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.



Jeff Matthews
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.


6 comments:

Chris Fischer said...

My favorite one from good 'ole Patrick was from the Q105 CC, where he blamed a weak April on taxes (since clearly collecting taxes in April is a new thing) and the Pope.

"As I said in my letter, we did start off with a very sluggish April. Now it's sort of climbing out of that. But and the same thing happened last year. And we're not sure, but it happened a bigger way this year. I don't know if it's tax day. I don't know if it's the pope. It seems when 9/11 happened, we had a terrible drop in sales for about ten days. And just based on when people -- it was like a gloom or a mood that takes over the country. I think the same thing happened starting at the beginning of April and traffic and other things really dropped."

I'd love to see a count on how many times Patrick has said Overstock has been "climbing out of a ditch" (for various reasons) in the past 2 years - it's a lot.

However, I can never remember a single instance of him say "Well yeah, we're really digging ourselves a hole with this one!"

cdub said...

From ODSY (a provider of hospice services): Part of shortfall due to "potential liability related to an automobile accident."

bgthej said...

This exchange between an analyst and the executives of Arris and Tandberg TV is quite amusing. Put it under the category of the "excuse for cashing out" award.

Analyst:
Okay. And then I guess for Eric just kind of a spin on the question about why now. Certainly I understand the sense of putting these two entities together. My question would be why the Tandberg Television shareholders would want to be leaving everything, the future opportunities on the table by taking a cash deal as opposed to looking at a stock transaction.

Dave Potts, ARRIS Group, Inc. - EVP, CFO, CIO

Well, there clearly is a stock component to this transaction, and obviously I can't speak on behalf of all of the shareholders, but I think hopefully those that are listening to the messages that we are conveying here this morning, I am cautiously optimistic that they'll think very seriously about retaining a stake in the new combined company. Because I certainly think there is an upside there.

Analyst:

Okay, but why not just go ahead and do a stock deal in the first place?

Bob Stanzione, ARRIS Group, Inc. - Chairman, CEO

Look, the shareholder bases of these two companies are so different, Tandberg being based in Norway, many of their large shareholders are in that part of Europe. There is so little overlap and so much unknown on the part of those investors in ARRIS that we jointly felt like this made the most sense. I would just say that it also added to the certainty or the surety of the transaction being able to be completed.

Eric Cooney, Tandberg Television - President, CEO

Certainly as an Oslo Stock Exchange publicly traded company, we have investors whose remit, if you will, is we can invest in Scandinavian small midcap companies etc., etc., that would just preclude them from investing in a U.S. NASDAQ traded company. So just, again, to echo Bob's comments from a surety of completion, speed of execution while still retaining a potential for those that are really interested to maintain the upside, we're trying to walk the line and create the win-win for as many as possible.

Analyst:

Okay. Although not to be overly argumentative here, but I look at your list of top 20 holders here and it looks like 90% of them are U.S. investment banks or commercial banks. So I'm not sure that necessarily washes, but anyway, appreciate your responses.

Bob Stanzione, ARRIS Group, Inc. - Chairman, CEO

I don't think that is correct. Maybe we ought to check on that later. I think that Eric Cooney's largest shareholders are Norwegian pension fund, Swedish pension fund.

Analyst:

I am just looking at the annual and it lists Goldman Sachs International, JPMorgan Chase, Morgan Stanley.


Most of those are nominee accounts. Go ahead, Jim.
Jim Bauer, ARRIS Group, Inc. - IR

We can come back with Eric and look at those offline and discuss account numbers right now.

Aaron Koral said...

"...an earnings call is a great way to assess the personality of the enterprise...And when you invest in a company, you'd better understand that personality or else, as they say, caveat emptor."


Well said, "Professor" Matthews.

Here's my nomination from the floor:

The Why Didn't The Weather Channel Warn Me Award

Dave Lesar, CEO and Chairman, Haliburton (oil and gas drilling)

"Turning to the US, we lost several workdays in December due to the blizzards in the Rockies, where a concentration of our pumping fleet resides. As access to our customers' work sites were delayed, during and after the storms, our customers focused on getting their drilling, the production sites opened up first. That delayed them opening up the sites, which were due to be frac by us. Compounding this was the fact that the weather delays came around the holidays and in some cases, our customers just shut frac work down for the balance of the year...Because of this, the affect of weather and holidays had a much larger impact on our pumping business, than it did on our drilling related businesses."

This comes from the 1-26-2007 conference call, which your readers can listen to by clicking here.

Jonathan Versen said...

hi, here's an article 4 U:

"Pay No Attention to That Crazy Man on TV:
Why you should never take Jim Cramer seriously.
"
Henry Blodget at Slate.

Don said...

The Scott Livengood Memorial Doublespeak award goes to Livengood's replacement as CEO of Krispy Kreme, Mr. Darryl Brewster. Here are a couple of comments from Mr. Brewster at yesterday's Krispy Kreme shareholder's meeting, the first to take place in over two and a half years:

"We also have promotional activities that we set up throughout the year, including -- underway right now is our annual Valentine's Day heart promotion. It's one of our most successful events of the year, created over the last couple of years and may be in fact be some of our biggest days of sales during the full year."

May be in fact?

"Our Phase I and Phase II markets alone -- there are development agreements -- call for building an additional 200 shops over the next three to five years. Now, there's no guarantee that all those shops will be built but that are the plans that we are holding our franchisees to."

No guarantee they'll built but we're holding them to it?