Medtronic Raises Dividend
Posted by Eddy Elfenbein on June 22nd, 2006 at 3:39 pm

From 11 cents a share to 14.3 cents a share. Medtronic (MDT) has raised its dividend for 28 straight years.

Diworsify
Posted by Eddy Elfenbein on June 22nd, 2006 at 12:48 pm

Me running in slow motion.
With beer sales flat,
Waving my arms….
Busch ponders
“Noooo….”
taking shot at
“oooooooooo….”
liquor.
Why oh why do companies do this? Someone please tell me. Has this strategy ever worked? If people aren’t buying your crappy beer, what makes you think they’ll buy your crappy vodka? I really want to know who exactly is the target market for Budweiser Scotch? I don’t care if it’s just one guy, he needs to be severely beaten.
Let’s look at Anheuser-Busch’s (BUD) situation. Earnings are down and the stock hasn’t budged in a bull market. Even for a defensive stock, shares of BUD have been slackers.
The fact is that beer sales are flat. They’ve been flat for years. Brewers don’t sell more beer, they only steal market share. That’s why the advertising and branding is so intense (and moronic). In fact, a better way to think of Anheuser-Busch is not as a brew stock, but as a marketing and distributing company. That’s what they really do.
(On a side note, every year in Silicon Valley, some really smart engineers get together with some really smart ideas. They meet some other really smart people who give them really smart start-up capital. But being a really smart engineer doesn’t make you a really smart businessperson. The start-ups bomb and the troubles are often due to marketing and distribution. Engineers don’t think that way. It’s amazing how dumb really smart people can be.)
Selling the hard stuff won’t help any of Anheuser-Busch’s problems. It’ll probably make them worse. About 20 years ago, all the American car companies bought European luxury car companies. There was absolutely no reason for this. Within a few years, all three dumped them. Chrysler was eventually bought by a European car company.
I’ll give you a great example of a company knowing how to use its brand—Harley-Davidson (HDI). Harley only makes the big bikes. They have nothing to do with the rest of the motorcycle market. Every few years someone suggests that Harley should “LEVERAGE” its “BRAND NAME,” and move into the smaller-weight market. There are lots of smart folks at Harley, and this idea has crossed their mind, but still, they never do it. Why? Because it’s not their market. They could do it They’d probably even make some money at it. But Harley’s attitude is that they aren’t like everybody else. They don’t make bikes–they make Harley’s. Bear in mind that a surprisingly large percentage of their revenue comes from clothing. Harley isn’t about to start diluting that brand.
Harley knows exactly what business it’s in, and so do its customers. I have nothing against diversifying into good businesses. I’ll even look at other way at a brewer owning theme parks (that’s just marketing). But don’t fool anyone by thinking that you can brand your way out of troubles. Especially, don’t fool yourself.

Dell Focuses on Customer Service
Posted by Eddy Elfenbein on June 22nd, 2006 at 11:19 am

Business Week talks with Richard Hunter, the new head of Dell’s customer service:

How and why did Dell’s service deteriorate?
In the quest for efficiency, we became efficient but quite ineffective. Management has put rules and regulations and hurdles that the phone agent has to jump through. They’re in the interest of cost, but not the interest of consumers.
For instance, we set up specialized phone queues for consumer Dimension hardware tech support only, and another for small-business Dimension hardware tech-support only. So you would call and a desktop tech would answer, but you have a laptop.
The net result: We were transferring, and still today, are transferring close to 45% of calls. That’s out of a half a million calls from consumers a week. That’s a lot. That’s terrible. It’s like delivering materials to the wrong factory 45% of the time. You could be transferred to four countries. That’s not a good way to do it.
You’ve done a lot of new hiring in the call centers to help cut down the hold times. Just how bad did hold times get?
In the past it was seen as O.K. to hold for eight to 10 minutes. But my goal is to never be on hold more than four minutes. We’ve made great strides. In November, we answered 20% of calls in four minutes or less, and 3,000 callers in a week waited more than 30 minutes. Now, we’ve got 80% answered in four minutes or less. And last week, 80 people waited more than 30 minutes.

Writing Annual Reports
Posted by Eddy Elfenbein on June 22nd, 2006 at 10:59 am

A University of Michigan study looks at why annual reports are hard to read (via Tyler Cowen):

Apparently there’s a simple reason why annual reports are hard to read: managers, in many cases, are trying to hide something.
The study, Annual Report Readability, Earnings and Stock Returns, found that the annual reports of underperforming companies are harder to read than those of companies that are performing well.
Feng Li, an assistant professor of accounting at the university, measured annual report “readability” using a sample of more than 55,000 company reporting years. He examined syllables per word and words per sentence in reports filed with the Securities and Exchange Commission.
He used two readability measures.
First, the “Fog Index” indicated the number of years of formal education a reader of average intelligence would need to read the text once and understand it. Fog = (words per sentence + per cent of complex words) x 0.4. Complex words were defined as words of three syllables or more.
Second, the Kincaid Index rated the reports on a US primary school level.
According to the study, annual reports of companies with lower earnings were more difficult to read. Similarly, companies that had volatile earnings were more likely to produce abstruse reports.

