Fair Isaac Earns 52 Cents a Share
Posted by Eddy Elfenbein on January 25th, 2006 at 5:23 pm

Fair Isaac (FIC) just reported earnings of 52 cents a share. I was wrong on sales growth. Revenues came in at $202.8 million, growth of just 3.7%. The good news was net margins, which held up at 17%. With the addition of stock options, the company earned 43 cents a share. Overall, this looks very good. I’ll have to dig into the numbers a little bit more to see all the messy details.
The company also guided inline for next quarter (52 cents a share) and next year ($2.16 a share). I have to say that I’m very pleased with these results.
Varian Medical Systems (VAR) beat by a penny a share (34 cents versus 33 cents). The stock tends to be much more volatile, so it could react negatively.
Also, Bed Bath & Beyond (BBBY) announced a $200 million increase to its share buyback program. The old program was for $400 million.
Still more earnings to come. Tomorrow we’re going to get results from Danaher (DHR) and Respironics (RESP). Wall Street is expecting 36 cents a share from Respironics, and 80 cents from Danaher.

Medicare Drug Benefit Sparks an Industry Land Grab
Posted by Eddy Elfenbein on January 25th, 2006 at 12:49 pm

The WSJ has a fascinating article today on the business impact of the new Medicare prescription drug benefit. Our own UnitedHealth (UNH) is one of the major beneficiaries:

Defying early predictions that private insurers wouldn’t offer prescription-drug policies, dozens of companies are offering regional plans and 10 are selling them nationwide. The government is heavily subsidizing the policies, for which 42 million people are eligible. It’s a big and unexpected growth opportunity at a time when the industry’s traditional business — administering employer health benefits — is stagnant or shrinking.
UnitedHealth, based in Minnetonka, Minn., is one of the most aggressive players and one of the most successful so far. It has signed up about 2.8 million Medicare beneficiaries, either to stand-alone drug plans or within its more comprehensive Medicare plans. It picked up 1.5 million more sign-ups from its acquisition in December of PacifiCare Health Systems.

Boston Scientific Wins
Posted by Eddy Elfenbein on January 25th, 2006 at 10:38 am

This time, it looks like it’s finally over. Guidant’s (GDT) board has accepted Boston Scientific’s (BSX) higher bid. BSX will pay $42 a share in cash, and $38 a share in stock. In my opinion, that’s way too much.
For its part, J&J will get $705 million for Guidant breaking its earlier agreement. BSX smartly stayed a step ahead of regulators by agreeing to sell part of Guidant to Abbott Labs (ABT).
This was a big victory for a couple of hedge funds and lots of lawyers and investment bankers. J&J nearly made a big mistake.
Speaking of bidding war, one of our Buy List stock, Danaher (DHR), will bow out of a bidding war for First Technology. Honeywell (HON) initially agreed to buy the company for 275 pence, then DHR bid 330. Honeywell came back and bid 365, which it’s going to get.
Disney (DIS) agreed to buy Pixar (PIXR) for $7.4 billion. Or more accurately, Pixar agreed to be bought by Disney. Steve Jobs will be the new chairman. Disney is too good a company for its current management.

Profits Plunge at the New York Times
Posted by Eddy Elfenbein on January 24th, 2006 at 2:49 pm

Earnings dropped 11% for the year and 45% for the quarter:

Circulation revenue remained under pressure, though the company, which owns The New York Times, The Boston Globe, The International Herald Tribune and other newspapers, as well as television and radio stations, reported a 6.2 percent increase in advertising sales for the quarter. But the company said revenue for January was “off to a slower start, especially in the entertainment and classified automotive categories.”
Newspaper companies, like other media companies, are in the midst of a struggle to adapt themselves to the new ways in which readers and viewers consume news and entertainment on the Internet and digital devices. While advertising rates and revenue are increasing online – the Times Company said advertising revenue at its newspaper Web sites jumped 30.3 percent – that growth has not completely made up for the decline in revenue and profits from newspapers and other older media.

Earnings Preview for Fair Isaac
Posted by Eddy Elfenbein on January 24th, 2006 at 2:36 pm

Fair Isaac (FIC) will report its earnings after the close tomorrow. If you’ve read this blog for awhile, you know that I’m a big fan of this company. They’re known for the FICO credit score, and they’re the dominant player in the industry.
Last year, Fair Isaac reported that its first-quarter (ending in December) sales jumped 15%, but its earnings were only 36 cents a share, the same as the year before. But the next three quarters were very strong. Fair Isaac beat estimates by six, then nine, then four cents a share. I think they’ll beat estimates again.
The current estimate is for 50 cents a share. If revenues come in at $210 million, which is just 7.4% sales growth, and net margins fall to 17% (the average has been about 17.5%-18%), then Fair Isaac will earn $35.7 million for the quarter. That would be about 55 cents a share.
I think I’m being cautious on the net margin number, but perhaps a little aggressive for sales growth. Sales growth is the hardest to pin down. Don’t think that Fair Isaac is heavily tied to mortgage lending. For example, when you get those “pre-approved” credit cards in the mail, have you ever wondered how they know you’re a good risk? Odds are Fair Isaac told them.
For the year, Wall Street expects Fair Isaac to earn $2.16 a share, and $2.46 a share next year. Here are the financial results from the past few years:

