“Coming off a negative U.S. retail sales trend in the
first six months of the year, we ran an effective promotion in July that
increased retail sales and reduced inventories of 2007 model motorcycles.
However, our U.S. dealers’ retail sales have fallen sharply during August.” With that, shares of Harley Davidson (HOG) drop 10% today to below $50 a shares, 23% down this year and 28% below their high last year.
HOG now expects a modest decline in revenue for 2007. Diluted earnings per share (EPS) for the full year 2007 are expected to be down 4 to 6 percent, in the range of $3.69 – $3.77, compared to 2006 EPS of $3.93.
Looking ahead to 2008, they anticipate the U.S. retail motorcycle environment will continue to be challenging. It expects moderate revenue growth, lower operating margins and EPS growth of between 4 and 7 percent. They had previously provided guidance for 2009 as well, but will not be providing that guidance at this time.
I mid August in a post I related a conversation I had with a salesperson at a mega dealership Laconia , NH that essentially foreshadowed the above statement. I finished the post by saying “Earlier this year when shares were at $70 I recommended waiting until they reached the mid $50’s to buy. Based on my weekend visit, they may go lower still. This is a great company that makes a one of a kind product, but, people are not buying it now and that will hurt. I think we may see share prices in the $40’s before the year is out.”
We are at the $49 level today (Friday) and I honestly see no reason to jump at shares now. Much like Starbucks (SBUX), I would like to think HOG management was aware of this trend a while ago and hoped it would not come to fruition, all evidence to the contrary. That being said, there very well may be another shoe to drop in the future.
So, what should we do? Just sit back and wait. If you can get shares of this company in the low 40’s, you have a real steal. Be patient and it just may get there. I will go on record and say that anything around $45 or lower will be an no brainer buy.
Add almost every homebuilder to this list today…
WGO Winnebago Industries, Inc 25.03
URGI United Retail Group Inc 7.86
UNFI United Natural Foods Inc 25.08
TLB The Talbots, Inc 19.41
TCMI Triple Crown Media Inc 6.12
SCVL Shoe Carnival Inc 16.60
RYL The Ryland Group, Inc 26.10
RVI Retail Ventures Inc 10.70
PGR The Progressive Corpo 19.66
OXM Oxford Industries, Inc 34.05
OPMR Optimal Group Inc 5.35
ODP Office Depot, Inc 19.84
MGPI Mgp Ingredients Inc 13.76
LM Legg Mason, Inc 81.53
HOG Harley-Davidson, Inc 49.15
CC Circuit City Stores, 9.80
CBOU Caribou Coffee Inc 6.07
BX Blackstone Group L P 21.37
BRN Barnwell Industries, Inc 16.63
BECN Beacon Roofing Supply Inc 10.82
BC Brunswick Corporation 23.16
BBW Build A Bear Workshop 15.87
check them out
– Why wouldn’t I listen to the guy who beat the market 15 straight years?
– Yes, they do
– Another investing icon I cannot argue with on this one
– Here are 5 books every teenager should read to be wealthy when they are old.
First Bank of America (BAC) took a stake in Countrywide (CFC) and now Ameriquest Mortgage Co., once the “Proud Sponsor of the American Dream,” is closing and Citigroup (C) said Friday that it would buy the remnants of the business from ACC Capital Holdings in Orange.
Ameriquest shuttered its 229 retail offices months ago and as recently as 2005, Ameriquest and its sister company, Argent Mortgage, were together the No. 1 sub-prime mortgage lender in the world.
New York-based Citigroup, the nation’s largest bank, obtained an option in February to buy Ameriquest’s loan-servicing arm, which handles collections on $45 billion in loans and distributions of the principal and interest payments to investors in mortgage bonds. It also obtained an option to buy Argent, a lender that makes loans through independent brokers rather than directly to consumers.
Ameriquest’s end mirrors the fortunes of a slew of independent sub-prime lenders that have closed or sold themselves off amid a rising rate of loan defaults. Unlike banks or S&L’s, which have deposits to lend and can hold many loans for investment, the pure sub-prime firms relied on Wall Street to finance their operations and buy their loans, services that are no longer available in the sub-prime market currently.
