• Dell’s Earnings
    Posted by on February 17th, 2006 at 11:53 am

    This is from today’s Wall Street Journal:

    For the quarter ended Feb. 3, the Round Rock, Texas, company reported net income of $1.01 billion, or 43 cents a share, up from $667 million, or 26 cents a share, a year earlier. The results exceeded Wall Street’s expectations of 41 cents a share.
    Revenue rose 13% to $15.18 billion from $13.46 billion a year earlier.
    The company said sales outside the U.S. were 43% of its overall revenue for the fourth quarter, up from 40% in the year-earlier period. The company said it gained share in every region during the year. In Europe, revenue rose 18% to $3.7 billion, while Asia Pacific-Japan revenue was up 21% to $1.7 billion.
    Kevin Rollins, Dell’s chief executive, said the company’s success in countries such as China and Germany shows that its direct-sales business model is preferred by people in all regions. Overall demand is “pretty darn healthy,” he said in a conference call with reporters.

    Yet the stock is trading about 5% lower today. Wall Street’s reaction simply makes no sense. They lower expectations, and the stock falls. They beat expectations, and the stock falls.
    I’ll have more to say on this later. Meanwile, here’s Dell’s conference call from Seeking Alpa.

  • Dell Earned 43 Cents a Share
    Posted by on February 16th, 2006 at 4:09 pm

    Revenues of $15.2 billion.

  • The Fears Under Our Prosperity
    Posted by on February 16th, 2006 at 2:12 pm

    Robert J. Samuelson has an interesting editorial today on the growth of individual instability amid rising collective stability:

    A puzzle of our time is why the economy has become increasingly stable while individual industries have become increasingly unstable. The continuing turmoil at General Motors and Ford simply reflects this more pervasive industrial instability — also in airlines, telecommunications, pharmaceuticals and the mass media, among others. Hardly a week passes without layoffs from some major company, which is “downsizing,” “restructuring” or “outsourcing.” And yet, the broader economy has undeniably become more stable. Since the early 1980s, we’ve had only two recessions, lasting a combined year and four months and involving peak unemployment of 7.8 percent. By contrast, from 1969 to 1982, we had four recessions lasting altogether about four years and having unemployment as high as 10.8 percent.
    A cottage industry of economists is cranking out studies on these questions. One intriguing theory — completely counterintuitive — is that the greater overall stability stems in part from the increased instability of individual industries. You would, of course, expect the opposite: As individual industries became less stable, so would the larger economy.
    But the reality may be more complex. Different industries may go through cycles that are disconnected from each other, argue economists Diego Comin and Thomas Philippon of New York University. All don’t rise and fall simultaneously. To simplify slightly: Housing, autos and farming might strengthen, while computers, airlines and chemicals weaken.
    Assuming there’s something to this theory — which seems a good bet — it helps explain the riddle of why there’s so much anxiety amid so much prosperity. As Americans stock up on BlackBerrys and flat-panel TVs, it’s hard to deny the affluence. But people also look to their employers for a sense of confidence about the future — and here doubts have multiplied, because more companies and industries seem assailed by menacing forces.

  • Medtronic Continued Selling Flawed Defibrillators
    Posted by on February 16th, 2006 at 2:02 pm

    From Bloomberg:

    Medtronic Inc. continued selling flawed cardiac defibrillators for two years after learning that some of them may suddenly quit working, according to company documents filed in a California lawsuit.
    After Medtronic last year recalled the devices, 19,000 people had to have surgery for a replacement, said Medtronic spokesman Rob Clark. At least one of them died from post- surgical complications, according to the man’s widow. Defibrillator patients are vulnerable to potentially fatal heartbeat irregularities, which the $20,000 devices detect and correct using electrical shocks.
    “Medtronic has been taking products they know are not quite right and putting them into people rather than take the loss,” said Hunter Shkolnik, a New York lawyer, who said in a Feb. 13 interview that he represents more than 200 people whose Medtronic devices were recalled. “If you know there’s a problem with a component, you don’t put it out and sell it to people.”
    Medtronic, the leader in the $10 billion-a-year market for heart rhythm devices, told 87,000 patients in February 2005 that the defibrillators implanted in their chests might fail. According to company documents filed in federal court in San Jose, California, the Minneapolis-based company had discovered the flaw in January 2003 and started producing a redesigned product one year later.

  • Danaher Reaffirms Outlook
    Posted by on February 16th, 2006 at 1:53 pm

    One of the easiest stories to ignore is when a company “reaffirms” its outlook. Don’t. This is one of the most underrated things a company can do. I love seeing out stocks reaffirm guidance. Don’t ever worry that they didn’t “guide higher.”
    Yesterday, Danaher’s (DHR) CEO confirmed guidance of 59 to 64 cents a share for this quarter, and $3.02 to $3.12 a share for this year. Danaher earned $2.76 a share last year.

  • Dell’s Earnings Preview
    Posted by on February 16th, 2006 at 1:44 pm

    Today is D-Day for Dell (DELL). The company reports earnings after today’s close.

