Category: Articles

Does "Less Bad" = "Getting Better"?

Post author By ToddSullivan
Post date May 1, 2009
1 Comment on Does "Less Bad" = "Getting Better"?

Have you ever had a relative/pets in the hospital with a serious illness? Initially it looks like the situation is dire and then for whatever reason the rapid descent they were in seems to relent? Has a doctor in that situation ever told you “they are getting better”? Me either..

Thus is the current economic condition. After successive -6% quarterly GDP figures, estimates are for -2% to -4% in Q2. This is being taken by some to mean the economy is “getting better”. No, it isn’t. It just is not “worsening as fast”. Q1 GDP of -6.1% means it was 6.1% worse than Q4 2008. A drop of anything in Q2 means Q2 was worse than Q1 and the decline continues. Any negative number means the economy is still contracting (worsening). Measuring it isn’t like earnings that are compared for like periods year to year. GDP is a rolling, continuous number.

Think about it like this. It is like having three heart attacks today and only two tomorrow, would the doctor say tomorrow “you are getting better”? Of course not. You still sick and there is still a very large problem.

Now there are those who will say I see the glass half empty. My retort would be that the glass has a leak, just because the water is leaking out more slowly, does not mean it is filling (the analogy is the leaking is the contracting economy and the filling is growth). The half empty argument is one to be had when we approach 0% GDP or only marginally negative.

What is more likely to me is that we are approaching a period of prolonged economic malaise. Very little if any growth, and this is important, from already severely reduced levels. While sitting here is better than a continued decline, I’m not sure is warrants the single best two months performance in the history of the US stock market.

Put in perspective. 40% of this market run up has been due to the performance of financial stocks. These are companies that without Federal aid or adjusted accounting rules would have reported far different results. That does not qualify for “getting better” in my book.

Now, I hope I am wrong. I am not “short” (although I own a tiny bit of SH to take the bite out of any large decline) and talking my book. Just giving reasons I am more hesitant that most to be putting fresh money to work is anything other than commodities or deep value stuff.

Are there some positive signs out there? Sure. I would counter that after the free fall we had at the end of 2008, any economic activity is wonderful news. That still does not equate to “recovery”. I think we may need to get used to the fact that we may be entering a period of a “new normal”. Whether that is good or bad is another debate, I think it may be inevitable.

With that being said, I’m not sure the market recognizes that yet…

Disclosure (“none” means no position):

Articles

Back in Oil

Here we go again….

First, read this post for some reasoning

Some additional thoughts:

1- If successive quarters of -6% US GDP and a global recession cannot get oil to stay below $45 – $50, I’m not sure what can

2- The world IS NOT a more peaceful place

Iraq still dangerous
Afghanistan a mess
Pakistan teetering
Iran/Israel about to come to head. Netenyahu is coming to the US in May to give Obama an ultimatum (not billed that way buit it is none the less), “Take care of Iran’s nukes or we will”. Iran had vowed to destroy Israel and now may have nuclear capabilities. Only a suicidal leader would sit back and let that continue. Netenyahu lacks Europe’s infatuation with Obama and has had a lifetime of reality in the region to counter Obama’s “I know how to deal with this” mentality. He is staring a catastrophic threat in the face and if anyone thinks he can be told to “sit back and relax”, I would have to question their knowledge of the man and the region.

3- Supply
Looked like world supply is cratering, Mexico continues to run out faster than anyone expected and Canada’s tar sands are not profitable with oil at these levels.

I think any risk to oil prices is clearly a risk for a large spike to the upside.

How to play it then?

As I said before I am not doing the DXO again for a longer term play. It is a “double” ETF which is great for trading BUT, bad for holding. The reason is that 2% of a drop > 2% of a rise. So, even the actual oil bounces around for 6 months, the DXO will lose ground to it.

So what then?

USO. It tracks the crude market.

Here is the catch. I am still anticipating a market sell off and money is not in infinite supply. So, while I want to go long USO I do not want to tie up larger sums in case we get a sell-off and bargains abound. Dilema? No.

This morning I bought Jan. 2011 $35 calls in the USO (symbol OLL AI). At the $35 price is equates to roughly $58 crude which I am rather certain will be easily lapped by 2011. By doing it this way is cost $1100 to control today, $6000 of USO, and keep money free for other uses.

