Category: Articles

LeapFrog (LF) announced preliminary results and, well, not much to be happy about and not much to be upset about

LeapFrog said it expects to report net sales for the third quarter ended September 30, 2007 of approximately $143 million and a net loss of approximately $(0.05) per share. The Company expects to report cash and investments of approximately $95 million and inventories, net of allowances, of approximately $110 million at September 30, 2007, consistent with LeapFrog’s plan.

President and CEO Jeffrey G. Katz stated, “The sales performance of our portfolio overall was weaker than we expected during the third quarter, largely driven by declines in legacy products. Reported weakness in the retail economy and lingering bad news regarding the toy sector certainly hasn’t helped. However, we are seeing good results with several new products, such as ClickStart(TM) My First Computer, and our Leapster(R) handheld educational gaming business continues to perform well. Our new FLY Fusion(TM) Pentop Computer performed at plan for the third quarter and shipments should increase during the fourth quarter driven by on-air advertising, which began in October. Inventory levels and gross margin continued to improve in the third quarter.”

“Fourth quarter is typically our strongest and we expect to see sales improve from third quarter levels,” Katz continued. “Nevertheless, due to third quarter weakness, we expect that full year 2007 revenues will be down by approximately 10% to 15% compared to 2006. As we’ve said before, 2007 is a ‘Reload’ year and we are on track to roll out a substantially new product line next year as planned. We will host our first-ever Investor and Analyst Day on Thursday, November 8 and we hope investors will see for themselves the progress we’ve made and the implications for next year and beyond.”

Kinda of like eating a so-so meal at a cheap restaurant, when you leave you think “could have been better but at least I did not pay too much.” That is the way I feel about LeapFrog. Shares make up .5% of the portfolio and are there for a little risk and adventure. If it works out, we do really well, if not, we don’t lose much of anything. For this company, Q4 is the whole ball of wax. If things do not get better then, we cut and run. If they improve, we hold on more.

I have seen the new products and they are great. I think LeapFrog will come through this just fine. Their items are good quality and a little pricey (a good value though). My guess is folks are holding off making the more expensive purchases to see what types of bargains will be had closer to Christmas. Let’s not forget Toys R’Us gave LeapFrog top billing for it’s “Hot Toys For Christmas” list.

People may also be a little freaked out about the whole toy recall thing now and even though Leapfrog has not had a single toy recalled, when folks are worried, nobody is safe.

Stay tuned…

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Friday’s Picks

Jeff Macke recommended Intel (INTC). Open $26.97

“Short Exxon Mobil (XOM)” said Guy Adami. Open $95.05

Karen Finerman thought investors should get long Limited Brands (LTD). Open $21.95

Pete Najarian said Cypress Semi (CY) is a buy. Open $32.94

THURSDAY’S RESULTS

Jeff Macke recommended eBay (EBAY). Open $40.60 Close $38.10 LOSS

Guy Adami said the play is shorting Exxon Mobil (XOM). Open $94.80 Close $95.05 LOSS

Karen Finerman takes the other side of Adami’s trade and recommended ConocoPhillips (COP). Open $87.46 Close $88.01 GAIN

Pete Najarian liked Evergreen Solar (ESLR). Open $9.44 Close $9.98 GAIN

Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation weeks). The percentage is the percentage of successful picks

Guy Adami= 32-22 = 59%
John Najarian= 13-4 = 76%
Jeff Macke= 38-29 = 56%
Pete Najarian= 26-23 = 53%
Tim Seymore= 4-3 = 57%
Karen Finerman= 17-11 = 60%
Stacey Briere-Gilbert= 3-0 = 100
Ned Riley= 1-0 = 100%
Carter Worth= 0-1 = 0%

