Monday, January 29, 2007
The Not Making it Up Awards
The ritual of the quarterly earnings call is in full swing, as even the “Mad Money” denizens of Cramerica know, and it really does pay to listen in on these regular updates from corporate America.
For starters, a conference call provides a quick quarterly snapshot of a company—what’s happening, where and why.
But even beyond the dry basics of the business itself, an earnings call is a great way to assess the personality of the enterprise, which—as readers of this blog know—is frequently a direct reflection of the personality of the CEO who runs the place, for good or ill. And when you invest in a company, you'd better understand that personality or else, as they say, caveat emptor.
Now, how can a tightly scripted conference call reveal much of anything beyond a few numbers, you ask?
I'll tell you: no matter how tightly the corporate attorneys craft the CEO's introductory remarks and the CFO's recitation of the numbers, something happens when they get to the Q&A portion of the call and the conference operator tells the CEO, who is sitting in a conference room full of his or her peers with a speakerphone on the table and a couple hundred of Wall Street’s Finest and their clients on the other end of the line, “Your line is open for questions.”
I’ve heard grown men blame earnings shortfalls and business disruptions on everything from cows on the highway to an excessive number of organ transplants.
You think I’m making that up? Here are the quotes:
We actually have a truck full of important parts trucking in through -- coming in from L.A. through southern Utah, ran into a cow and tipped over the cab, and that actually, literally, has stopped the project for two weeks. But short of any more cows on the interstate, I don't see how that gets delayed.
—Patrick Byrne, Overstock.com 4/28/06
We have -- there are certain things that are beyond our control, for example the medical costs. We are reviewing them. We've got an outside company coming in to audit all the medical costs. As you know, we're pretty much self-insured and we had -- Bob Hensley can correct me on this -- I think we had like 12 organ transplants versus 3 last year. Is that right, Bob?
—Robert Wildrick, Jos. A. Bank Clothiers 6/8/06.
While the current batch of earnings calls hasn’t provided quite those levels of head-scratching or did-he-just-say-what-I-thought-he-just-said? queries from Wall Street's Finest, there have been a number of note-worthy items to “call out,” both in a positive sense and in a negative sense, as we will do here in the form of the first Not Making This Up Awards, to be handed out to anybody we deem worthy.
The Best Reprimand of Wall Street’s Finest Award:
Carl Camden, Kelly Services, Inc. - President and CEO
For the particular quarter, there has been -- we have this issue now for the last three years where the calendarization of some of the folks who follow us is just wrong. They overestimate how much earnings will pop in to the first quarter and underestimate what comes in the remainder of the year. And it's kind of spectacularly replayed itself again in the first quarter numbers this year.
The How Time Flies Award
Don Blankenship, Massey Energy (Coal)
...as we went through 2007 [sic], a lot of utilities have bought some strong volumes at large prices, as well as the met [metallurgical coal] customers, and as ’07 [sic] wound down, a lot of people were looking at lower prices and they have taken off volume.
The Why Interest Rates Are Not Going Down Any Time Soon Award
Dustan McCoy, Brunswick Corp. (Boats)
In addition, we are assuming that price increases will not fully offset inflationary pressures on our raw materials and labor costs. And while we will see the benefit of our restructuring actions, this, too, is offset by higher research and development spending and additional work on our strategic objectives.
The Most Frightening Euphemism Ben Bernanke Ever Heard Award
John Lundgren, The Stanley Works (Tools)
We got pricing in the quarter. We were pleased with what we got all-in…we are quite pleased with pricing. We’ve established pricing centers of excellence in the majority of our large businesses. We are getting quite granular on all forms of pricing, how to achieve it.
The Clearest Answer Award
Stephen Russell, Celadon (Trucking)
Chaz Jones, Morgan Keegan: And then maybe similar to the question that John asked…. The decline in utilization that we saw in the numbers, was that all purely demand driven or was there anything else in there related to whether it be drivers or mix shift or changes or any of those factors?
Stephen Russell, CEO Celadon Group: It was demand driven. There was less business from existing customers.
We’ll have more as earnings season winds down. Nominations from the floor are welcome.
I Am Not Making This Up
© 2007 Jeff Matthews
The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.
Posted by Jeff Matthews at 7:42 AM