It also frees me to use DXO for a short term play on occasion, which is really what it is meant for. I think I may find myself picking some up before the Obama/Netenyahu meeting later this month. I think the rhetoric coming out of that might drive oil market a bit erratic.

I think this is going to be a wild ride….

Here is the most recent IEA oil outlook:

Disclosure (“none” means no position): Long USO through options, none

Articles

Dow Chemical Turns in Profit & Drops Bombshell

Post author By ToddSullivan
Post date May 1, 2009
4 Comments on Dow Chemical Turns in Profit & Drops Bombshell

Dow did a fantastic job in Q1 managing the business and then dropped what I consider a bombshell on investors..

First the news (projections were for a $.20 LOSS):

· Earnings were $0.03 per share, or $0.12 per share excluding certain items(1), as cost control actions and price/volume management mitigated the effects from the worst global recession in decades.

· Agricultural Sciences set quarterly records for both sales and EBIT(2). Sales for the segment increased 10 percent on a year-over-year basis, reflecting a 10 percent increase in volume.

· Purchased feedstock and energy costs were down 49 percent compared with the same quarter last year, contributing to a 20 percent decline in selling prices, with the majority of the decline in the Basics segments.

· EBIT excluding certain items improved sequentially, with the largest percentage improvement coming from the Performance segments, above and beyond the seasonality of Agricultural Sciences.

· Rapid actions to reduce operating costs in the quarter resulted in a decrease in spending of $270 million year over year and sequentially. Capital spending was down 35 percent in the quarter, in line with the Company’s pre-acquisition 2009 capital spending commitment of $1.1 billion.

Here are the presentation slides:
Dow Q1 Earnings Slides

Publish at Scribd or explore others: Finance Business & Law Dow Chemical

8-K Filed With SEC

CEO Andrew Liveris:

“There are some signs that the pace of global economic decline is moderating. The broad diversity of Dow’s product mix enables us to have better visibility on true market demand, especially in parts of the world, such as in China, where domestic stimulus programs are beginning to take hold.

“Having said that, it’s prudent to expect that 2009 will still be a recessionary year globally, and we are not counting on material improvements in economic conditions in the near term. We remain focused on managing what is in our control, namely reducing costs and capital spending, delivering on our action plan to de-leverage our balance sheet, and smoothly and successfully integrating Rohm and Haas into the new Dow. These actions are paramount to our long-term strategy to transform Dow into an earnings-growth company.”

The bombshell? DowAgro Sciences may be sold or divested in an IPO. This is unacceptable under any circumstances. Dow Ag, as CEO Andrew Liveris told me is the crown jewel of the company.

Q1 would have experienced a large loss were it not for Dow AG. It is the only segment of the company growing (11 straight quarters) and still has a blockbuster product, Smartstax coming online either late next year or next. In other words, the best for Dow Ag is still to come.

The options given were and IPO, or a outright sale. Either option is a slap in the face to investors who have stuck by the company through its recent turmoil. As previously twittered, recently I purchased large amounts of Dow at $6.80 and again at $9 share (current price $15) despite the uncertainty surrounding the company at the time.

Why?

Dow Ag. At those share prices I was paying for Dow AG, and getting the rest of the company for free (Basic Chemicals, Specialty Chemicals, and Rohm and Haas)…..for FREE. I can’t say I would have made the decision were Dow Ag NOT part of Dow at the time.

Any decision to sell Dow Ag without extreme consideration for existing shareholders I cannot back or accept. Agrcultural products are going to be valuable for decades as the world population grows, farmable land remains fixed and biofuels take more of a center stage. That means the future earnings power for Dow Ag may just possibly dwarf most other areas of their business. Just look at the last two quarters, the worlds economy by any measurement fell off a cliff yet Dow Ag increased earnings double digits, not through cost cutting, but through volume gains (sales).

Results like that have a value that cannot be captured in the current environment buy a potential buyer.

For three years Dow has professed to want to change the earnings profile to a more stable/specialty focused one. Dow Ag fits perfectly into that. The retention of Basic businesses and the sale of Dow Ag runs counter to everything that has been portrayed as a goal.

