Here they are, #1, and then #2, and finally this one.
On Wednesday. Sears’ (SHLD) Chairman added another 105K shares at $102 to $104 a share of the auto part retailer AutoZone (AZO).
Disclosure (“none” means no position):Long SHLD, none
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A hedge fund manager who made 866% last year betting against real estate goes out with a bang….
The letter from Andrew Lahde of Lahde Capital.
Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.
Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.
There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are.
I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.
So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.
I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life — where I had to compete for spaces in universities and graduate schools, jobs and assets under management — with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.
On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.
Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant — marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other additive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.
With that I say good-bye and good luck.
All the best,
Andrew Lahde
Some Friday levity…
John McCain
Pt. 1
Pt. 2
Barack Obama
Disclosure (“none” means no position):
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Berkshire’s (BRK.A) Warren Buffett penned the following Op-Ed in today’s NY Times.
From The NY Times
“THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
So … I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
Why?
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”
I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.”
Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.
Interestingly enough, the last time Buffett opined about the general market was 1999 when he said they were over priced (soon after the tech bubble popped). Before that one has to go back to 1974 and a Forbes Op-Ed he did in which he said the market, like today was vastly undervalued. Ironically enough, that market bottomed soon after and the Dow never again touched those levels….
Buffett’s final words in 1974: “Now is the time to invest and get rich.”
Anyone who invested with Buffett and Berkshire in 1974 surely did….many times over.
Here is the 1974 Forbes Interview
Disclosure (“none” means no position):None
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Brawl, Festival, Gphone, Margin, Twitter, Late Bloomers
– If anyone has video of this, pleas email it to me…it would be hysterical
– The latest Festival of Stocks
– I will look at this phone..
– Makes sense…but millions of folks did it
– For those who do not Twitter, you are missing some very informative material
It is only a matter of time before he has 50%.
After adding 165k shares earlier this week, Lampert added another 177k on the 14th at $106 a share.
Disclosure (“none” means no position):Long SHLD, none
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Altria’s (MO) purchase of UST (UST) has passed regulatory review.
Altria today announced that the Federal Trade Commission has granted early termination of the initial waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and therefore no further regulatory review by the federal antitrust authorities is required in connection with Altria’s acquisition of UST for $69.50 per share in cash.
Completion of the transaction remains subject to UST shareholder approval and certain other customary closing conditions. UST is in the process of scheduling a special shareholder meeting for on or about December 4, 2008, during which UST’s shareholders of record as of the close of business on October 23, 2008 will vote upon the proposed transaction. Details of the shareholder meeting will be contained in the proxy statement which UST expects to mail during the week of October 27th. If approved and all other conditions to closing are satisfied, the transaction is anticipated to close no later than January 7, 2009.
for those who have not noticed, buying Altria shares now will give you a 6.7% (and growing) yield on your invested money. Earnings, about as stable as they come will grow 10% plus through product sales and share repurchases.
No matter what the economy, folks are still lighting up and chewing.
Disclosure (“none” means no position):Long MO
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National City Bank (NCC) CEO Peter Raskind said Wednesday that it’s “simply too soon to say” if the bank will avail itself of government assistance — and if it did, what the impact of that help would be.
“We’re closely studying the potential implications, you bet we are,” Mr. Raskind said. “We’re deeply engaged in that process, that analysis. We’re going to take a little more time than that.”
Mr. Raskind spoke to a crowd of nearly 200 people at a weekly lunch for chartered financial analysts sponsored by the CFA Society of Cleveland. Organizers said the meetings usually attract about 70 people and that Mr. Raskind’s talk was the best-attended event the group has held.
It continued:
In his speech, Mr. Raskind also addressed rumors that the bank will be sold by saying that while he would not comment about speculation, he is “quite optimistic” about the future of the company.
National City has been steadily reducing its exposure to products sold through brokers and Mr. Raskind said “significant changes” to the bank’s businesses and leadership teams give him reason to be confident.
Still, he said, National City’s board of trustees understands its responsibility to shareholders and would seriously consider selling the bank if that was in shareholders’ best interest. The board considered selling National City in March but decided that the capital infusion was the better choice. Mr. Raskind said that decision has turned out “quite clearly” to be the case.
I bought NCC shares at the beginning of the month for $2 (read why here). The reasoning behind the buy still hold.
Buyout talk. There is something there. Now that Wells Fargo has Wachovia (WB), Citigroup (C) which needs to expand its capital base has no dancing partner. They remain the most likely candidate as JP Morgan (JPM) and Bank of America (BAC) busy digesting recent acquisitions.
