Friday, February 02, 2007

The Not Making It Up Awards, Part II


—Eric Schmidt, Google CEO, earnings call

Earnings season is winding down, and even Google has proved itself mortal—or at least subject to the same law of large numbers that causes all things, eventually, to regress to the mean.

The Mountain View boys' U.S. revenue growth rose 53%, a number Microsoft would kill for but which is nothing like the 80% growth in 2005. In fact, Google’s U.S. revenue accelerated during the first three quarters of 2005, but has decelerated every 90 days since.

It was up to non-U.S. countries to carry the ball, which they did with 90%-type growth, but the rising cost of doing business online and Google’s own spend-for-growth mentality—which has paid off in spades since the IPO—caused a slight but notable company-wide margin contraction.

Overall, Wall Street’s Finest “reiterated” their positive ratings on Google, which in these post-Enron days of extreme skittishness may take the form of “Buy” or “Outperform” or “Overweight” or “Legally We Do Not Want to Be Held Liable if You Lose Money But We Do Believe the Stock May Be Appropriate For Certain Accounts Assuming You Are Not a Moron But Before You Invest Please See the Attached Sixteen Pages of Legal Disclaimers.”

Google’s conference call did not, alas, generate the kind of fawning from Wall Street’s Finest that makes for good copy here, although CEO Eric Schmidt did do his usual impersonation of a kindergarten teacher at Parent’s Night, both congratulating his class on their work and expressing his great satisfaction to his listening audience, repeatedly, to the point where you want to either break something or vomit, or both.

In fact, Schmidt gets our first award of this second installment of The Not Making It Up Awards:

The Most Use of “Very” as an Adverb in One Sentence Award

Eric Schmidt, Google Inc. - CEO

Thanks very much, Kim. Business continues to be very, very good here at Google, and we are very happy to present another very strong performance from the Company.

And that was just the first sentence. In fact, he used it 11 times in his opening remarks and 43 times during the entire call.

I am not making that up.

Here are the other awards we deem worthy of either Wall Street’s Finest or the Captains of American Industry, in no particular order:

The Why They Call Us a Cyclical Award

Bill Foote, USG Corporation - Chairman, CEO

Each downturn is unique, and a distinctive feature of the downturn that began in 2006 has been the speed with which adjustments have been made by both homebuilders and drywall dealers to keep inventories under control. For us, that has meant a rapid contraction in wallboard demand.Let me illustrate. Industry wallboard shipments were up 6% in the first six months of 2006 year-to-year. They were down 17% in the last six months year-to-year. Up 6 in the front, first half; down 17 in the second half.

The Worst Reason for Not Answering A Simple Question Award

Antonio Perez, Eastman Kodak Company - Chairman, CEO

Analyst: And would it be possible to give us some sense of what you think investable cash flow or what you now call net cash generation will be in '07?

Perez: For the year -- on the 8th, again, we'll talk to that. We won't have the time -- if I give you a number now, I won't have the time to explain why we reached that number. The -- and why we have the -- the two, three hour meeting on the 8th. We'll do a much better job at that time.

Analyst: Okay. Okay, I tried. Thank you.

The Bob Nardelli Lives! Award

Mark Ketchum, Newell Rubbermaid Inc. - President, CEO

In 2006, we also announced the building of a new headquarters building in Atlanta, which will bring together several of our business units and functions, further supporting our cultural transformation. At the new Newell Rubbermaid, we want to foster a Company culture that embraces consumer centric innovation and branding, collaboration and team work, training and development, diversity in all its forms, and best-in-class performance.

The More “Cute Stories About Inflation” Award

Mike Mangan, Black & Decker Corporation – CFO

During the fourth quarter, we had about $39 million in incremental commodity inflation. So for the year, that resulted in 2006 with a number of $95 million. As we look to 2007, we are expecting about $120 million of incremental inflation, weighted a little more towards the first half.

The Eddie Haskell Lives! Analyst Award

Eric Katzman, Deutsche Bank - Analyst

Katzman: Good morning, everybody.

David Mackay, Kellogg Co. - President, CEO Good morning.

Eric Katzman: Congratulations on your new titles.

David Mackay: Thank you.

The Most Bizarre Impersonation of a Low-Cost Airline Award

David Neeleman, JetBlue Airways - CEO

First of all…our primary goal is to institutionalize low cost carrier spending habits. We are really, really focused on not only keeping low cost but even driving our cost even lower through improved productivity and through automation. And we think that we have some room to go on our cost initiatives, and John'll -- like I said, will give you a lot more detail on that.

The Most Refreshingly Candid CEO Award

Reuben Mark, Colgate-Palmolive - Chairman, CEO

Let me back up for a moment. Well, we'll wait until the next question. I assume somebody else will ask about margin because I have some interesting things, I think, to say about gross profit.

Why did I screw that up? Who knows? Okay. Anyway, sorry. Go on.

To be continued. Nominations from the floor are welcomed.