The IPO/Sale plans say this: Dow is going to trade Dow Ag for Rohm and Hass. Since the proceeds are going to be used to pay of the Rohm purchase, at its most basic level, that is the deal for shareholders. I think if anyone is being honest, Dow Ag has more value that Rohm in terms of growth.

Sell anything else…..anything

Perhaps a partial IPO of Dow Ag? After speaking with people familiar with Dow’s plans, they have insinuated that is a realistic option. That would surely raise the necessary funds to cover the bridge loan due in a year. Still a repugnant thought….

Am I selling? No. The loss of Dow Ag would hurt greatly long term but short term would provide a boost as it would remove debt issues from the company. Shares would rally and provide those looking to exit much higher prices than current.

Part of the reasoning on the call was that “it is an Ag business with a commodity multiple” (because it is part of Dow Chemical) and that selling it would provide shareholders with the multiple return. Well, if that is the concern, spin it to us and let us realized the multiple expansion of it AND participate in the future growth. Dow could keep even 50% of it recognize the new multiple in the increase in the asset value. I would wager that if 50% were spun to shareholders to trade publicly, the 50% left at Dow would be worth what the whole is today.

However, the reverse of that is true also. As Dow Ag grows and commodity businesses are sold off, Dow Chemical becomes a Chemical company with more of a AG multiple. Long term, this is the direction I want.

The total loss of Dow Ag would most likely mean the loss of me as a shareholder and would, based on last years statements cause those shareholders left to most likely doubt anything coming out of HQ for years to come…rightly so..

Liveris said on the call today a decision will be made “30,60 or 90 days”. We’ll see…

Disclosure (“none” means no position):Long Dow

Tags dow

Articles

Talking News Corp. on Wall St. Media

Post author By ToddSullivan
Post date May 1, 2009

Talkoing to Douglas about News Corp (NWS)

Disclosure (“none” means no position):None

Articles

Friday’s Links

Post author By ToddSullivan
Post date May 1, 2009

Sears, “Who’s Who of Bloggers”, Capitalism, March

– Hiring

– Thank you for the inclusion

– It is scary there is even debate as to if this is best

– Spending and Income down……for those wondering..this is bad

Disclosure (“none” means no position):

Articles

Is Wal-Mart Good for America? A Debate (video)

Post author By ToddSullivan
Post date April 30, 2009

The Hudson Union Society debates the issue with the Yale Political Union. There are some funny lines here.

My opinion? Wal-Mart is and always has been great for America. I find the “against” arguments here to be pretty weak.

Disclosure (“none” means no position):Long WMT

Articles

David Winters vs Consolidated Tomaka

Post author By ToddSullivan
Post date April 30, 2009

David Winters of Wintergreen Advisors (WGRNX) take Consolidated Tomoka Land Holdings (CTO) to the woodshed.

This is simply brilliant analysis (unless you are management).

Winters David-Wintergreen vs Consolidated Tomoka Land 4-24-2009

Publish at Scribd or explore others: Finance Business & Law david winters tomoka

SEC filing

Disclosure (“none” means no position):None

Articles

Thursday’s Links

Mortgages, “Wall St”, Ray Kroc, Independence

– Latest plan, this one for seconds

– The sequel is coming….finally

– What makes America great

– 6 Banks fail test

– Is it possible?

Disclosure (“none” means no position):

Articles

On Wall St. Media 4/29

Here is the latest. Talking Starbucks (SBUX)/Mcdonalds (MCD), Iran/Israel, Oil, GDP

View more investing video at Wall St. Media

Disclosure (“none” means no position):Long MCD, none

Tags mcd, sbux

Articles

Starbucks Reports Dismal Quarter

Post author By ToddSullivan
Post date April 29, 2009

I did not know they were reporting today when I wrote this. Glad to see management helped cement my points..

Starbucks late today reported fiscal second-quarter net income fell 77% to $25 million, or 3 cents a share, due to charges to close stores. A year ago, Starbucks earned $108.7 million, or 15 cents a share. Sales fell to $2.3 billion from $2.5 billion. Excluding charges, Starbucks said it made 16 cents a share. Analysts had expected Starbucks to earn 16 cents a share on sales of $2.38 billion, according to FactSet Research.

BUT

Starbucks said that its cost savings plans were ahead of schedule as it reduced expenses by $120 million during the period.

So, explain this?