What is it doesn’t happen? I still think shares are worth $6 short term and much more long term. I also think that perhaps the reason a buyout has not happened is because NCC is not in the same position both Wachovia and Washington Mutual (WM) were. Because of that, the bargain basement price buyers of those institutions got will not be had for NCC. It may be something a potential buyer has to get over.
NCC is the “best of what’s left” as far as takeover candidates. If it happens or it doesn’t, shareholders (recent ones) will do just fine.
Disclosure (“none” means no position):Long NCC, WFC, C, none
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There are some real dichotomies out there when it comes to Wells Fargo (WFC).
Here is a WSJ Article on it
So why isn’t the San Francisco-based lender doing more to beef up its cushion against loan losses as the country slips into a recession?
As investors sift through banks’ third-quarter numbers, they will be focusing on the strength of their loan-loss reserves, which exist to absorb losses from defaulted loans. Wells allowed a key measure of reserve strength to drop considerably.
If it had held that measure at its second-quarter level, Wells’s third-quarter earnings would have been half the 49 cents per share it reported Wednesday. At a time when bad loans are expected to continue rising, it makes sense to compare a bank’s loan-loss reserve with past-due loans.
Many of those won’t return to health and will lead to a loss.
In the third quarter, Wells’s $7.87 billion reserve was 1.57 times as big as its $5 billion in past-due loans. That’s down from 1.81 times in the second quarter. Maintaining that ratio at 1.81 times in the third quarter would have taken an extra $1.18 billion out of earnings.
After tax, that would work out to 24 cents a share.
Wells’s defenders might argue that some loan portfolios are not deteriorating as fast as they had been, allowing the bank to ease up a bit on this reserve measure. But that’s a bold step in a faltering economy.
Even after getting $25 billion under the government’s financial-rescue plan, Wells still wants to raise another $20 billion of capital on its own to support its planned purchase of Wachovia (WB).
Here is CFO Howard Atkins on the results and Wells capital situation:
So, who to listen to? I am not overly concerned about this an don’t see it a the big deal some are trying to make it out to be. The tone is that Wells is doing something sneaky in its reserves. I think to many folks are trying to be Perry Mason.
Wells is saying that it has taken the most of the losses on the worst of the loans and that while loan losses will continue to grow as the economy worsens, the size of those losses will not significantly grow. The home equity portfolio, where most of the losses are has portions being liquidated and Atkins did say that liquidation is “going orderly”
Now, Atkins did say that the Wachovia deal will “double the size of the bank” and that they “didn’t need the $25 billion from the gov’t”.
So, in August Berkkshire’s (BRK.A) Warren Buffett, Wells largest shareholder he was either buying shares in Wells or American Express (AXP). At the time I speculated it was Wells (still feel that way) and soon enough we will find out. Wells Chairman at first refused the TARP money from Treasury until Hank Paulson force fed it to him.
What can we discern from that? One of three things. Management is either:
1- Spectacularly stupid
2- Slyly dishonest
3- On top of the situation.
We can eliminate #1 as it is clear Wells Fargo and JP Morgan (JPM) are the class of the industry. Buffett has little patience for #2 and unless he believed management was being totally upfront, he would not have even alluded to increasing his stake in the company.
That leaves #3. Based on results for the past two decades, until proven different, I got to go with that…
Disclosure (“none” means no position):Long WFC, none
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Sherwin Williams (SHW) beat “analyst” expectations by 23 cents a share or 18%.
– Sales increased 3.3% to a record $2.269 billion in 3Q08 and 2.1% to a record $6.280 billion in first nine months
– EPS was $1.50 in 3Q08; $.05 above the 3Q08 guidance range of $1.20 to $1.45
– Net operating cash in the first nine months was $592.6 million; an improvement of $28.8 million over the first nine months last year
– EPS guidance range of $.40 to $.60 for 4Q08 and raising full year guidance range to $3.97 to $4.17
All segments experienced sales increases:
* Net sales in the Paint Stores Group increased $9.5 million, or 0.7%, to $1.410 billion in the quarter and decreased $20.6 million, or 0.5%, to $3.797 billion in the first nine months. The sales increase in the quarter was due primarily to increased sales from acquisitions of 1.5% and selling price increases that were partly offset by sales volume reduction
* Net sales of the Consumer Group increased $6.2 million, or 1.8%, to $355.7 million in the quarter and decreased $20.8 million, or 2.0%, to $1.026 billion in the first nine months. The sales increase in the quarter was due primarily to selling price increases and an increase in sales of 0.4% related to a 2007 acquisition.