Citigroup described the deal as a way to acquire “operational and pricing efficiencies” in a line of business that is currently “undergoing significant change.” The terms of the deal weren’t disclosed but Citigroup and Arnall reportedly had poured hundreds of millions of dollars into Argent’s operations in February to beef up its business. Like other sub-prime lenders, Argent has shrunk in volume because investors will no longer buy sub-prime loans or the securities backed by them.
Although the wholesale lending business in sub-prime currently at a standstill, the purchase of what remains of Argent will position Citigroup to reenter the market when it revives, Citigroup spokeswoman Danielle Romero-Apsilos said. “We will restart the origination business slowly, under new management and a new brand, and do everything in accordance with federal, state and local law,” she said.
Last month I posted, “The past week has seen a slew of mortgage lender close the door or dramatically scale back operations due to tightening credit markets. So, who will benefit? Citigroup (C), Bank of America (BAC) and Wells Fargo (WFC) look to be the best bets.”
The big banks are buying up cheap assets that once mortgage markets settle, and yes the eventually will, will make them tons of money and solidify their dominance in the mortgage industry.
Wal-Mart (WMT) released sales for both August and the first 30 weeks of the year yesterday and the news was good. I am going to focus on the 30 week financial numbers because they iron out any monthly irregularities that may skew results month to month. So, the 30 week sales increase breakdown looks like this: Wal-Mart stores +6.3%, Sam’s Club +7.0%, International Operations +16% and Total Company up 8.3% YTD. When you consider all the doom and gloom surrounding the stock this year, if one was to look at these numbers, one might wonder what the fuss is all about.
The monthly summary is as such: (Total Company up 9.3% in August)
Wal-Mart Stores +7.8&
Back-to-school categories drove sales during the four-week August period at Wal-Mart Stores U.S. In the general merchandise area, back-to-school categories had solid sales performance, with strength in electronics, school supplies and children’s apparel. Sales of laptops and calculators did well, as families prepared for later school start dates in some states such as Florida and Texas. Back-to-college essentials and “rollback” features helped increase sales in domestics, including bedding, bath towels and plastic storage and organization items.
“We are pleased with our performance during August, because it reflects continuing momentum in grocery and electronics. Home and apparel are expected to continue improving into the fourth quarter,” said Eduardo Castro-Wright, president and chief executive officer of Wal-Mart Stores U.S.
Sam’s Club +6.2%
Sam’s Club’s sales for the four-week period were driven by increases in average ticket with both business and Advantage members. Sales among small business members continued to be strongest. Similar to the prior four-week period, sales in electronics, fresh food and grocery were strengths. Hotter weather positively impacted sales of some seasonal items.
International +15.1%
During the August period, Brazil and the United Kingdom continued their recent positive performance. Brazil sales continued to improve ahead of the market, mainly driven by a stronger price position, assortment that is customized to the local community and a recovery of disposable income. Asda continued to gain market share during August. Macroeconomic factors contributed to a slowdown in sales in Mexico during the period.
Now, much has been said about the economy and retail recently. It appears, based on these results that folks are turning to the more affordable alternative and the first to come to mind is always Wal-Mart. Particularly of interest is the growth yet again in electronics. If Wal-Mart can make serious headway into the electronics market, and it appears they are, this will by default aid other sales items. Becoming a destinations place for electronics is a factor that I think is not being fully realized by the market at this point. This is probably due to Lee Scott still sitting in the CEO chair and as more time goes by I am becoming more convinced that fact is weighing on the stock more than the performance of the company. Wal-Mart seems to be playing catch up way to often lately and this is a very bad thing for a company that essentially re-wrote the retail handbook.
As a shareholder I am very encouraged by Wal-Mart’s results, imagine what it could do if it was run well? Someday it will be.
Here are the latest calls..
