GDP Grew By 3.5% in Q4
Posted by Eddy Elfenbein on January 31st, 2007 at 9:10 am

The economy continues to plow along. After two quarters of below-trend growth, the economy grew by 3.5% (annualized) in the fourth quarter. This happened even though residential private investment (i.e., home construction) dropped by 19%, the largest decline since 1991.
Here’s GDP growth since 1997:

The drop in residential private investment took 1.2% off GDP growth. Here’s a look at home construction’s share of the economy since 1987:

Over the last four years, the economy has grown by 27.3% (not adjusted for inflation).

AFLAC’s Earnings
Posted by Eddy Elfenbein on January 30th, 2007 at 4:58 pm

AFLAC‘s (AFL) stock is getting beaten up in the after-hours market. The supplemental insurance company reported earnings of 66 cents a share (with insurers, the important number is operating earnings). This was a nice improvement over the 59 cents from last year, but it was a penny shy of expectations. The good news is that AFLAC guided higher for 2007. The company now sees EPS of $3.28 to $3.31.

Eatin’ Good Far from the Neighborhood
Posted by Eddy Elfenbein on January 30th, 2007 at 3:20 pm

Michelle Leder at Footnoted.org spotted this letter from former SEC Chairman Richard C. Breeden to Campbell Soup’s CEO Douglas Conant. Conant is also chairman of Applebee’s compensation committee:

On 29 occasions from from April 2006 through January 2007, Applebees’s corporate aircraft flew into and out of Galveston, Texas, where former CEO Lloyd Hill happens to own a beach house. The nearest Applebees’s restaurant is more than 40 miles away. Though Mr. Hill ceased to be CEO in September 2006, company planes continue the Galveston shuttle.”

Daniel Gross has more on the troubling mix of CEOs and corporate jets.

LoveLEHGirl Is Watching
Posted by Eddy Elfenbein on January 30th, 2007 at 1:24 pm

The Wall Street Journal profiles Yolanda Holtzee, an “Internet investigator in sweatpants.”

Wall Street is full of corporate gadflies, many of whom agitate for corporate-governance reform or focus on arcane bylaw changes. Ms. Holtzee, a self-styled Internet investigator in sweatpants, focuses on exposing out-of-bounds behavior and catching bad guys. And after pointing regulators in the right direction more than once, Ms. Holtzee has achieved two things every gadfly craves: attention from those she targets — and action.
“I think people take her seriously because she has good instincts and actually produces cases,” says former senior SEC official Ari Gabinet, now an executive at Vanguard Group Inc., the fund management giant. “If I could have hired her, we would have had an endless stream of cases.”

The Biomet CD?
Posted by Eddy Elfenbein on January 30th, 2007 at 11:18 am

First let me state clearly that I’m not recommending this as a fixed-income investment, but let’s consider what the market is saying about Biomet (BMET).
Assuming all goes smoothly, the company is to be bought by a private equity consortium in nine months at $44 a share. Yesterday’s close was $41.90 a share. That translates to a gain of 5.01% over the next nine months. That’s not a bad return. Think of it in Dow terms—it would be like bringing the index to over 13100.
On an annualized basis, the Biomet investment is about 6.7% which beats almost any CD you can find. On top of that, the stock could pay another annual dividend this summer. Last year’s was for 30 cents a share, which is another 0.7% return. I don’t see why they’ll cut out the dividend this year.
Of course, the stock isn’t exactly like a bond. The deal still needs to be approved by shareholders and regulators (incidentally, I oppose the deal). But the stock is starting to behave like a fixed-income investment.
If I were a CFO and I needed to park some cash for the next nine months, picking up shares of Biomet could be a shrewd low-risk investment.

Davos Is for Wimps
Posted by Eddy Elfenbein on January 30th, 2007 at 8:57 am

Michael Lewis nails the professional worriers who gather every year in Davos:

Davos is where people with no talent for risk-taking gather to imagine what actual risk-takers might do. Davos Man needs to sit in judgment; Davos Man needs to brood. So great is this need that he will brood about virtually anything, no matter how little he knows about it.

