Thursday, April 15, 2010

Stotlar to Buffett: “Your Burlington Deal is Working Already: Stuff is Moving Again”


UPS upgraded to Overweight at Piper Jaffray; tgt $79
Piper Jaffray upgrades UPS to Overweight from Neutral and sets target price at $79 following UPS's strong upside 1Q10 pre-report. They believe the report, and operating leverage / margin implications, exhibits UPS has finally taken drastic enough past measures to improve its global network cost structure.—Briefing.com


The least helpful calls you will receive today—and there are more than the one from Piper summarized above—all pertain to a single news item: last night’s upside earnings announcement by UPS.

UPS, as long-time readers know, is one of a pair of what we here at NotMakingThisUp consider two of the most important canaries in the global economic coal mine, along with FedEx.

So what exactly did UPS say, aside from the fact that the just-finished quarter’s earnings came in 20% higher than previously expected, which has triggered so many unhelpful calls from Wall Street’s Finest this morning?

Well, for starters, UPS said international volumes “grew significantly” in the quarter (like 9% in the export side and 24% within international boundaries). And that the U.S. turned in its first year-to-year increase since 2007. Finally—and this should really be no surprise to anyone: when good things happen to a company that has been cutting costs like crazy, earnings go higher—UPS raised guidance for the year.

This last is a lesson much of corporate America has been trying to teach Wall Street’s Finest since the economic recovery began.

From a small restaurant chain serving the supposedly dead-and-buried American consumer to a giant integrated circuit company serving the supposedly dead-and-buried American businessperson, companies that cut costs as if the world was coming to an end in 2008 and 2009 are now reaping the benefits of an economic recovery.

And that recovery appears to be quickly gathering steam before the bemused and sardonic eyes of millions of scarred and scared investors, both professional and not, who got off the stock market train when it came off the tracks in 2008 and refused to get back on before it left the station in 2009.

Of course, there is one investor who not only got back on the train before it left the station: he literally bought the train.

We speak of Warren Buffett, of course, who announced his purchase of Burlington Northern last November as an “all-in wager” on the U.S. economy.

Shortly after Buffett made his move—the near-final piece of the Berkshire jigsaw puzzle, we think—your editor wrote about it in these virtual pages.

In “
Why Buffett Finished Off Burlington: It’s the Inventories, Stupid” from November 19, 2009, we described some of the dramatic cost-cutting and inventory-draining then rampant in Corporate America, then offered the conclusion that Buffett was going to be proved right fairly quickly.

And if the recent news from UPS, and CSK, and Intel, and California Pizza Kitchen, and Con-way are any indication, Buffett’s already right.

What exactly is the recent news from Con-way?” sharp-eyed readers may be asking themselves, since that company doesn’t report earnings for another two weeks.

Well, Douglas Stotlar, the CEO of the giant trucker, told Bloomberg news yesterday his company “is turning down as many as 145 load orders because of capacity constraints.”

“A year ago, we were looking at downsizing the workforce and cost control,” Stotlar said in an interview. “Now the issues are how do you take advantage of an economy that appears to be rebounding, how do you take advantage of the surge in demand.”

Con-Way’s truckload volumes were up 30 percent in January and February from the same months in 2009, Stotlar said. The company is also seeing growth in its partial truckload business, where shipments from more than one customer are moved in one truck.

“It appears to be across both retail” and manufacturing, Stotlar said. “We are seeing multiple touch points that are verifying to us that the economy is definitely recovering."
—Bloomberg News, April 14, 2010

No, Douglas Stotlar didn’t actually tell Warren Buffett “Your Burlington deal is working already: stuff is moving again,” as we titled this piece.

But he doesn’t have to: Buffett already knows it.


After all, he owns a railroad.



Jeff Matthews
I Am Not Making This Up


© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: 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 investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

3 comments:

american bandersnatch said...

"investors .. got off the stock market train .. in 2008 and refused to get back on .. in 2009"

I can still never quite grasp why the average person will not learn the two basic rules that investors that dabble in the stockmarket should know. 1. Don't put in money that you think you will need in the next couple of years and 2. Don't try to time the market.


John Bogle must weep everytime he sees the financial damage done to everyday people who should know better.

Craig said...

Speaking of Buffett, did you ever conclude that series on the special shareholder meeting?

Jeff Matthews said...

Craig, thanks for asking. Not yet. It's coming. Hopefully before the next meeting!

JM