    Analysts surveyed by Thomson First Call are forecasting Dell will earn 41 cents a share on $14.8 billion in revenue, up from 37 cents a share and revenue of $13.5 billion a year ago.
    In early trading Thursday, Dell shares fell 13 cents to $31.64.
    But Dell has had a difficult time meeting or exceeding forecasts in the past year because it has faced more competition from Hewlett-Packard Co., International Business Machines Corp. and even Apple Computer Inc.
    And Dell’s stock suffered, slumping 29% in 2005.
    In November, Dell reported third-quarter earnings fell to $606 million, or 25 cents a share, from $846 million, or 33 cents, a year earlier. Excluding $442 million in one-time charges, Dell earned 39 cents a share, in line with its revised forecast.
    Revenue rose to $13.9 billion from $12.5 billion a year earlier, but slightly below the $13.97 billion expected by Wall Street.

    I really don’t have a good idea of what Dell will report. Probably, 41 cents a share. I still think that the reaction to Dell’s “troubles” has been greatly exaggerated. The stock fell from $42 to $29 over a few pennies a share. Expect to hear a lot of silly talk about Dell losing market share. In my opinion, a rational price for Dell is about $35. Remember that Keynes said, “the market can stay irrational longer than you can stay solvent.”

  • HP Earns 48 Cents a Share
    Posted by on February 15th, 2006 at 4:34 pm

    Whaddaya know? Hewlett-Packard (HPQ) earned 48 cents a share for its fiscal first quarter. The (cough) estimate was for (cough) 44 cents a share. Now HPQ shareholders should be happy, right?
    Sorry to spoil the party. Those estimates were low-balled (as I said yesterday). The important number to look at is sales, which rose just 5.6%. The company guided higher for next quarter on the bottom line, but not for revenues. I wonder if that’s some sort of hint.

  • The Hottest Stock Market in Europe
    Posted by on February 15th, 2006 at 11:22 am

    The Brazilian stock market continues to be the hottest stock market in the world, but the hottest market in Europe can be found in Malta.
    No, seriously. Malta.
    Malta.gif
    The Economist has more:

    Local officials say that, as a new member of the European Union, Malta would like to repeat the success of Dublin or even Luxembourg. The record of the Malta Stock Exchange (MSE) has helped. Its equity index surged by more than 60% last year, after a 40% rise in 2004 (see chart). But for a 7% limit on the daily movement of individual share prices, it might have risen faster still: a number of stocks were trading near the top of the range “regularly” last year, says Mark Guillaumier, the MSE’s chief executive, a descendant of a French sea captain who landed in the 18th century to trade with the Knights of St John.

  • Morningstar Sees Value in Cendant
    Posted by on February 15th, 2006 at 10:59 am

    I will never understand the appeal of Cendant‘s (CD) stock. I think people are determined to see value there no matter what reason and logic say. The stock just took a hit again, on lowered guidance. Here’s part of a new report on Cendant from Morningstar:

    Cendant reported fourth-quarter results Monday that were in line with its lowered guidance. The company also reduced its forecast for the first quarter of 2006, citing weakness in its real estate and auto rental divisions. Cendant’s overall revenue and profit expectations for 2006 are consistent with ours, though, and we see no reason to change our $23 fair value estimate. We believe the shares, which have steadily declined in recent months, offer a highly attractive risk/reward trade-off now. Uncertainty is likely to remain high in the near term, owing to concerns surrounding the cooling real estate market, the woeful performance of the travel distribution business (notably online agent e-bookers), and the impending four-way split. Because we are convinced that the core elements of our Cendant thesis still hold–its businesses generate lots of free cash flow and solid returns on capital–we think this uncertainty has created a compelling opportunity for investors. We have reviewed several valuation scenarios and are confident that Cendant is worth $22-$25 per share; in light of recent poor execution and earnings disappointments, we think it’s prudent to err toward the lower end of this range. The real estate and hospitality divisions will be spun off in the second and third quarters, respectively, while the travel distribution arm spin-off will be completed in October.

  • James Stewart on the Yield Curve
    Posted by on February 15th, 2006 at 10:53 am

    From the WSJ:

    The most prevalent explanation is that buyers of the long bond accept the lower yield in anticipation of a recession, which is likely to drive long rates even lower. In this theory, such expectations in the markets become self-fulfilling. But I have yet to see any empirical data to support this notion.
    In any event, inverted yield curves rarely last long. At this juncture, either long rates will rise, short rates will fall, or some combination of the two will occur, restoring the normal upward slope. You don’t want to own long-term bonds when rates are rising.
    To me, this makes it even more paradoxical that investors were so keen for those low-yielding 30-year bonds. It wouldn’t take many cuts in short-term rates for the Fed to restore the slope of the yield curve. But how much lower can long-term rates fall? True, rates in deflationary Japan got close to zero, but the possibility of deflation in the U.S. seems a distant memory with gold trading at well over $500 an ounce. The likelihood that long-term rates will go above 4.48% over the next 30 years strikes me as close to a certainty.
    And what if the yield curve turns out to be wrong this time, and there isn’t any recession? Not only will economists return to the drawing board, but that means economic growth will continue, putting more upward pressure on long-term rates.
    This seems yet another argument for investing in shorter maturities at today’s relatively high rates. Short maturities, like the one- to three-year bank certificates of deposit I’ve recommended, have little risk of principal erosion even if rates rise. Meanwhile, you can collect close to 5%, and if the Fed continues its rate-rising campaign, you’ll soon be able to earn even more.