UPGRADES
DSW DSW Next Generation Neutral » Buy
MasTec MTZ SMH Capital Sell » Buy
Sourcefire FIRE Stifel Nicolaus Hold » Buy
EDO Corp EDO CIBC Wrld Mkts Sector Perform » Sector Outperform
Pactiv Corp PTV Citigroup Hold » Buy
Thornburg Mortg TMA RBC Capital Mkts Underperform » Sector Perform
Valero Energy VLO Bernstein Underperform » Mkt Perform
Sunoco SUN Bernstein Underperform » Mkt Perform
Tesoro Petroleum TSO Bernstein Underperform » Mkt Perform
Marathon Oil MRO Bernstein Underperform » Mkt Perform
DOWNGRADES
Qimonda QI JP Morgan Overweight » Neutral
Zumiez ZUMZ Morgan Keegan Outperform » Mkt Perform
Harte-Hanks HHS Matrix Research Hold » Sell
Time Warner TWX Pali Research Buy » Neutral
SL Green Rlty SLG Lehman Brothers Overweight » Equal-weight
Northeast Utilities NU JP Morgan Overweight » Neutral
Applix APLX Sun Trust Rbsn Humphrey Buy » Neutra
Friday’s Picks
Guy Adami told the panel to short The Dow with Short Dow30 ProShares (DOG). Open $59.67
Karen Finerman liked Under Armour (UA). open $63.38
Pete Najarian preferred Dick’s Sporting Goods (DKS). Open $67.27
Jeff Macke told folks to short the S&P but since most investors cannot or do not know how to do it, it will not be tracked.
Thursday’s Results
Jeff Macke recommended Short Dow30 ProShares (DOG). Open $59.87 Close $59.67 Loss $.20
Karen Finerman likes Kraft (KFT). Open $32.60 Close $33.39 Gain $.79
Guy Adami preferred Biogen (BIIB). Open $62.87 Close $66.53 Gain $3.66
Pete Najarian said Nokia (NOK) is a buy. Open $33.37 Close $34.21 Gain $.84
Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation weeks)
Guy Adami= 20-13 Gain $39.24
Eric Bolling= 10-11 Loss $14.01
John Najarian= 13-3 Gain $15.54
Jeff Macke= 22-19 Gain $4.05
Pete Najarian= 14-10 Gain $25.51
Tim Seymore= 3-2 Loss $.49
Karen Finerman= 4-3 Gain $1.59
Stacey Briere-Gilbert= 2-0 Gain $1.61
Constance Hunter= 1-0 Gain $1.84
Here are some links worth checking out
– Another Sprint (S) customer service horror story, god they suck, only 2 more years left in my contract…
– I cannot wait to see this movie
– Here are some little know stock picks of some billionaires
– So here is the thing. If corporate insider are buying shares in their companies at a rate not seen since 2003, why aren’t you?
– Mattel handled the initial bad lead paint news great, but, you can’t keep announcing it and expect to survive. These guys I think are on the money here
Back in May I posted “Starbucks (SBUX), which uses an estimated 93 million gallons of milk a year, is looking at a $279 million milk bill in 2007. While it may not seem a lot to a billion-dollar company, it does equate to 36 cents a share, an increase of about 9 cents, or about 10.3% of profits, over 2006. This does not include the price increase to be incurred from changing the percentage of hormone-free milk from 27% to 37%. Starbucks does charge 50 cents more at some locations for this milk, so it must cost considerably more, no? When you are guiding 83 to 87 cents a share and 18% growth, the 10% of that in milk costs is huge.
I followed it up at the end of the month with a post that exposed the real reason for Starbucks’s switch to 2% milk “According the USDA, 2% milk averages 8 cents a gallon less than whole milk” and said it was the real reason for the change, not their stated reason of “listening to customers”.
Near the end of June I took management to task when they finally admitted “rising dairy cost” would make meeting the “high end of earnings estimates very challenging”. In it I wondered said “When some guy in Massachusetts is more honest with you about a company he has no financial interest in than the people you entrust to run it, there is a serious problem.”
As recently as the end of last month in a post I objected to a report that milk prices were due to fall in the very near future.