While the company triumphs its cutting, total expenses only dropped 2% to $2.32 billion which included $152 million in restructuring fees. Not going to get it done

What really matters? Customer are not going in.

US comparable store sales were down 8% for the quarter.

Sad…..and it was avoidable…

Disclosure (“none” means no position):

Tags sbux

Articles

So, Where Is That Stimulus Again?

Post author By ToddSullivan
Post date April 29, 2009

Please read paraghraph 4. Can anyone tell me how this happened when we just passed over $1 trillion is “stimulus” packages?

From the BEA

GROSS DOMESTIC PRODUCT: FIRST QUARTER 2009 (ADVANCE)

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of 6.1 percent in the first quarter of 2009, (that is, from the fourth quarter to the first quarter), according to advance estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP decreased 6.3 percent.

The Bureau emphasized that the first-quarter “advance” estimates are based on source data that are incomplete or subject to further revision by the source agency (see the box on page 4). The first- quarter “preliminary” estimates, based on more comprehensive data, will be released on May 29, 2009.

The decrease in real GDP in the first quarter primarily reflected negative contributions from exports, private inventory investment, equipment and software, nonresidential structures, and residential fixed investment that were partly offset by a positive contribution from personal consumption expenditures (PCE). Imports, which are a subtraction in the calculation of GDP, decreased.

The slightly smaller decrease in real GDP in the first quarter than in the fourth reflected an upturn in PCE for durable and nondurable goods and a larger decrease in imports that were mostly offset by larger decreases in private inventory investment and in nonresidential structures and a downturn in federal government spending.

Motor vehicle output subtracted 1.36 percentage points from the first-quarter change in real GDP after subtracting 2.01 percentage points from the fourth-quarter change. Final sales of computers added 0.05 percentage point to the first-quarter change in real GDP after subtracting 0.02 percentage point from the fourth-quarter change.

Wasn’t this stimulus supposed to be for “shovel ready” projects? Clearly that was not the case.

Here is further breakdown of Gov’t spending both Federal and Local (comps are to Q4 2008):

Real federal government consumption expenditures and gross investment decreased 4.0 percent in the first quarter, in contrast to an increase of 7.0 percent in the fourth. Real state and local government consumption expenditures and gross investment decreased 3.9 percent, compared with a decrease of 2.0 percent.

This gives huge merit to those who made the arguments as this package was being passed that this stimulus was not “Keynesian” even by the most liberal definition of it. For, if it was, we would not have seen decreases in spending.

Now we have to wait until revisions (ought not mater much) and then Q2 numbers. If there is not a significant jump (ought to be a record amount to match the size of the “stimulus”) in government spending in Q2, those who thought this was a good idea got hosed….big time.

Disclosure (“none” means no position):

Articles

The Destruction of the Starbucks Brand

Post author By ToddSullivan
Post date April 29, 2009

Hat tip reader Chris for alerting me to this. Can you imagine Coke (KO) saying is was shifting its focus to the Sprite brand OR Anheuser-Busch (AHBI) saying that Busch Beer was going to be its focus this year? If not, then read this:

From Yahoo Finance

Starbucks Corp. is hoping its Seattle’s Best Coffee chain will be its growth engine during the recession.

Even as Starbucks shutters hundreds of namesake locations, cuts jobs and shaves other costs, it is seeking franchisees to open new cafes and kiosks of Seattle’s Best Coffee nationwide.

Since Starbucks took over the chain in 2003, most new Seattle’s Best Coffee cafes have opened inside Borders (BGP) bookstores and kept a relatively low profile. Many consumers don’t know there’s a connection: Seattle’s Best Coffee’s logo is red, Starbucks’ is green, and there is no mention of Starbucks inside Seattle’s Best Coffee stores.

Not only could opening more franchised cafes help Starbucks — which reports its second-quarter earnings Wednesday — expand without increasing its operating costs. Promoting Seattle’s Best Coffee also could help Starbucks pursue two distinct streams of the coffee market simultaneously.

Seattle’s Best Coffee’s food, including ice cream and hot sandwiches, targets a broader market than the pastries and sandwiches and high-end juices and protein drinks at most Starbucks. And its much milder beans have been available since January in more than 2,800 Subway restaurants.