* The Global Finishes Group’s net sales stated in U.S. dollars increased $55.8 million, or 12.5%, to $500.8 million in the quarter and $170.1 million, or 13.3%, to $1.452 billion in the first nine months due primarily to volume gains, selling price increases, favorable currency translation rate changes and acquisitions.
The Company acquired 793,135 shares of its common stock through open market purchases during the quarter and 7.0 million shares during the first nine months. The Company had remaining authorization at September 30, 2008 to purchase 20.0 million shares.
CEO Christopher Connor said, “During the fourth quarter of 2008, we anticipate consolidated net sales growth, in percentage terms, will be plus or minus in the low single digits from last year’s fourth quarter. We expect diluted net income per common share for the fourth quarter will be in the range of $.40 to $.60 per share compared to $.80 per share last year. For the full year 2008, we anticipate consolidated net sales will be slightly higher than 2007. At that sales level, we are raising our expectations for diluted net income per common share for full year 2008 to a range of $3.97 to $4.17 per share compared to $4.70 per share earned in 2007.”
Would I be a buyer of Sherwin shares here? No. Not because they are not a great company or their shares are not undervalued, it is just that I think there are some extreme values out there currently and Sherwin is not an extreme value. The dividend yield at 2.8% is good, but again, far below the 7% at Dow Chemical (DOW), 6% at GE (GE) and 5.8% at Harley Davidson (HOG). Now, should share dip into the mid 40’s ($45) then I would have to take a close look.
Also, despite the title of the post, Sherwin is tied to housing and that is not going anywhere but flat or down for at least a year, maybe more. That being said, Sherwin’s results will remain stable due to fantastic management and it’s brilliantly timed international expansion so the downside from here is limited. Should shares be sitting here at these levels 6 months to a year from now, perhaps they then warrant a buy.
There are just to many truly magnificent bargains out there now…
Disclosure (“none” means no position):Long SHW, DOW, HOG, GE
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We had clues yesterday this might be the case..
On average, analysts were expecting Harley Davidson (HOG) to record a 79 cents per share on revenue of $1.42 billion. HOG had exceeded analysts’ profit estimates in three of the last four quarters.
Shipments are down are credit has further tightened.
Today Harley Davidson confirmed the news:
Milwaukee, Wis., October 16, 2008 — Harley-Davidson, Inc. (NYSE: HOG) today announced its results for the third quarter ended September 28, 2008. Revenue for the quarter was $1.42 billion compared to $1.54 billion in the year ago quarter, a 7.7 percent decrease. Net income for the quarter was $166.5 million compared to $265.0 million in the third quarter 2007, a decrease of 37.1 percent. Third quarter diluted earnings per share were $0.71, a 33.6 percent decrease compared to last year’s $1.07.
“In the U.S., dealer retail sales of new Harley-Davidson motorcycles in the quarter were in line with our expectations,” said Jim Ziemer, Chief Executive Officer of Harley-Davidson, Inc. “Although Harley-Davidson retail motorcycle sales in international markets overall continued to grow double digits in the quarter, unit sales in several European countries slowed more than we anticipated during September as a result of deteriorating economic conditions. We continue to carefully monitor all markets in light of the potential impact of the current economic realities.”
For the full year 2008, the Company has narrowed its shipment expectations to 303,500 to 306,000 Harley-Davidson motorcycles. The Company has narrowed its expectations for diluted earnings per share for the full year to $3.00 to $3.10 from the prior range of $3.00 to $3.18.
“We also have been able to maintain Harley-Davidson Financial Services’ position as a stable, consistent source of financing for dealers and retail customers during these turbulent conditions in the credit markets,” Ziemer said. “Prudent management and customer access to credit will continue to be priorities at HDFS.”
“During the third quarter, we completed our acquisition of Italian motorcycle maker MV Agusta Group, expanding our opportunities in Europe. Our 105th Anniversary Celebration at the end of August drew tremendous, highly enthusiastic crowds. And we opened the Harley-Davidson MuseumTM, with its broad appeal to riders and non-riders alike. So even in the midst of economic uncertainty, we continue to broaden our appeal, plant seeds for the future and give people unparalleled experiences and reasons to ride,” Ziemer said.
“Going forward, we expect the global economy and consumer concerns to continue to create challenges for Harley-Davidson through the end of the year and in 2009. I remain confident about our future as we continue to manage and reinvest in the business,” said Ziemer.