Where is all this going? Peter Bocian, CFO at Starbucks, said Wednesday that the company expects dairy prices to be a “negative” in 2008. He said that the company has tried to offset the higher prices of dairy and other commodities through two price increases in the last 12 months. Here is my beef. Starbucks seems to just let this stuff trickle out very ambiguously without really giving investors anything to quantify. Starbucks must contract out is milk purchasing so they must have a solid idea of what the “negative” will be but, they give us nothing.
I have made several calls to Starbucks corporate offices and have been told “we do not disclose that information”. So, we are left to guess. Since they have been in such denial about it and very slow to announce it to date, the guess must be to the downside to protect you. Despite Starbucks’s claims and reaffirmation of guidance, I am convinced investors have a earnings warning or downgrade in their future.
Starbucks has just been too secretive to expect anything else…
In April I posted in regards to Apple’s (AAPL) iPhone, “cut the price to $299 and you may have something. A $599 phone will not gain mass acceptance no matter what it does, especially when people can still get it’s functionality from their existing devices.”
Of course the Apple folks countered that the iPhone did everything in the world including cook dinner and put the kids to bed at night. So what? I replied, I costs too much and in order for it to be a big seller, the price has to come down. But despite this, I was still a moron according to these folks.
Now I was upset that these same folks neglected to email me yesterday when Mr. jobs announced that he was dropping the price $200 to $399 for the 8GB model “so more people can afford it”. HMMMMM. Now, where have we heard that before?
You can also now get a 4GB iPod for drum roll please…. $299!!!!!!
Now the point of the post is not to brag about being right (well, maybe a little) but to point out the larger issue here. After the initial buzz over the phone that had people of questionable intellect sleeping in the streets for 5 days for A PHONE it would seem that Apple is seeing sales slow. There is no other reason for them to be dropping the price now only 2 months into the product’s launch. None. Perhaps this is the reason for the 5% sell off in shares yesterday, others are realizing this also?
Now, the real winner here? RIMM’s (RIMM) Blackberry. Sales have exploded over the summer as it has become the very affordable alternative to the iPhone. Even at the $399 price, a great Blackberry can be had for 1/2 that from all cellular carriers, not just AT&T (T) and people are choosing this option in droves.
How pissed are the people that waited in line? One thing you should know, Apple does have a 10 day price guarantee, if you bought your phone in the last ten days, take it back to get your $200 refund.
Well, they finally got it done, almost..
The Home Depot (HD) Supply unit sold for $8.5 billion, about $2 billion less than the originally agreed-upon $10.3 billion price tag, as the acquisition coincided with the eruption of turmoil in the U.S. credit market. Private-equity firms Bain Capital, Carlyle Group, and Clayton Dubilier & Rice are the buyers.
Under the terms of the revised deal, announced earlier last week, Home Depot is set to pay $325 million for a 12.5% equity interest in the supply unit and will guarantee a $1 billion senior secured loan of HD Supply.
Home Depot said Friday that it has entered into a $10 billion revolving credit facility in connection with its plan to buy back up to 250 million shares of common stock. It expects to repurchase 290 million of its shares for $10.7 billion as a result of a tender offer, a little less than halfway (48%) toward its goal of buying back $22.5 billion in stock.
Preliminary results of the tender offer that ended Friday indicated the chain of home-improvement stores expects to repurchase the shares at $37 each, using about $8 billion in net proceeds from its sale of HD Supply and $2.7 billion in cash (that all but empties the checking account), said spokeswoman Paula Drake. Ms. Drake said the company will continue buying back shares but she said there was no specific timeline for doing so. Translation? Don’t hold your breath for the other 52%.
How did the markets react? It didn’t. Why? Because despite an almost $11 billion buyback, Home Depot promised more, much more and there is real doubt now as to their ability to finished what they started. Why? Sales, profits and cash flow are in a free fall (unlike rival Lowes (LOW)) debt markets are not begging to stand in line to loan Home Depot the nearly $13 billion they will need to finish the job.
When current CEO Frank Blake took over he promised “an end to the drama” and promptly escalated it to new levels. I was against the Supply sale before it was announced and I feel it has turned into a fiasco in which they committed to something and backed themselves into such a corner, they did not get even close to fair value for the asset when all was said and done. Now they are stuck owning 12.5% of it still and had a guaranteed another $1 billion in Supply loans. In other words, they still are not free from it.