“It gives them an opportunity to reach out to a different audience,” analyst Darren Tristano of Technomic Inc., a food industry consulting firm, said of the plan to open more Seattle’s Best Coffees.

Starbucks says the slightly lower prices and milder taste of Seattle’s Best Coffee make it an especially viable vehicle for growth now, though the company declined to say how many new stores it hopes to open or where.

“We believe that the Seattle’s Best Coffee brand can play a unique role in helping capture a larger share of the coffee segment by providing options and a variety to a broader spectrum of customers,” Starbucks Chief Executive Howard Schultz said in January when he announced the plan.

Relying on growth from Seattle’s Best while at the same time closing thousands of Starbucks location is the closest thing you’ll ever see to an admission from Schultz that the Starbucks brand has been catastrophically mismanaged to the point it is now a negative.

Offering breakfast sandwiches did not work. Promotion that offer discounted drinks failed. Spending millions on new coffee machines? Nope. Bringing back Howard Schultz? Fail. “Gold cards” for frequent customers? Nada.

On a side note. Did anyone think the promotions were really going to work? Remember? “buy a coffee in the morning, save the receipt and come back between 2:17 and 2:28 and get a $2 something”. Of course I am being sarcastic but the reality of the promotion was not much different.

The result? Management has finally thrown in the towel and decided to go with the secondary brand. This is not a slap at Seattle’s best, I think they do a fine job at what they do. This is a slap at management that is forced to do one at the expense of the other.

The Starbucks brand has been so possibly irreparably harmed that folks in Seattle are slowly moving the company is a different direction. Sad.

For investors, if you think there has been a fundamental change in consumer behavior and “cheap is chic” then do not expect any rebound or significant improvement anytime soon…

Disclosure (“none” means no position):

Tags bgp, sbux

Articles

Why McDonalds Steamrolls Competition.

Post author By ToddSullivan
Post date April 29, 2009

As I read the McDonalds (MCD) earnings call transcript, it stood out like a Yankee fan at Fenway.

Here are the results from CEO James Skinner:

Global comparable sales were up 4.3%, operating income increased 5% in constant currency and EPS reached $0.87, a 17% increase in constant currency.

Our sales momentum is continuing with April comparable sales trending at least as strong or better than the first quarter in every area of the world. McDonald’s is well positioned for continued growth. Our global system is aligned around the right strategies to manage in the current global economic environment and to seize future opportunities.

Outstanding results, second to none in the industry (and most of the S&P 500). So, how did the accomplish it?

We remain focused on our customers and restaurants through our plan to win. Everyday, customer relevance is job one at McDonald’s. We all know the state of today’s consumers. They’re scaling back and being more discerning about what they purchase. This means a strong value proposition is critical, from price to product, to experience.

McDonald’s offers strong value across our entire menu board. Our value menus around the world offer predictable, every day affordability and our core menu, including iconic products like the Quarter Pounder provide great value at the mid tier. This tiered pricing across the board value means we are in a position to grow our market share not only in the near term but in the long term as well.

The word “value” is mentioned 5 times in the two paragraphs and in every sentence that Skinner uses to explain what they offer customers. Is there any doubt the focus of the company?

I’d be willing to bet you could ask anyone in the entire organization what they offer customers and every person would have the word “value” in the answer. There is no doubt of that in my mind.

Disclosure (“none” means no position):Long MCD

Tags mcd

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Wednesday’s Links

Post author By ToddSullivan
Post date April 29, 2009

Swine, GM, Mortgages, Toxic

– 1918 lessons

– Just scrap it and start over already!!!

– Another effort to bail out irresponsible people

– Ross is a buyer

Disclosure (“none” means no position):

Articles

News Corp. Looks Interesting

Post author By ToddSullivan
Post date April 28, 2009
21 Comments on News Corp. Looks Interesting

So, after reading that the WSJ was actually increasing circulation figures in an environment that is seeing newspaper circulation plummet, I began digging into it owner, News Corp.

