Month: November 2007

With competitors AT&T (T) and Verizon (VZ) adding 1.6 and 2 million subscribers each the last quarter, Sprint (S) need to do something big, fast.

Sprint released results Thursday and true to the pre-announcement and consistent with results the last two years, they lost more subscribers in the last quarter seeing 337,000 of them flee. These defections caused earnings to fall 77% from last year. Paul Saleh, the company’s current CFO and acting CEO said he expected the company would still “struggle with subscriber additions” (translation: more losses) during the fourth quarter but the company was increasing its customer service operations, marketing and internal incentives to keep more customers from dropping their service.

Back in September I said that “they have yet to stop the exodus of customers to other providers. It is not the network issue(s) making them do it, it is the treatment they get when they call Sprint that is making them flee. Sprint’s firing of customers was a PR fiasco and likely gave more than a few potential customers serious pause about joining Sprint. There are plenty of providers out there for people to choose from, having an adversarial relationship with them is not the way to grow.”

I concluded dating “Until that issue is fixed, any upside and real improvement for Sprint will be put off indefinitely.”

The fact that sprint has finally realized this is a huge deal but, and the this is a huge but, the damage they have done the post two years cannot be fixed in a quarter or two of playing nice. They need something big.

Enter the Gphone. Reports are Sprint is pushing hard to be the first provider of the device. It is really the only thing that can propel shares anywhere in the next 6 months to a year for shareholders. The debut of the phone, most likely available in several models and price rages will be an instant hit and turn Sprint’s fortunes around. It would be shocked if Google (GOOG) locked it up with one provider like Apple (AAPL) did with the iPhone for 5 years but I would assume a short one. Sprint needs to be #1 in this race.

If they do get it, then shares may be a buy assuming they can fix the customer service issue that currently are crippling the company. Even a great new product that people want will not save you if they can eventually get it somewhere else after you make them hate you.

This does bear close watching though..

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Bloggysyle, Cable TV in apartments, A Big Thank you

– Apparently I was a week behind. Nothing like a backhair costume to get your appetite suppressed.

– Finally for those of you living in apartments. You may now choose you cable TV provider.

– Jane Genova, a blogging inspiration.

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None of this is really a surprise and while it may be unpleasant now, the long term business fundamentals for Owens Corning (OC) actually improved during the quarter.

Q3:

– The company repurchased no shares and still has 5% remaining under the authorization.
– Earnings before interest and taxes (EBIT) from continuing operations in the third quarter of 2007 were $83 million, compared with $145 million during the same period of 2006
– For the first nine months, EBIT from continuing operations was $191 million, compared with $408 million for the same period of 2006. Excluding comparability items, adjusted EBIT from continuing operations for the first nine months of 2007 was $259 million, compared with $392 million during the same period in 2006.
– Gross margin as a percentage of consolidated net sales was 16.3 percent during the third quarter, compared with 19.3 percent during the same period of 2006.

So, what has happens that have improved the long term outlook?

Owens completed the acquisition of Saint-Gobain’s Reinforcements and Composite Fabrics businesses for $640 million following approval by regulatory authorities in Europe and the United States. The acquisition accelerates Owens Corning’s global growth strategy and strengthens its position as a market leader in glass reinforcements and composites. With the completion they announced they intend to expand their glass reinforcements and composite fabrics production capabilities beginning in 2008 to support market growth in Asia and Eastern Europe, and specifically in the developing and emerging countries of China and Russia which is growing 5%-7% worldwide and even faster in developing countries.

“Our composites business delivered a strong quarter,” said Dave Brown, president and chief executive officer. “The weakness in new residential construction continued to have a significant impact on the overall performance of our company. We’ve acted decisively to make our company more global and lessen our exposure to the cyclical nature of the U.S. housing market.”

“The second half of 2007 will be remembered as one of strategic accomplishment,” said Mike Thaman, chairman and CEO-Elect. “Our acquisition of Saint-Gobain’s Reinforcements and Composite Fabrics businesses and the divestiture of the siding and Fabwel businesses bring important balance to our company’s global revenue sources. We have seen progress in the operating performance of our building materials businesses as the markets have continued to weaken. We have taken actions that position our capacity and cost structure for a weaker market in 2008.”