Motorcycles and Related Products Segment – Third Quarter Results
Revenue from Harley-Davidson motorcycles was $1.05 billion, a decrease of $131.7 million or 11.1 percent versus the same period last year. Shipments of Harley-Davidson motorcycles totaled 74,704 units, a decrease of 11,831 units or 13.7 percent compared to last year’s third quarter.
Revenue from Parts and Accessories (P&A), which consists of Genuine Motor Parts and Genuine Motor Accessories, totaled $259.0 million, an increase of $7.5 million or 3.0 percent over the year-ago quarter. Revenue from General Merchandise, which consists of MotorClothes® apparel and collectibles, totaled $84.0 million, an increase of $0.8 million or 1.0 percent over the year-ago quarter.
Gross margin for the third quarter of 2008 was 34.0 percent of revenue compared to 38.4 percent for the third quarter last year. This decrease is primarily due to higher product costs and the allocation of fixed costs over fewer units than last year’s third quarter. Third quarter operating margin decreased to 16.4 percent from 23.2 percent in the third quarter of 2007. Operating margin for the third quarter of 2008 includes the impact of a one-time $16.6 million expense related to the value of acquired in-process research and development at MV Agusta Group.
Motorcycle Retail Sales Data
During the third quarter, worldwide retail sales of Harley-Davidson motorcycles decreased 9.6 percent compared to the third quarter of 2007. U.S. retail sales of Harley-Davidson motorcycles decreased 15.5 percent for the quarter. The heavyweight motorcycle market in the U.S. decreased 3.1 percent for the same period.
Retail sales of Harley-Davidson motorcycles grew 11.3 percent in the Company’s international markets during the third quarter of 2008 compared to the third quarter of 2007. Third quarter retail sales increased 12.4 percent in Canada; the Europe Region was up 2.9 percent; the Asia Pacific Region was up 17.5 percent; and the Latin America Region was up 41.6 percent.
During the first nine months of 2008, worldwide retail sales of Harley-Davidson motorcycles decreased 6.0 percent compared to the prior year. In the U.S., Harley-Davidson motorcycle retail sales decreased 11.9 percent for the first nine months of the year while the U.S. heavyweight market was down 4.0 percent for the same period. International retail sales increased by 12.6 percent for the first nine months of 2008.
Third quarter and year-to-date data are listed in the accompanying tables.
MV Agusta
On August 8, 2008, the Company completed the purchase of the privately-held Italian motorcycle maker MV Agusta Group. The Company acquired 100 percent of MV Agusta Group shares for total consideration of 68.3 million euros ($105.1 million), which includes the satisfaction of existing bank debt for 47.5 million euros ($73.2 million). As a result of the acquisition, the Company recorded $87.9 million of goodwill and the $16.6 million one-time expense related to the value of acquired in-process research and development. These results are included in the quarterly financial data.
Financial Services Segment
Harley-Davidson Financial Services (HDFS) operating income for the third quarter was $35.6 million, a decrease of $13.9 million or 28.0 percent compared to the year-ago quarter. The decrease is primarily due to a $9.4 million write-down of finance receivables held for sale to fair value. In addition, last year’s third quarter included a $3.5 million securitization gain compared to no securitization transaction during the third quarter of 2008.
Income Tax Rate
The Company’s third quarter effective income tax rate was 38.2 percent compared to 35.5 percent in the same quarter last year. The third quarter increase was due primarily to a non-deductible in-process research and development charge for MV Agusta Group and the expiration of the federal research and development tax credit as of December 31, 2007. In October 2008, the federal research and development tax credit was reinstated for two years retroactive to January 1, 2008 continuing through December 31, 2009. The Company expects its full year effective income tax rate in 2008 will be approximately 35.5 percent.
Harley-Davidson, Inc. — Nine Month Results
For the first nine months of 2008, revenue totaled $4.30 billion, a 0.9 percent decrease from the year-ago period. Diluted earnings per share were $2.45, a decrease of 16.9 percent compared to the same period last year.
Through the first nine months of this year, shipments of Harley-Davidson motorcycles were 226,898 units, a 9.0 percent decrease compared to last year’s 249,413 units. Harley-Davidson motorcycle revenue was $3.26 billion, which is down 2.2 percent compared to last year’s $3.33 billion. P&A revenue totaled $706.6 million, a 0.5 percent increase over last year’s $703.1 million. General Merchandise revenue totaled $244.8 million, a 5.5 percent increase compared to $232.0 million during the same period in 2007.
