms to invest too little, leading to lower sales growth and valuations.”
    That describes the newspaper business to a tee. A Columbia University survey recently found that many operators have actually been dumbing down their online editions for fear of cannibalizing their dead-tree audiences. Newspapers have cut costs in round after round of journalistic downsizing, some of which was perfectly sensible: The local paper’s impregnable strength is local reporting, not having a Rome bureau. But while this disinvestment in customer service has helped maintain the industry’s enviable cash flows, it hasn’t done much for stock prices or boosting investor confidence in the future.

    Today’s New York Times Company’s press release:

    The New York Times Company also announced today that first-quarter diluted earnings per share are expected to be in the range of 22 to 24 cents, compared with 76 cents in the same quarter last year, which included a gain of 46 cents per share from the sale of the Company’s current headquarters and another property.
    The first-quarter range includes estimated expenses for the Company’s staff reduction program announced in September 2005 of $8 to $10 million or 3 to 4 cents per share.

  • Bernanke Warns
    Posted by on March 22nd, 2006 at 6:54 am

    Benny.jpg
    Reuters:

    Bernanke warns on mixing banking, commerce

    CBC News:

    Bernanke warns about size of U.S. deficit

    AP:

    Bernanke warns community banks on loans

    UK Telegraph:

    Bernanke warns of more rate rises

    WSJ:

    Blunt-Talking Bernanke Warns of Inflation Risks

    UK Independent:

    Bernanke warns on danger of US deficits

    Reuters:

    Bernanke warns on commercial real estate loans

    CNN:

    Greenspan home robbed

  • Microsoft delays consumer launch of Windows Vista
    Posted by on March 22nd, 2006 at 6:38 am

    The tech sector should open lower today:

    Microsoft Corp. said on Tuesday it plans to delay the consumer launch of its much-anticipated Windows Vista until after this year’s holiday shopping season, sending its shares down nearly 3 percent.
    The world’s largest software maker pushed back the consumer version of Vista until January 2007 from an earlier target for the second half of 2006 and pledged to ship the next version of its operating system to business customers in November.
    Vista is the first major overhaul of Windows since Microsoft rolled out Windows XP nearly five years ago.
    Microsoft had originally been expected to release Windows Longhorn, now Vista, in 2005. The company scaled back its ambitions and pushed it out to 2006 before this latest delay.
    The eight- to 10-week delay, according to estimates by research firm Gartner Inc., may reverberate throughout the technology industry from PC manufacturers to chip makers and down the supply chain, analysts and investors said.
    “It is a critical eight- to 10-weeks for retailing and for the producers. The retailers and PC hardware manufacturers work on razor-thin margins, so the impact there could be pretty severe,” said David Smith, analyst at Gartner.

  • The Market Today
    Posted by on March 21st, 2006 at 4:00 pm

    Today’s early rally fizzled. The S&P 500 dropped -0.60%. Bonds sold off, possibly due to Bernanke’s speech. The core PPI rate was higher-than-expected, but commodity stocks did poorly.
    Thanks to FactSet Research Systems (FDS) rising 6.3%, our Buy List beat the market by falling -0.36%. This is despite Biomet‘s (BMET) lousy day. Strangely, Biomet opened lowered and rallied until 1 p.m., before it dropped sharply. The stock closed down over -4.8%.
    Dell (DELL) finished above $30 a share for the first time in over a month.
    Also, something tells me that the Brazilian market has gone too far. The Brazil ETF (EWZ) was down -3.5% today. (Calling all technicians. That can’t be a good chart.)
    Finally, stay tuned for Tim Horton’s IPO. The New Wall Street is skeptical, while Clearfish is bored.

  • The Global Saving Glut
    Posted by on March 21st, 2006 at 2:39 pm

    Here’s the speech Ben Bernanke gave yesterday to the Economic Club of New York. This has been getting a lot of attention in investing circles.
    As I’ve said before, I’d never base an investing decision on anything said by a member of the Federal Reserve. However, Bernanke gives an interesting speech. Unlike other Fed Chairmen we could name, his talk is clear and jargon-free.
    The issue Bernanke is concerned with is why long-term interest rates are still low despite 14 increases of short-term rates. Personally, I think this is more of an “angels-on-a-pin” topic.
    It’s fun to speculate why, but it really doesn’t matter that much. Bernanke seems to believe that the low rates are due to an excess of savings around the world.

  • The Case Against Buy-and-Hold?
    Posted by on March 21st, 2006 at 1:00 pm

    In today’s Investor’s Business Daily, Trang Ho makes an unconvincing case against buy-and-hold:

    Sitting tight may be prudent during brief downturns, but in many cases you cannot tell how long or deep a bear run will last.

    Change “but” to “because,” and tell me which makes more sense.
    What I find curious is that he points to Intel (INTC) to support his case:

    Intel plummeted 73% in a year. It bottomed out at 13.89 — 82% off its all-time high — by September 2002. It, along with most of the tech leaders of 2000, never recovered.