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WOS Wolseley Plc 16.21
WM Washington Mutual Inc 30.53
WLK Westlake Chem Corp 23.80
WAL Western Alliance Bancorp 21.19
WAG Walgreen Co. 38.05
SPSN Spansion Inc 7.44
SPF Standard Pacific Corp 3.78
SOV Sovereign Bancorp Inc 15.06
RVI Retail Ventures Inc 8.76
ROX Castle Brands Inc 3.37
RF Regions Financial Cor 27.17
PZZA Papa John’s International 22.80
PMI The PMI Group, Inc 23.29
PGR The Progressive Corpo 18.57
LZB La-Z-Boy Incorporated 7.17
LIZ Liz Claiborne, Inc 29.80
LENB Lennar Corp 20.07
KNX Knight Transportation Inc 16.08
JWN Nordstrom Inc 39.79
JCP Penney (J.C.) Company 57.28
HSY Hershey Co 42.50
HSWI Hsw International Inc 6.34
HMNF HMN Financial Inc 28.50
HD Home Depot, Inc 31.43
FRE Freddie Mac 54.88
FNSR Finisar 2.66
FL Foot Locker Inc 14.32
BC Brunswick Corporation 20.84
BBND Bigband Networks Inc 5.56
AYIWI Acuity Brands Inc 39.02
CLDN Celadon Group Inc 9.58
CHS Chico’s FAS Inc 12.74

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I challenge anyone to find me a person more relived at the poor results posted by Bank of America (BAC) today than Citi’s (C) besieged CEO Chuck Prince.

Although not as bad as Citi’s results, BAC post a 32% decline in earnings (Citi posted a 57% decline) due to more than $1.4 billion in trading losses in its investment bank and about $2 billion in additional provisions for credit losses. Earnings dropped to $3.7 billion, or 82 cents a share, from $5.42 billion, or $1.18 a share, a year earlier. Revenue fell 12% to $16.3 billion.

Also unlike Citi, it marked the first time since 2005 that BAC failed to raise year over year profits.

Add to this the bad earnings at Washington Mutual (WM) and Prince now can point fingers and claim events, not his management caused the disastrous Q3. While it does not eliminate the need for him to produce in Q4 or leave, it will, for the time being quiet to “get him out now” chants that were beginning to reach a crescendo yesterday.

I think I could here his sigh or a relief all the way up here in Massachusetts…

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Greenspan, Bush Could Refuse to Leave, Exposure,

– Another good take on the Greenspan era.

– Here is one that would make the Dems just sob.

– The is a thing called over exposure and he is testing those limits

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I thought this was the quarter all the banks suffered? It looks like it might be just Chuck Prince’s Citi (C).

On Tuesday, the historically conservative Wells Fargo (WFC) reported a 4% increase in earnings amid the tumultuous environment of the past two months. Eyebrows were raised among Citi shareholders given the 57% drop they experienced the day before. Those raised eyebrows have now turned into churning stomach acid after the results at JP Morgan (JPM) this morning. It is beginning to look like the quarter may not have been that tough for all the banks, just Citi.

JP Morgan actually posted a 2.3% increase in third-quarter net income despite $1.3 billion in write downs on loans and increasing credit loss provisions as the company’s asset management business had record results. Net income was $3.37 billion, or 97 cents a share, compared with $3.3 billion, or 92 cents a share, last year. Revenue increased 3.6% to $16.11 billion. Analysts estimates were for earnings of a 90 cents share on revenue of $16.6 billion. Total credit loss provisions jumped 67% to $2.36 billion.

CEO Jamie Dimon said, “Our firm performed well overall in the third quarter, despite challenging credit and market conditions. We remain cautious about the future economic environment, but will continue to make investments based upon the long-term outlook for market and client volumes. Our focus will be on investments in areas across our franchise, including the Investment Bank and the retail mortgage business, where we can wisely utilize our balance sheet to better serve our clients and gain market share in the process. I believe our firm is well positioned for the future.”

Unlike Citigroup, Morgan’s Tier 1 capital ratio remained at 8.4%.

Bank of America (BAC) reports today and if the results are along the lines of Wells Fargo and Morgan, expect the “oust Prince” chorus to grow very loud very quickly as it will have appeared to be the only major bank not to have been able navigate the choppy waters. It is beginning to look more and more as these results come out that either Citi is just too large and cumbersome to manage, or, the team in place now is just not able to manage what is there. Either way, something needs to change.

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The CSX (CSX) saga gets more interesting by the hour it seems.

“The hired hands who manage CSX railroad should be given their walking papers,” said Paul Thompson, The United Transportation Union President, which represents 11,000 CSX employees.

The NY Times today speculated that Atticus Capital, a shareholder in CSX may team up with TCI like the two did in their successful campaign against the proposed merger between London Stock Exchange and Deutsche Borse. Atticus, with $13 billion under management, has accumulated 10.2 million CSX shares, a 2.3 percent stake, as of 12/31/2006.