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Golden West Financial Beats Earnings
Posted by Eddy Elfenbein on January 24th, 2006 at 11:31 am

This is why I like dull stocks. Sure, Golden West Financial (GDW) is boring, but it never lets me down. While everyone else is reporting slower mortgage business, GDW keeps motoring along. Today the S&L reported better-than-expected earnings. For the fourth quarter, the company earned $1.37 a share, three cents more than estimates. The shares are up about 40 cents today.
Two more of our dull stocks report tomorrow, Varian Medical (VAR) and Fair Isaac (FIC). The estimate for Varian is for 33 cents a share. How’s this for consensus? All eight analysts who follow Fair Isaac estimate earnings of 50 cents a share. Our health care stocks got clobbered yesterday, but Varian is gaining back much of what it lost.
Earnings season is Judgment Day on Wall Street. Intel (INTC) has dropped for seven straight days. It looks like it may break that streak today. The company missed by three cents a share and fell 11% last Wednesday on 280 million shares. I really underestimated how much Advanced Micro (AMD) has cut into Intel’s business. Michael Sivy has a good analysis of Intel’s problems.
One stock that almost never fails during earnings time is Coach (COH). The company beat earnings by three cents a share, and the stock is up about 7% today.
Johnson & Johnson (JNJ) reported very good earnings today. Profits were up 79%. This reminds me of why I don’t want JNJ to win the war for Guidant (GDT). Guidant’s board has until tomorrow to accept Boston Scientific’s (BSX) higher offer. For the first time in 22 years, Johnson & Johnson reported that its revenue dropped.

IPO for Chipotle Mexican Grill
Posted by Eddy Elfenbein on January 23rd, 2006 at 2:30 pm

I have to confess that I’m a Chipotle’s addict. If you’re not familiar with the restaurant, they’re crack dealers. But instead of crack, burritos.
But they’re not ordinary burritos. They’re huge. They’re like… Nietzschean overburritos.
Sometime this week, Chipotle’s will IPO. Demand is stong. The company just raised its price range from $15.50 to $17.50 a share to $18 to $20 a share.
The symbol is CMG.

The Hottest Market in the World
Posted by Eddy Elfenbein on January 23rd, 2006 at 2:06 pm

A few months ago, I wrote about the hottest stock market in the world. It’s in Brazil, and things haven’t slowed down. The Brazil iShares (EWZ) are up about 500% in the last three years. (Chart.)
Brazil seems to be in the sweet spot of the global economy. Speaking of sweet spot, the price of sugar has doubled in the past year which helps Brazil, the world’s largest sugar producer. The reason for the rally is that more sugar is being converted to ethanol to cope with record gasoline prices.
There was some fear that the Brazilian economy might be slowing down. In response, the Brazilian Fed just cut interest rates by 0.75% to 17.25%, which helped spur the stock market.
There’s a presidential election coming up and “Lula” looked like he was on his way out, but he’s recovered in the polls. The financial situation has improved dramatically in Brazil. The government recently said that it has enough cash-on-hand to go four months without a debt offering. I would have thought someone was joking if I had heard that five years ago.
Some major Brazilian stocks include:
Petroleo Brasileiro (PBR)
Companhia Vale do Rio Doce (RIO)
Banco Itau Holding Financeira (ITU)
Banco Bradesco (BBD)
Companhia de Bebidas Das Americas (ABV)
Telecomunicacoes de Sao Paulo (TSP)
Gerdau (GGB)
Companhia Energetica de Minas Gerais (CIG)

Black Monday
Posted by Eddy Elfenbein on January 23rd, 2006 at 11:46 am

The official announcement came. Ford said that by 2012, it will cut as many as 30,000 jobs and shut down 14 plants. The plan is expected to save $6 billion a year by 2010.
The company reported earnings of eight cents a share, two cents more than last year. For the year, Ford made $1.04 a share, down from $1.73 a share in 2004. The stock is currently trading about 8% higher.
The real number to watch at Ford is the pre-tax loss for North American operations. For the second quarter, Ford loss $907 million, and then another $1.2 billion in the third quarter. Today, Ford said that it only lost $143 million in the fourth quarter.
Excluding all the one-time charges, Ford made 26 cents a share for the quarter while Wall Street was expecting just a penny a share. The stock is currently trading about 8% higher. Bloomberg lays out some of the details Ford faces:

Employees
Ford had 122,877 employees in its North American auto operations at the end of 2004, including 35,000 salaried employees. Detroit-based GM, Ford’s bigger U.S. rival, had 173,000 U.S. employees in North America at the end of September 2005, down from 181,000 at the end of 2004. GM had 106,000 hourly and 36,000 salaried U.S. employees at the end of September.
“If Toyota and Honda weren’t in the market, Ford and GM would be in fine shape,” said Sean Egan, managing director of Egan-Jones Ratings Co. in Haverford, Pennsylvania, said today before the restructuring announcement. “We don’t see anything on the horizon that is going to substantially change the slide.”
The plan is Bill Ford’s second restructuring since becoming CEO in 2001. Toyota passed Ford, which sold 6.8 million cars and trucks worldwide last year, as the world’s No. 2 automaker in 2003. Toyota has said it expects to report 2005 sales of 8.09 million cars and trucks. Wagoner said earlier this month GM sold 9.17 million cars and trucks worldwide last year.
Overcapacity
Ford in 2005 had the capacity to build 4 million vehicles annually in North America at 16 assembly plants. Last year, the company sold 2.95 million of its North American-built Ford, Lincoln and Mercury models in the U.S.
Ford’s U.S. sales overall fell 5 percent in 2005 compared with an industrywide gain of 0.5 percent. The company was hurt by a decline in sales of profitable sport-utility vehicles. The Explorer mid-size SUV hit a 15-year sales low in November and fell 29 percent for 2005.
The company’s North American car and truck plants operated at 79 percent of capacity in 2005, according to Harbour Consulting of Troy, Michigan. That was the lowest of six automakers surveyed by the consulting company. Toyota was No. 1, with its North American plants operating at 111 percent of capacity.

The Way Forward
Posted by Eddy Elfenbein on January 23rd, 2006 at 6:03 am

Good morning. Today is Black Monday—the day that Ford Motor (F) will announce its major restructuring plan.
I know you might be a little confused and thinking, “wait, aren’t they already in a restructuring plan?” Apparently not. Or rather, we may be in a new restructuring plan. I’m having trouble keep their bold initiatives apart. Perhaps the old turnaround plan is itself being turned around. It’s hard to say. Honestly, I think everyone’s lost track.
Personally I’m rooting for “bold leadership in an ever-changing world.” When you’re dealing with these announcements, bold’s like a blue blazer, it never goes out of style. The good news is that the plan already has a name—“The Way Forward” which unfortunately sounds like a plan for the East German economy circa 1971. Forward Comrades! But given Ford’s history, this too might be an improvement.
According to reports, The Way Forward (or TWAF) will reposition Ford as “America’s Car Company”—“Red, White and Bold” and “Bold, American and Innovative.” So we got “bold” in there twice along with “innovative.” That’s a double word score for your thematic marketing efforts. Of course, the problem will leadership by sloganeering is that is tells us more about Ford’s fears than it plans. I would call Bill Ford many things, innovative is not one.
I’ll make this very simple. Ford is a company that’s designed to make X number of vehicles per year. The public wants half-X. Therein lies our problem. There are many thousands of employees who need to be…well, x-ed out. I suppose restructuring is being a bit generous. The Ottoman Empire was restructured. But Ford? They’re screwed.
I’ll give you an example. Ford makes the Explorer. It really not that bad (by Ford’s standards), but sales have plunged. Ford used to make two assembly plants worth of Explorers. They don’t need that anymore. In the immediate future, Ford is actually in slightly worse shape than General Motors (GM). As hard as that is to imagine, GM at least has some new models coming out this year. Ford is empty. Also, their newer cars, like the Fusion, aren’t selling well. Truthfully, they haven’t been marketed well.
(By the way. Fusion? Good god, who named this? Rule #1: Car names should rock. Think Mustang. Don’t think 37-minute jazz improvisations. Fusion??)
It’s astounding how quickly Ford has sunk. The New York Times recently said: “Just five years ago, the talk in Detroit was about whether Ford could eventually outsell G.M. Now the talk is about which of these two companies is worse off.” Make no mistake, GM is in far worse shape.
Ford’s problems started a few years ago when the company went Google for trucks and SUVs. So the public stopped thinking of them as a car company. Now Americans turn to Accords and Camrys for that. In the past year, gas prices went up and Ford’s stock collapsed. The company’s market share is now down to 17.4%, and it’s still dropping.
In May, the company’s credit rating was downgraded to junk. Then recently, it was cut to even lower junk. Ford has basically been blackballed from the bond market. The company’s bonds were even evicted from the Lehman Brothers Bond Index.
Incidentally, Ford is the King of Extra-Long-Term Debt. They have non-callable bonds set to come due in 2043 (12% YTM), 2047 (12.3% YTM) and 2097 (11.5% YTM). I wonder how many restructuring plans Ford will have over the next 91 years.
When Bill Ford took over, his plan was to have the company make $7 billion in 2006. That’s not going to happen. It appears that Ford will shut down 10 assembly plants and cut around 25,000 jobs. Maybe 30,000. That’s a start. I’m afraid this is a year too late. Plus, Bill Ford always seems to move in half-steps when truly bold moves are needed. I should add that there’s some big double top-secret project that we’re going to learn about. Something about a recyclable, environmentally-friendly car. Yawn.
As I said, Ford isn’t in as much trouble as GM. At least Ford is making a profit, largely due to its finance arm. I hope to see Ford sell off some divisions. They already ditched Hertz.
What does the future hold? Who knows? I think Ford will exist in some form, but it won’t be a major automaker. Perhaps it will be closer to what AT&T is today. As Ford stands now, it’s trapped. The company is under attack from all sides. Any successful plan for the future isn’t The Way Forward, it’s The Way Out.