“Yesterday’s acquisition of Saint-Gobain’s Reinforcements and Composite Fabrics businesses accelerates our global growth in both developed and emerging markets,” said Thaman. “This extends our reach to commercial and industrial glass fiber markets that are growing at twice the rate of global GDP. It also allows our customers to benefit from an expanded product range, world-class technology, and improved logistics and supply capability, while enhancing shareholder value through the addition of a business that is expected to generate EBITDA in excess of $100 million in 2007, not including the costs associated with the leasing of metals.”

As a previously stated goal, in Q3 Owens Corning completed the sale of its Siding Solutions business to Saint-Gobain for approximately $368 million of net proceeds as previously announced on July 17, 2007. The sale included the company’s Norandex/Reynolds distribution business with 153 U.S. distribution centers in 38 states and three vinyl siding manufacturing facilities.

Owens is quickly diversifying itself away from the US housing market into a rapidly growing international business, composites. This segment in Q3 grew sales by 12.5% and EBIT by 20%. Owens Corning, after this move has seen it business composition go from 70% US residential to 50% US and now 50% international.

Long term the composites will be a huge winner for Owens, now a world leader in this category.

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Meredith A. Whitney of CIBC World Markets, said Wednesday night that Citigroup (C) “might” be forced to cut its dividend or sell assets to head off what she said was a $30 billion capital shortfall. It won’t happen anytime soon.

Citi currently pay a $2.16 annual dividend on almost 5 billion shares. Want to assure its safety? Stop the acquisition spending that has totaled $26 billion since the spring of 2006. Citi recently agreed to buy the rest of Japan’s Nikko and today announced they are buying hedge fund Carlton Hill. Moves like this illustrate one of two things, they are running out of cash and are complete morons for continuing to spend it (not likely) or their currently liquidity is sufficient to accomplish both (more likely). Let’s not forget, Citi will still earn $20 billion next year, plenty sufficient to pay the dividend.

If Citi is forced to cut the dividend CEO Chuck Prince might as well just stay home. Both the board, large shareholders like Prince Alweed that have backed him and Prince himself fully recognize this.

The possibility of a cut is primarily based on the assumption of further right-downs in the CDO market in Q4. Prince is on record publicly saying that “Q4 is looking much better that Q3”.

If Citi cuts it dividend the pain will be felt across the financial sector. It just is not going to happen. The entire financial sector is getting crushed today with Bank of America (BAC), Goldman Sachs (GS), Wachovia (WB), Merrill Lynch (MER) and Lehman (LEH) all falling in excess of 3% in early trading.

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It would appear that Sprint (S) and Verizon (VZ) are bidding for rights to the upcoming Gphone.

In the next two weeks, Google (GOOG) is expected to announce new software and services that handset makers could use to build customized Google-powered phones. In order to get its mobile devices in front of consumers by the middle of next year the company needs wireless operators to sign on relatively soon.

I have repeatedly said that Google would be more concerned with the reach of their product than the profit per piece and early indications are that may well come to bear. The Wall St. Journal reported Wednesday, “A Google technology partnership might let the carriers offer cheaper phones, because Google’s licensing fees for its software and operating system would likely be less than the industry standard. The phones also would be open to third-party application development, potentially spurring development of new features.”

There is some speculation that Google will “pick a carrier” like Apple (AAPL) did with its iPhone launch and AT&T (T). I doubt it. Google is about reach and openness and turning the operating system over to a sole provider accomplishes neither. Now, that does not mean that the initial announcement will be with one provider but it will not have the 5 year exclusive lockup the iPhone has. To do so would be counter to everything Google has stood for up until this point.

Sprint is the most likely first provider because they are already working with Google on software for devices that will run on its new high-speed WiMAX network. That and the fact that they are desperate for something to jump start consistently declining subscriber growth. They will be the most amenable to anything Google wants.