    Sorry, but Intel is one the best examples of buy-and-hold. Let’s look at history. In just four months, the stock plunged from $83.50 to $15.50. The year was 1974. Let’s just say that the stock recovered quite nicely. If you want to put those dollar figures in today’s terms, the stock has split 540-for-1 since then.
    Or there was the 1980’s. Many people assume Intel’s stock was a big winner during the bull market. It wasn’t. The stock’s 1986 low was about 60% off its 1983 high. I hope you didn’t sell. As they say, “in many cases you cannot tell how long or deep a bear run will last.”

  • FactSet Research Systems Beats Earnings
    Posted by on March 21st, 2006 at 11:13 am

    FactSet Research Systems (FDS) earned 38 cents a share last quarter, one penny more than estimates.

    Revenue totaled $93.7 million, a 23 percent jump from $76.5 million a year earlier and beating the consensus target of $92.3 million.
    Looking forward, FactSet forecast third-quarter revenue of $95 million to $97 million. That compares with analysts’ expectations for $94.9 million in revenue.
    Last month, the company acquired Europrospectus.com for $7.5 million of cash in a deal that increased quarterly subscriptions by $3.2 million, but is projected to dilute earnings by 1 cent per share over the next year.

    The stock broke out to a new all-time high this morning. Dell (DELL) is up about 2.7%, and Biomet (BMET) is down -2.5%.

  • Google Finance
    Posted by on March 21st, 2006 at 9:52 am

    http://finance.google.com is live.
    The reviews are mixed so far.
    The Internet Stock Blog has a summary of the new features:

    After much speculation, Google (GOOG) this morning launched Google Finance. Google Finance differs from Yahoo Finance in three crucial respects: first, it attempts to present most information about a stock on a single page. Second, it leverages the breadth of external sources from Google News. Third, in contrast to Yahoo (YHOO) which is investing in its own content (particularly in personal finance), Google Finance is built entirely of licensensed data and links to external sources. Here are the key points about the product (evaluation and stock impact will follow in a later post):
    Google Finance is built from two types of sources — those that Google is licensing and providing direct to users, and those that Google links to.
    Directly provided data include:
    1. Interactive charts. News events are highlighted on the charts, with links to related news articles appearing alongside. Mousing over a chart provides historical stock price and volume. The integration of news and charts is not entirely successful. Look at the news stories that “explain” the TSCM chart, for example. They’re largely a set of promotional stories by TheStreet.com itself. Note that Yahoo! Finance manager Peggy White already stated in an interview with Forbes that Yahoo is soon to launch interactive charts.
    2. Management team bios with brief descriptions and photos, plus links to external data on compensation (from Reuters) and trading in the company’s stock (from Yahoo Finance).
    3. Range of other licensed data from third-party providers, including Hoover’s, Morningstar (MORN) and Reuters Group. Most financial data seems to come from Reuters.
    4. Portfolio tracking. Users can enter their stock portfolios to track them.
    Information Google links to includes:
    1. Blogs. Google Finance includes blog posts relevant to the company in question. But Google hasn’t used it’s blog search, so the blog results on Google finance differ from a ticker search using Google Blog Search. Compare the blog headlines for “GOOG” on Google Finance, for example, with a Google Blog Search for “GOOG”.
    2. Google Groups. Google Groups will become the basis of stock-related discussion. For many stocks, a Google Group doesn’t yet exist. According to Forbes, Google “has hired an unspecified amount of message-board moderators with experience in customer support or online communities to make sure the boards remain on topic and to keep them free of spam.”
    3. Analyst Estimates from TheStreet.com (TSCM).
    4. SEC Filings from Edgar Online.
    5. “About the company” from Wikipedia.
    6. Research Reports and Comparison Charts from Yahoo Finance.
    7. Options info from MarketWatch, which is owned by Dow Jones (DJ).

    They forgot the most important thing! You can’t download the historical data for the stock charts (or at least, I couldn’t). How can a financial site not have that? That’s like opening a cheese shop and not having any cheese.

  • Dell sees 2006 sales growing faster than market
    Posted by on March 21st, 2006 at 9:49 am

    More good news from Dell (DELL):

    Dell Inc., the world’s largest maker of personal computers, expects its sales growth to outpace the broader industry this year, aided by rapid expansion in Asia, chairman Michael Dell said on Tuesday.
    “We would expect that this year, Dell will grow faster than the industry,” Dell, in Manila to open a new customer center, told reporters.
    “In the last three years, Dell has grown from roughly $35 billion of revenues to roughly $56 billion … We need tremendous capacity to support our internal growth and we see that growth continuing.”
    Worldwide PC shipments rose 17 percent in the fourth quarter of 2005. Research firm IDC has forecast a 10.6 percent increase in shipments in 2006.

    Also, Lenovo is laying off 1,000.