HDFS operating income was $107.7 million, a 38.0 percent decrease from last year’s $173.6 million.
Cash Flow
Cash and marketable securities totaled $504.9 million as of September 28, 2008. Cash used by operations was $221.2 million, and capital expenditures were $153.7 million during the first nine months of 2008. For the full year of 2008, capital expenditures are still expected to be between $235 million and $250 million.
Stock Repurchase
The Company repurchased 2.5 million shares of its common stock at a cost of $100.1 million during the third quarter of 2008. On September 28, 2008, the Company had 232.8 million shares of common stock outstanding.
As of September 28, 2008, there were 16.7 million shares remaining on a board-approved share repurchase authorization. An additional board-approved share repurchase authorization is in place to offset option exercises.
So, the bottom line is that if you are selling anything that requires credit to purchase it, things are going to be tough. The question then is, what is management doing to position the company for the inevitable improvement? CEO Zimmer is buying back shares at depressed prices, making international acquisitions at reduced prices and expanding the company’s product line.
All these are great moves while the company remains solidly profitable. Merchandise and parts revenue continue to grow. International sales are growing double digits. The drag is US domestic sales and HDFS. Eventually we get an improvement here. Even if 2009 just manages to be stagnant in the US, the other segments will propel EPS growth for the year.
Another point, at current levels ($24 and change), the shares carry with them a 5.38% yield that is very safe. The company will spend roughly $310 million next year on dividends and are buying back about $400 million a year of stock. The buybacks will be stopped before the dividend is threatened. Let’s not forget they also trade at 8 times earnings…8….
Disclosure (“none” means no position):Long HOG
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Third Avenue Value’s (TAVFX) Matry Whitman and Bernanke co-author Mark Gertner were on Wealth Track. It is a great watch..
Disclosure (“none” means no position):Long TAVFX
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Justin Siegel writes:
Sears (SHLD) is a Blue Light Special!
When I look for investment opportunities, I look primarily for 3 things:
1. Management
1. Are they aligned with shareholders?
2. Are they smart, proven?
3. Do they run the business like an owner?
2. Business
1. Is it a good business?
2. Is it easy to understand, for me at least?
3. Valuation
1. How much do I think it’s worth and how much below that value is it selling for?
How does Sears stack up?
1. Management
1. Effectively Eddie Lampert through his hedge fund, ESL, controls Sears, through a majority stake of common shares. In short, he’s staked his personal fortune, his hedge funds fortune, his reputation, etc. on the Sears common shares, which by the way represent the majority investment of his hedge fund portfolio.
2. Yes, Eddie Lampert is smart. Ivy league graduate, self-made billionaire, etc. Is he proven? He has racked up decades of 20%+ returns, so he’s a proven investor. Even a proven retail investor, but not necessarily a proven operator. A yellow flag in my opinion.
2. Business
1. Retail is a decent business. Not rocket science.
2. Retail is easy to understand, though Sears has many facets, which I think are often overlooked, or at least currently by the market.
3. Valuation
1. The short answer is I think Sears is worth A LOT more than $8 billion dollars. Why? Well, here are some of the juiciest parts:
1. Brands – Kenmore, Craftsman, LandsEnd, Diehard, and even Sears itself have very solid brand equity. Even after years of being ignored and poorly run, these brands are respected and valued throughout North America.
2. LandsEnd – Beyond the brand, this is a good business in its own right that has been churning out record years with one of the highest converting retail websites in the country. Sears bought it a few years back for shy of $2 billion. Probably worth at least that much.
3. 70% stake in Sears Canada, which has been doing very well.
4. Cash – $1.5 billion last quarter on its balance sheet
5. Sears.com – one of the largest, fastest growing, and improved websites of any major retailer. Still work to be done, but improvements galore.
6. Servicing network – Largest appliance and lawn equipment repair service in the country. I like a business where they sell you the washer and dryer once, and then get paid to maintain and repair to too.
7. Eddie Lampert – You get one of the world’s best capital allocators for free. Over time this will matter significantly, as it does in all businesses.
8. Real Estate – This frankly is the least interesting asset to me because it only becomes valuable if the rest of the business is failing, which it isn’t. Sears is profitable on a reported earnings and cash flow basis. However, Sears does own somewhere between $7-$20 billion in real estate depending upon who you believe.
And as a kicker, today you can buy Sears for LESS than Bill Ackman, Monish Pabrai, Bruce Fairholme, Bill Miller, and several other brilliant investors. It’s tied to the economy like everything and everyone, so it may not being going anywhere fast, but… What are some potential catalysts? Eddie Lampert making a great acquisition, earnings surprise, faster economic recovery. I think it’s a Blue Light special, but it’s up to you to cast your own votes.