My guess is Google is attempting to make your cell phone a 100% customizable entity. Good. For too long cell phones have been held hostage by the makers of them and what they decide to let us do with them. Google will break this model.

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“Black Friday” is coming a bit earlier that usual this year.

Wal-Mart (WMT) announced today “Wal-Mart will offer black-Friday prices three weeks early when the retailer unveils secret in-store specials: extraordinary prices on five of the most sought after gifts this season. Understanding that more and more consumers are using the internet to comparison shop, Wal-Mart plans to reveal online a round of unbeatable savings on Thursday. The items will be available in stores beginning Friday morning, November 2 as the merchant officially opens special Christmas shops.” Consumers can find out what the deals are on Thursday by going to walmart.com/secret.

The special items are available for purchase only in Wal-Mart stores beginning this Friday. They will also use their Web site to let shoppers check on the local availability of 1,000 electronics items.

Wal-Mart has the jump start on the holiday season on competitors like Target(TGT), JC Penny (JCP) and others. Sales like this require huge inventory investments and there is no way to play catch up once you are behind and Wal-Mart has catapulted itself ahead of the entire retailing industry with this move.

This would seem to be the reasoning behind the upwards earnings revision Wal-Mart gave earlier in the month and Lee Scott’s expressed “excitment” over this Holiday Season, he knew he had the jump on the competition.

Good for shareholders…

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UPGRADES
Hub Group HUBG Stifel Nicolaus Hold » Buy
Equinix EQIX Kaufman Bros Hold » Buy
Equinix EQIX CIBC Wrld Mkts Sector Perform » Sector Outperform
LECG Corp XPRT William Blair Underperform » Mkt Perform
Tenneco TEN Wachovia Mkt Perform » Outperform
Novavax NVAX Oppenheimer Neutral » Buy
Energizer ENR Bear Stearns Underperform » Peer Perform
Ritchie Bros. RBA RBC Capital Mkts Sector Perform » Outperform
Franklin Bank Corp FBTX JP Morgan Underweight » Neutral
Sunpower SPWR RBC Capital Mkts Sector Perform » Outperform
McKesson MCK Citigroup Hold » Buy
TAM S.A. TAM Citigroup Hold » Buy
Teva Pharm TEVA Friedman Billings Mkt Perform » Outperform
Post Properties PPS KeyBanc Capital Mkts Underweight » Hold

DOWNGRADES
Lexicon Pharma LXRX RBC Capital Mkts Outperform » Sector Perform
Maxwell Tech MXWL Needham & Co Buy » Hold
AMEDISYS AMED Stifel Nicolaus Buy » Hold
Yamana Gold AUY UBS Buy » Neutral
Pinnacle West PNW JP Morgan Neutral » Underweight
Pacer Intl PACR KeyBanc Capital Mkts Buy » Hold
Blue Coat BCSI Roth Capital Buy » Hold
Estee Lauder EL UBS Neutral » Sell
LCA Vision LCAV Oppenheimer Buy » Neutral
SumTotal SUMT JMP Securities Strong Buy » Mkt Outperform
Maxwell Tech MXWL JMP Securities Mkt Perform » Mkt Underperform
Shutterfly SFLY Jefferies & Co Buy » Hold
LodgeNet LNET Bear Stearns Outperform » Peer Perform
CF Industries CF Banc of America Sec Buy » Neutral
GPC Biotech GPCB Deutsche Securities Hold » Sell
Qwest Q JP Morgan Overweight » Neutral
Beckman Coulter BEC RBC Capital Mkts Outperform » Sector Perform
LDK Solar LDK Piper Jaffray Outperform » Market Perform
Vital Images VTAL CIBC Wrld Mkts Sector Outperform » Sector Perform
Qwest Q CIBC Wrld Mkts Sector Outperform » Sector Perform
Las Vegas Sands LVS Lehman Brothers Overweight » Equal-weight
Pacer Intl PACR JP Morgan Overweight » Neutral
Akamai Tech AKAM Deutsche Securities Buy » Hold
Bemis BMS Deutsche Securities Buy » Hold

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