Of course, there’s always this:

Bed Bath & Beyond Taking a Bath
Posted by Eddy Elfenbein on June 22nd, 2006 at 10:45 am

Shares of Bed Bath and Beyond (BBBY) are getting hammered this morning (down about -5.5%). The stock has been cut by Bear Stearns. The company’s earnings report was inline with expectations, and the guidance for this quarter was also inline. Still, the stock made fresh 52-week lows this morning.
Here’s a sample negative view from an analyst:

In a note to clients entitled “Q1 Could Have Been Better,” UBS analyst Brian Nagel said costs weighed on the retailer.
“Given (same-store) sales growth at the upper end of plan we would have expected stronger earnings growth at Bed Bath & Beyond in the first quarter,” Nagel said. “Recent expense pressures seem unique to Bed Bath & Beyond and are not indicative of higher costs in retail.”
While net earnings had a slight gain, operating profits dipped to $148.8 million from $150.9 million. Costs escalated to $805.9 million from $723.6 million, led by a 19% rise in sales, general and administrative expenses.
Further, the company’s cash assets were cut to nearly a third of their former levels a year ago.

Seeking Alpha has a transcript of the conference call.
The good news for us this morning is that Varian Medical (VAR) is up strongly on an analyst upgrade from Oppenheimer.

Bed Bath & Beyond Earned 35 Cents a Sahre
Posted by Eddy Elfenbein on June 21st, 2006 at 4:21 pm

The company matched Wall Street’s expectations. Sales came in at $1.396 billion, which was also in line with forecasts. The stock is down 19 cents a share in after-hours trading.

The First Day of Summer Rally
Posted by Eddy Elfenbein on June 21st, 2006 at 2:47 pm

We’re having a very good day today so far, although I could do without the leadership coming from the “hard asset” sectors like energy and basic materials. The S&P 500 is now above last Thursday’s high point. The Dow was just at 11,111, which must be some sort of sign.
The Buy List is being led today by Harley-Davidson (HDI), Expeditors (EXPD) and Fiserv (FISV). FactSet (FDS) is holding on to its big gain from yesterday. I’m waiting on Bed Bath & Beyond’s (BBBY) earnings after the close. Of Wall Street’s 25 estimates, the high is 36 cents per share, the low is 35 cents per share. Just to be different, I predict—no, guarantee—37 cents per share. When earnings came out three months ago, the stock was over $40 a share. Today, it’s down to $37.
Morgan Stanley (MS) is up after a strong earnings report. The brokerage has been the sick man of Wall Street. It’s trailed the rest of the industry in a furious rally for the major Wall Street brokers. David Weidner at MarketWatch notes that some smaller houses are moving in to take business from some of the big boys.
Volatility continues to rise. Today looks to be the S&P 500’s 12th swing of 1% or more in the past seven weeks. In the six months prior to that, there were just eight such days.

We’ve Pulled Even With the Market
Posted by Eddy Elfenbein on June 21st, 2006 at 10:00 am

Great news! Thanks to FactSet’s (FDS) big day yesterday, our Buy List has pulled even with the S&P 500 for the year. Woo! It took the market and me nearly six months to lose a little less than 1%.
OK, I can see that you’re not terribly impressed. But let’s take a step back and look at what we can expect of the stock market (and by extension, me).
Although the market likes to jump around a lot, if you look at it from a long-term perspective, the market is far more consistent than many people realize. Over the last 80 years, stocks have averaged 10.36% a year. Oh sure, stocks will plunge 50% or more even few decades, but that just comes with the territory. But if you plan to stick it out, the market is the place to be. On average, it doubles your money every seven years. That’s better than every other asset class. All of them.
But I have to caution you: Over the last 25 years, us stock investors have been spoiled. The reason has to do with bonds. Think of it this way. The stock and bond markets are in a never-ending battle for your money. Whatever bonds do, stocks are very likely to mimic.
Stocks and bonds don’t have a perfect relationship but they will tell you a lot. One of the things you may have noticed from my site is that I don’t worry too much about the “background noise” of Wall Street. This includes most economic reports, the national debt or almost anything about the Federal Reserve. My feeling is that as long as the bond market isn’t worried, then there’s no reason to be worried. The bond market is one of the few sources that isn’t afraid to tell you the truth.
Since 1981, we’ve had a massive rally for bonds. Interest rates for long-term bonds have fallen to levels we haven’t seen in decades. And like clockwork, stocks soared. The period from 1982 to 2000 was one of the greatest bull markets in history. What’s interesting is that during that time, stocks and bonds still closely tracked each other. In fact, since 1969, stocks have beaten long-term government bonds by just 1.69% a year. That’s a pretty measly bonus you get for taking on the risk of owning stocks. Moreover, that 1.69% has been fairly consistent.
If we assume that 1.69% premium will continue, with today’s 30-year bond yield of nearly 5.2%, that translates to a long-term stock market return of (let’s call it) 7% a year. So a return for six months should only average about 3.5%.
I’m afraid that too many investors think that the 20%+ years of the 1990’s are the norm. They’re not.

How Low Can It Go?
Posted by Eddy Elfenbein on June 21st, 2006 at 6:28 am

I often hear people say that a particular stock is so cheap, “how much lower can it really go?” The answer is, it can go a lot lower. A stock can drop 99% and it’s still not at zero. It can drop another 99%, and it’s still worth something. In fact, a stock can drop 99% many, many times, and still not reach zero.
Delistings don’t make a lot of news, but they happen every week. Here’s a graph of issuers on the NASDAQ since 2003:

A Stock Market in Rwanda?
Posted by Eddy Elfenbein on June 21st, 2006 at 6:02 am

Not yet says a study. But wouldn’t be nice to see a market there soon?