Also in the mix is Carl Icahn who in March of 2007 purchased 2.9 million shares of the railroad. Given Mr. Icahn’s recent track record, should be choose to publicly back TCI and Atticus, it would be almost impossible for management not to take whatever is said very seriously.

Consider the trio would have over 7% of the outstanding common shares, a wildly successful history and the backing of 11,0000 CSX employees. It will only be a matter of time before additional shareholders begin taking a close look and backing TCI.

Chairman and CEO Michael Ward collected $13.8 million last year making him the highest paid railroad executive. TCI has made a convincing case that his company’s performance is more a factor of macroeconomics events pulling it along rather management’s skill driving those results.

Stay tuned…

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UPGRADES

Arris ARRS CIBC Wrld Mkts Sector Perform » Sector Outperform
Five Star Quality Care FVE RBC Capital Mkts Sector Perform » Outperform
Sonus Networks SONS Piper Jaffray Market Perform » Outperform
Lincare LNCR Jefferies & Co Hold » Buy
Gentiva Health Svcs GTIV Jefferies & Co Hold » Buy
Ternium S.A. TX Deutsche Securities Hold » Buy
U.S. Steel X Deutsche Securities Hold » Buy
Comp Siderurgica SID Deutsche Securities Hold » Buy
Royal KPN KPN Bear Stearns Peer Perform » Outperform

DOWNGRADES

Business Objects BOBJ Wedbush Morgan Buy » Hold
Level 3 LVLT Cowen & Co Outperform » Neutral
Cablevision CVC Citigroup Hold » Sell
Wells Fargo WFC Stifel Nicolaus Buy » Hold
TETRA Tech TTI Stifel Nicolaus Buy » Hold
Shuffle Master SHFL Morgan Joseph Hold » Sell
Quintana Maritime QMAR Oppenheimer Neutral » Sell
ValueClick VCLK Oppenheimer Buy » Neutral
Seacoast Banking SBCF Oppenheimer Buy » Neutral
LM Ericsson ERIC Lehman Brothers Overweight » Equal-weight
Robbins & Myers RBN Friedman Billings Outperform » Mkt Perform
TIBCO Software TIBX Bear Stearns Peer Perform » Underperform
BMC Software BMC Bear Stearns Peer Perform » Underperform
Autodesk ADSK UBS Buy » Neutral
Cognos COGN Friedman Billings Outperform » Mkt Perform
PACCAR PCAR Wachovia Mkt Perform » Underperform

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THURSDAY’S PICKS

Jeff Macke recommended eBay (EBAY). Open $40.60

Guy Adami said the play is shorting Exxon Mobil (XOM). Open $94.80

Karen Finerman takes the other side of Adami’s trade and recommended ConocoPhillips (COP). Open $87.46

Pete Najarian liked Evergreen Solar (ESLR). Open $9.44

WEDNESDAY’S RESULTS

Jeff Macke liked Microsoft (MSFT). Open $30.32 Close $31.08 GAIN

Guy Adami said Intel (INTC) above is a buy. Open $25.48 Close $26.72 GAIN

Karen Finerman preferred Kraft (KFT). Open $33.61 Close $33.73 GAIN

Pete Najarian thought EchoStar (DISH) is a buy. Open $51.08 Close $49.45 LOSS

Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation weeks). The percentage is the percentage of successful picks

Guy Adami= 32-20 = 62%
Eric Bolling= 10-11 = 48%
John Najarian= 13-4 = 76%
Jeff Macke= 38-28 = 54%
Pete Najarian= 25-23 = 52%
Tim Seymore= 4-3 = 57%
Karen Finerman= 16-11 = 58%
Stacey Briere-Gilbert= 3-0 = 100
Ned Riley= 1-0 = 100%
Carter Worth= 0-1 = 0%

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TM Toyota Motor Corp 107.35
TIBB Tib Finl Corp 10.34
THC Tenet Healthcare Corp … 3.09
SPF Standard Pacific Corp 3.93
SOV Sovereign Bancorp Inc 15.74
SMRT Stein Mart Inc 7.21
RAD Rite Aid Corporation 4.05
PPCO Penwest Pharmaceutica … 7.42
ODFL Old Dominion Freight … 23.79
NYT New York Times Company 18.42
NVR NVR Inc 419.86
FMP Feldman Mall Pptys Inc 5.58
FBMI Firstbank Corp Mich 16.27
FBC Flagstar Bancorp Inc 8.58
ERIC Ericsson L M Tel Co 30.50
BHS Brookfield Homes Corp 16.75
BDCO Blue Dolphin Energy Co 2.62
BBND Bigband Networks Inc 5.76
CMRG Casual Male Retail Gr … 7.85
CMA Comerica Incorporated 48.82
CLDN Celadon Group Inc 9.94
CHS Chico’s FAS Inc 13.69