Home Depot will be stuck here for a very long time. They shot for the moon on this one and missed bad and unfortunately are out of ammo.
If only they had just quietly concentrated on their business like LOWES has been doing, they may not have lost so much market share to them. They did get more headlines though.
Dow Chemical (DOW) is going hard core at the corn seed market currently dominated by Monsanto (MON) and DuPont (DD)
Dow AgroSciences, a wholly owned subsidiary of The Dow Chemical Company, announced last week that it has further strengthened its global corn seeds platform with the acquisition of Netherlands-based Duo Maize. The deal follows two other recent acquisitions in the corn seeds arena, involving Brazil’s Agromen Tecnologia, and Austrian company Maize Technologies International (MTI).
“The expanding seed platform that we are building will enable us to leverage superior Dow AgroSciences input and output traits in key crops around the world,” said Jerome Peribere, Dow AgroSciences president and chief executive officer.
Duo Maize is a corn germplasm company focused primarily on early maturing germplasm silage applications for northern climates. The technology shall enhance and expand the strong silage market presence Dow AgroSciences has established in the U.S. with a silage-specific product line. At the same time, it shall also position Dow AgroSciences as a key player in European silage applications, complementing the breeding program and germplasm recently acquired from MTI.
I love this, big time. CEO Andrew Liveris has said over and over that he was determined to diversify Dow from its cyclical chemical businesses to more stable ones. This fits that bill perfectly. Currently the worldwide biofuel boom has made seed production an extremely profitable business and the industry is in it’s infancy. There is no end in site for demand for ethanol and other than in Brazil, it is made by corn. Dow’s expansion here is exploding the segment for them and stabilizing earnings for shareholders.
Some interesting thoughts about Wal-Mart (WMT)?
The stock hit an 8 yr. low today despite earnings over those same 8 yr’s going in the opposite direction, up. Eight years ago Wal-Mart traded for the $42 a share it hit today and earned $1.25, this year it will exceed $3 a share in earnings and trade for the same $42. Hmmm.
Recently Wal-Mart said it is considering new store sizes and types in the U.S. market but played down the possibility of acquisitions as it faces slowing sales growth at its older stores and the expected new competition from British rival Tesco PLC. I am not sure why a new rival would dampen acquisition plans but that it what they said. They also said they are hiring managers for a team to consider new formats besides the retailer’s four established types, Wal-Mart discount stores, Supercenters that combine groceries and general merchandise, Sam’s Club membership stores and Neighborhood Market grocery stores.
On the international stage Wal-Mart has been buying retail chains and entering joint ventures all over the world to improve its exposure and it has worked, really well. Now, with same store sale in the U.S. in trouble, why not try the same strategy in the U.S. as well?
According to a recent article in the Financial Times, with Tesco moving into the U.S. with its “Fresh & Easy” small format neighborhood groceries soon, Wal-Mart may think that it cannot afford to ignore the success of niche stores. If Wal-Mart is going to try to take on Tesco, or, meet them at the gate when they arrive, there are several retailer operators that should end up on Wal-Mart’s radar despite their claims to the contrary.
One could be Whole Foods (WFMI), which is about to merge with competing organic food chain Wild Oats (OATS). While a great idea, it would make a “organic food” powerhouse and draw the attention of the FTC. But, with the FTC’s track record recently, this may just end up being more of an annoyance than legitimate opposition. Other possibilities are Kroger (KR), which has a market cap of over $19 billion and annual sales of over $66 billion or Safeway (SWY) at a $13 billion market cap and $40 billion in sales. Wal-Mart’s market cap is a cool $179 billion, swallowing any of the four would be real easy.
What to do? I am buying more shares for starters. Currently Wal-Mart is dismally run and Lee Scott is not long for his job. That being said, the company is a money making machine and will only get bigger once management gets it’s head out of it’s, well, you know where. If you were being offered another asset that has almost tripled it’s annual earnings for a price it sold at 8 years ago, wouldn’t you jump at the chance to buy it?
Me too.