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.


tobias said...

Jeff, I love your work here and have been reading your blog for a while, but I am not sure what you are getting at here regarding Neeleman's comments. He basically says, JetBlue is a low-cost airline, and we think we can push the envelope toward even lower costs. What's so bizarre about that?

Its_strange said...

To be fiar i think we should wait until the OSTK call. I believe its Monday

Jeff Matthews said...

Tobias: Neeleman starts by saying their "primary goal" is to "institutionalize low cost carrier spending habits"--as if they don't already have them.

I thought their primary goal would be to take over the world with their low cost, no frills, one-plane type (now two), fast-turnaround, great service business model.

But, no, it seems to be to cut costs.

That "return to our roots" speech sounded more like a Delta guy talking than JetBlue guy, which is why I thought it was bizarre.

And has anybody else noticed a subtle but definite deteroration in JetBlue service and standards?

Aaron Koral said...

"…but the rising cost of doing business online…caused a slight but notable company-wide margin contraction."

I thought an interesting item on the Google conference call was when George Reyes discussed an anticipated increase in costs of revenue “…due to rising depreciation expense and credit card fees associated with both AdWords and Checkout.” If traffic acquisition costs increase while revenue growth rates revert to industry median (mean?) rates, I wonder what impact, if any, this will have on GOOG’s future operating margins? I could be wrong in my analysis, though.

Here’s my second nomination from the floor:

The Didn’t I Answer This Question Last Quarter? Award

John Boushy, CEO & President, Ameristar Casinos

Analyst: [H]ow about the new proposed competition? Any feel for whether it's really going to happen or not?

Boushy: I think we have been asked this question every quarter for about six quarters and it still hasn't happened. So my crystal ball is too clouded to give you a reasonable answer. I mean, the money is out there and they would certainly (inaudible) exit points is that again, our dominance, I am not sure what our competitors are going to do in the market.

Readers can read a transcript of the 2-1-2007 conference call on Seeking Alpha by clicking here.

On a lighter note, I’d love to hear an analyst ask the following question on a conference call:

Analyst: So, uh, (insert CEO name here), can you give me some guidance on what you’ll be having for lunch today? Would that be a cobb salad with Diet Coke or sushi and sake? And, just to follow-up, can you tell me how I should think about your eating habits? I mean, are you a nibbler, a grazer, or do you just go hog-wild when you eat your lunch? Thanks much!

ghdat said...

At Least Mr Schmidt continues to use the adjective/adverb "very" if a little too frequently.
Here in Kentucky we have outawed very and replaced it with real as in
"Business continues to be real,real good here at Google, and we are real happy to present another real strong performance from the Company."

ITTIS said...

I think this comment from CEO William Lauder should go to the "Managing a Company's Volatility Award"

Analyst: "Thanks. First, you talked a little bit about how you manage the business from year to year. My question is why give quarterly guidance, especially when it’s going to vary so much quarter to quarter?"

William Lauder: "Boy, you asked a wonderful question. I don’t know if you’re asking anybody who’s an expert. You all are more expert than us.

We, if you may recall, we were giving quarterly guidance from 1995 when we went public. A number of years ago, based on expert advice from the financial community, we went to giving half-yearly guidance, which meant effectively, we were giving actually no guidance only on the first and third quarters and guiding the second and the fourth quarters. That didn’t seem to make sense, so we started going to annual guidance.

Well, in the process of going to annual guidance, one of the things we found was the volatility in the trading of our stock, as well as, more importantly, the volatility and the accuracy of the financial community who was covering us and their ability to properly forecast in the First Call number, started becoming a little difficult for everyone to manage.

Now, obviously you know better the politics and what goes on about how First Call or other institutions roll up your estimates and then sort of put out a press release, essentially because it’s somewhat difficult for the outside community to model our business on the units, quarters, in which you measure, it became increasingly difficult for your community to do so, which increased the spread of your projections, which decreased the accuracy, which increased the liability in any given time that we may or may not actually perform to your expectations versus our expectations.

This is a long way of saying it’s difficult for you to read our business enough to be able to accurately project, and since the world measures us not on what we think we’re going to do when we say we did it, instead measures on what you think we’re going to do versus what we do, we felt that to reduce our volatility, it might be better for us to give you the guidance that we think we’re doing.

I don’t know if that made sense, but it makes sense to us."

Sam Antar said...

Most interesting comment award: Conference Call 02/05/07:

Jason C. Lindsey (President, Chief Operating Officer, Director):

"We took all that to heart in the fourth quarter and although the fourth quarter results are very bad, and I admit they are very bad, they were bad on purpose."

Submitted by:

Sam E. Antar (former Crazy Eddie CFO & convicted felon)

PS: Jeff, I am not making this up. Read the transcript.

todd shriber said...

amen on JetBlue, Jeff. I'd be worried if I was a shareholder. And the service ain't what it was even two years ago. Thanks for the post - Todd Shriber