It’s only January, but I’m ready to name that, the Paragraph of the Year.
He’s exactly right. When analyzing the market or the economy, it’s easy to fall into the “over-worrying trap.” I’m often surprised by how many otherwise intelligent people can fall into this trap and wind up saying silly things. I mean, there’s always something to worry about.
The professional worriers remind me of the Major General in HMS Pinafore who knows many “cheerful facts about the square of the hypotenuse.” They know the facts, but they can’t see them in proper context.
The free market is a highly complex system. It simply has a way of working things out. Naturally there are crises which always seem to be “looming,” but people are surprisingly good about mastering them.
A few years before Y2K, I remember reading a story about a power plant that ran a drill to prepare for the new millennium. The plant failed and everything went to pieces. So a quick-thinking engineer jumped in and reset all the plant’s clocks to 1972, which had the same day and date alignment of 2000 (28 years is seven days of the week times four years in a leap cycle). Presto. The plant was up and running and they had time to fix the bugs.
But in the minds of the professional worriers, that scenario could never happen. They think if some problem comes along, people will never adapt. They assume market participants will run head-first into a brick wall, then pick themselves up, and do it again.
Lewis writes:

Thailand installs capital controls and the markets force it to reverse its policy, virtually overnight — again with nary a ripple. The Brazilian real is now less volatile than the Swiss franc; Botswana’s debt is now more highly rated than Italy’s. Oil prices double, the U.S. housing market tanks — no matter what happens, financial markets adjust quickly and without hysteria.
There are obviously a few things to worry about just now in the world, but the inability of traders to find a sensible price for the spread between European junk and European Treasuries isn’t one of them.

That problem will also be solved. And the answer won’t come from Davos.

Graco 4Q Profit Rises 10 Percent
Posted by Eddy Elfenbein on January 30th, 2007 at 8:44 am

From the AP:

Graco Inc. (GGG), which makes pressure washers and pumps for industrial uses, on Monday said fourth-quarter profit increased 10 percent as growth in its industrial and lubrication equipment segments offset slightly lower sales of contractor products.
Net income grew to $35.6 million, or 52 cents per share, from $32.3 million, or 46 cents per share, a year earlier.
Sales expanded 10 percent to $203.4 million from $185.6 million.
By segment, fourth-quarter contractor equipment sales fell 2 percent to $71 million. While the segment’s sales in Europe and Asia rose, sales in the Americas fell, reflecting a weak U.S. housing market. Sales of industrial equipment rose 14 percent at the same time to $110.6 million. Lubrication equipment sales jumped 40 percent to $21.8 million.
Analysts polled by Thomson Financial forecast earnings of 52 cents per share and sales of $205.8 million.
Graco said that a weaker U.S. dollar in 2006 compared with 2005 boosted sales and earnings.
For the full year, net income increased to $149.8 million, or $2.17 per share, from $125.9 million, or $1.80 per share. Sales rose to $816.5 million from $731.7 million a year earlier.

The Money Honey Brand
Posted by Eddy Elfenbein on January 29th, 2007 at 4:18 pm

Bloomberg looks at the fallout of Todd Thomson’s dismissal at Citigroup (C). Journalism professors are criticizing the relationship Thomson had with Maria Bartiromo. Last year, she traveled with him to Asia on a company jet. He also approved $5 million for a show she was to co-host.
The article includes this nugget:

On Jan. 16, Bartiromo sought to trademark her “money honey” moniker for use on children’s television shows, games, T-shirts, dishes and bookbags, according to the U.S. Patent and Trademark Office’s Web site.

Bookbags?
The New York Post, naturally, has more.

Milton Friedman Day
Posted by Eddy Elfenbein on January 29th, 2007 at 12:35 pm

Today is Milton Friedman Day. The economist died two months ago at the age of 94. Tonight, PBS (note irony) will premiere “The Power of Choice: The Life and Ideas of Milton Friedman.” Check your local listings.

Nicholas Financial’s Earnings
Posted by Eddy Elfenbein on January 29th, 2007 at 12:29 pm

Our smallest stock on the Buy List, Nicholas Financial (NICK), reported earnings of 27 cents a share:

Nicholas Financial, Inc. announced that net income increased 2% to $2,770,000 for the three months ended December 31, 2006 as compared to $2,718,000 for the three months ended December 31, 2005. Diluted earnings per share increased 4% to $0.27 for the three months ended December 31, 2006 as compared to $0.26 for the three months ended December 31, 2005. Revenue increased 6% to $11,730,000 for the three months ended December 31, 2006 as compared to $11,107,000 for the three months ended December 31, 2005. The Company has reported record same quarter increases in revenues and earnings for 66 out of the past 67 quarters.
Net income increased 12% to $8,568,000 for the nine months ended December 31, 2006 as compared to $7,621,000 for the nine months ended December 31, 2005. Diluted earnings per share increased 14% to $0.83 for the nine months ended December 31, 2006 as compared to $0.73 for the nine months ended December 31, 2005. Revenue increased 14% to $34,666,000 for the nine months ended December 31, 2006 as compared to $30,506,000 for the nine months ended December 31, 2005.