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With everything being said about Citigroup (C) both here and everywhere else the last few weeks, something struck me as funny today (not funny hah,hah)

Robert Rubin, who sits on the Citi board has made about $100 million doing that the last few years and has been roundly regarded as “integral” to operations. But, here is the thing. After the most recent quarter which is rapidly becoming a Citi-implosion only and not a “banking sector issue” I have only one observation.

If Rubin is so “integral” to results, then this becomes the scenario. Either Prince is listening to Rubin and getting such bad advice he is running both his job and the bank into the ground OR he is ignoring Rubin’s council in which case, why are we paying Rubin $100 million and if Prince is ignoring him and the bank is faltering, why does he still have a job?

These are the only possible scenario’s out there. Rubin and Prince have been the very public faces of the bank and it’s moves so the credit and or blame lies there. Either way, if Bank of America (BAC) grows earnings when they are release tomorrow morning expect (rightfully) investors to become very impatient. Prince had a pass on this quarter because we thought all the banks would suffer but it turns out it is looking more and more like only Citi will.

Citi will close near or at 2 year low today. Unacceptable.

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Apparently I’m not the only one disenchanted with Six Flags (SIX).

Daniel Snyder’s Red Zone, which until recently owned 11% of the troubled theme park operator announced in an SEC filing that it is distributing 100% of its shares to investors so they may do with them as they wish. Translation? Investors have grown tired of watching the $49 million dollar investment dwindle to $35 million with no hopes of it turning around anytime soon want to cash out.

Shares, currently sitting at $3.22 are over 50% off their 52 week high levels set in early June. Six flags has blamed the weather, rising expenses and just about everything else except the Iraq War for it misfortunes when the reality of the situation is that when compared to the other them parks around the nation, Sic flags is by far the worst value proposition for a family. That being said, this is the reason attendance has been static at three year low levels this summer despite managements efforts to cram more rides into static spaces.

I said it in August and was reviled by Six Flags fans and I can only guess shareholders that shares are dead money with no chance of a rebound anytime in the near future. When the largest shareholders closest to the operations start cashing out for losses, I can only surmise they feel the same way. I guess you could even take it a step further and figure they actually feel they is more downside risk that anything else and I think they would be right.

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Tilson, Social Security, Citi

– Here is another great article by Whitney Tilson about the “activist investor”.

– Social Security and entitlements, what they will do to gov’t spending.

– The Stockmasters take a look at Citi (C).

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What remains to be seen is how these results compare to those of its peers over the next few days. Both Burlington Northern (BNI) and Norfolk Southern (NSC) report next week.

CSX (CSX) recorded net income of $407 million, or 91 cents a share, compared with $328 million, or 71 cents a share, a year earlier. Results include 24 cents from discontinued operations. Year earlier EPS included a 17 cent gain from insurance settlements and the resolution of certain tax issues.

Freight volume fell 4% for the quarter, due to decreased demand for building products. Largest declines were in shipments of forest products, down 13%, and food and consumer goods, down 15%. Revenue per unit rose 8%, led by phosphates and fertilizers where it rose 27% because of “pricing and changes in the traffic mix.” Total revenue climbed 3% to $2.5 billion.

Excluding a 24 cent per share gain for one time items, CSX earned 67 cents per share for the quarter, compared with 54 cents in the same quarter of 2006 after excluding 17 cents per share in items. The 67 cents came in above the EPS of 62 cents that Wall Street analysts had expected.

This is going to get real interesting when one considers yesterday’s event and the TCI letter that became public. Will management wave these results in the air and tell them to essentially “piss off”? Will they take a “despite these record result, we are considering the proposals of the letter” tact? This has the potential to become very ugly very fast. If it does, do not worry. TCI will get the support it needs from shareholders and in the long run, based on its track record, we will be rewarded for our support.

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