Disclosure (“none” means no position):Justin is Long SHLD
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As the hours go by people are starting to realize perhaps just giving the banks money wasn’t the best plan..
Here is an interesting chart from a Portfolio.com article on the subject:
In short….this not the thing to do…
This is a follow-up to a post from July. Isn’t it funny how when we need the money the politicians are not screaming about this anymore? In fact, one could make the argument they are begging for SWF Investment now.
File this under “be careful what you wish for, you just might get it”. The good news? SWF’s are not investing large sums in US businesses. The bad news? SWF’s are not investing large amounts in US businesses.
The latest Monitor Group analysis is an update to its June 2008 report: “Assessing the Risks: The Behaviors of Sovereign Wealth Funds in the Global Economy.” Key findings of the latest analysis include:
§ In the second quarter of 2008 (Q2 2008), funds in the Monitor SWF transaction database executed 43 deals totaling $26.5 billion. In contrast those funds executed 42 deals totaling $58.3 billion during the previous quarter (Q1 2008).
§ SWFs continued to invest actively in emerging markets. In Q2 2008, more than half the deals and funds invested were in emerging markets (vs 40% in Q1). SWFs carried out 26 deals and invested $15 billion in BRIC and non-OECD countries.
§ Investment in North America dropped dramatically. In Q2 2008, four deals totaling less than $1 billion were received by North America. In contract, this region received seven deals totaling $23 billion during the previous quarter (Q1 2008).
§ Half of the deals by value in Q2 were in real estate (shopping centers and real estate management companies). Real estate had the largest number of deals (12) and the highest investment ($13.7 billion) in Q2 2008.
§ During Q2 2008, investment has shifted away from financial services. SWFs carried out 10 deals and invested $4 billion in the financial services sector during Q2 2008. In the previous quarter (Q1 2008), funds carried out 13 deals totaling $43.4 billion.
“Our transaction data show that SWFs have focused recent equity investment away from volatile geographic markets and sectors, like North America and financial services, and are instead seeking more attractive returns in emerging markets and other sectors, including real estate,” said Drosten Fisher
The country taking the lion share of the business? India. There was heavy investment in the healthcare, consumer and aerospace sectors in India in Q2. This also follows the trend they exhibited in other nations. This is particular distressing to those who are looking for funds to flow to the US. Those are not sectors in the US that lend itself to foreign investment (thing Wal-Nart (WMT), Target (TGT), GE (GE) or United Health (UNH).
But, for shareholders of wither Wal-Mart (WMT), GE (GE) or even Dow Chemical (DOW) who are aggressively expanding into the region, it is good news. A steady flow of funds to the region raises the standard of living for all and by default the sales prospects for those doing business there.
Bill Ackman at the Value Investing Congress commented on “opportunistic capital” (hedge funds and SWF’s). He said that “opportunistic capital is always the first in” when it comes to investment (listen to press conference here). It should be noted that Russia has receive zero deals. For those thinking of investing overseas, if those with the money are avoiding a country, perhaps you ought to think twice before committing funds there? Based on their activity, India and Brazil seem to be the nation’s of choice both for opportunity and safety of capital.
Now, for those afraid of SWF’s, please note the following graph. 
A disclaimer: This is my chart and Monitor Group in no way implies the “Bailout” equates the US to a SWF. This chart is purely for comparison purposes.
What is the point? SWF’s are a nice boogey man for people intent on stirring things up but they really are dwarfed not only buy US Mutual funds but what our gov’t itself. Let’s not forget, $250b of the US investment in banks wasn’t an option for the banks….that is not an issue with SWF’s.
Q2 report available by email akrull@racepointgroup.com
About Drosten:
Drosten Fisher is a principal with the international strategy consultancy Monitor Group. His focus is serving government and commercial clients in the areas of economic competitiveness, national security and international finance. A Middle East specialist, he speaks Arabic and has lived and worked in the region. Before joining Monitor, Drosten was a researcher for former Director of Central Intelligence George Tenet on his memoir At the Center of the Storm.
He was educated at Oxford and Georgetown and is a term member of the Council on Foreign Relations.Drosten is a co-author of a recent Monitor report into sovereign wealth fund investment and is a regular speaker and commentator on Middle Eastern investment, politics and business.
Disclosure (“none” means no position):Long WMT, GE, Dow , none
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