Overview:
OVERVIEW OF THE COMPANY’S BUSINESS
The Company is a diversified global media company, which manages and reports its businesses in eight segments:

• Filmed Entertainment, which principally consists of the production and acquisition of live-action and animated motion pictures for distribution and licensing in all formats in all entertainment media worldwide, and the production and licensing of television programming worldwide.
• Television, which, principally consists of the operation of 27 full power broadcast television stations, including nine duopolies, in the United States (of these stations, 17 are affiliated with the FOX network, and ten are affiliated with the MyNetworkTV network), the broadcasting of network programming in the United States and the development, production and broadcasting of television programming in Asia.
• Cable Network Programming, which principally consists of the production and licensing of programming distributed through cable television systems and direct broadcast satellite operators primarily in the United States.
• Direct Broadcast Satellite Television, which principally consists of the distribution of premium programming services via satellite and broadband directly to subscribers in Italy.
• Magazines and Inserts, which principally consists of the publication of free-standing inserts, which are promotional booklets containing consumer offers distributed through insertion in local Sunday newspapers in the United States, and the provision of in-store marketing products and services, primarily to consumer packaged goods manufacturers in the United States and Canada.
• Newspapers and Information Services, which principally consists of the publication of four national newspapers in the United Kingdom, the publication of approximately 147 newspapers in Australia, the publication of a metropolitan newspaper and a national newspaper (with international editions) in the United States and the provision of information services.
• Book Publishing, which principally consists of the publication of English language books throughout the world.
• Other, which principally consists of NDS Group plc (“NDS”), a company engaged in the business of supplying open end-to-end digital technology and services to digital pay-television platform operators and content providers; Fox Interactive Media (“FIM”), which operates the Company’s Internet activities; and News Outdoor, an advertising business which offers display advertising in outdoor locations primarily throughout Russia and Eastern Europe.

So, why consider buying?

Looking forward at the business. I divide it into entertainment (film ,tv, book) and News (papers, cable tv (broadcast)). The first is very dependent on the consumer and the timing of releases vs prior years so the period to period comparison is not always apples to apples and one would expect it to be highly cyclical. The news and papers I would consider to give a more steady gauge as to the health of the overall company.

Here are the segments operating income that tend to back the assertion of certain segments being more volatile.

For instance, 2008 Film Results:

For the three months ended December 31, 2008, revenues at the Filmed Entertainment segment decreased $491 million, or 25%, as compared to the corresponding period of fiscal 2008. The revenue decrease was primarily due to a decrease in worldwide home entertainment revenue from theatrical and television products. The three months ended December 31, 2008 included the worldwide home entertainment release of Horton Hears a Who, the worldwide theatrical releases of The Day the Earth Stood Still, Australia and Max Payne and the domestic theatrical release of Marley & Me and their related releasing costs.

Also contributing to the three months ended December 31, 2008 were the pay television performances of Juno and 27 Dresses. The three months ended December 31, 2007 included the home entertainment performances of The Simpsons Movie, Live Free or Die Hard and Fantastic Four: Rise of the Silver Surfer and the theatrical releases of Alvin and the Chipmunks and Juno. For the six months ended December 31, 2008, revenues at the Filmed Entertainment segment decreased $814 million, or 23%, as compared to the corresponding period of fiscal 2008. The revenue decrease was primarily due to a decrease in worldwide home entertainment revenue from theatrical and television products, as well as a decrease in worldwide theatrical revenues as a result of the difficult comparisons to The Simpsons Movie and Live Free or Die Hard in the six months ended December 31, 2007.

Fox News:

For the three and six months ended December 31, 2008, Fox News’ revenues increased 18% and 19%, respectively, as compared to the corresponding periods of fiscal 2008, primarily due to an increase in net affiliate and advertising revenues. Net affiliate revenues increased 37% and 32% for the three and six months ended December 31, 2008, respectively, primarily due to an increase in the average rate per subscriber, a higher number of subscribers and lower cable distribution amortization as compared to the corresponding periods of fiscal 2008. Advertising revenues increased 6% and 8% for the three and six months ended December 31, 2008, respectively, primarily due to higher volume and higher pricing as compared to the corresponding periods of fiscal 2008. As of December 31, 2008, Fox News reached approximately 95 million Nielsen households.

Here are the most recent results vs rival CNN, MSNBC. Fox wins every hour..if you combined their results, they still do.

From the recent 10-Q

The Company’s revenues decreased 8% and 2% for the three and six months ended December 31, 2008 as compared to the corresponding periods of fiscal 2008. The decreases were primarily due to revenue decreases at the Filmed Entertainment, Television and Book Publishing segments. The decreases at the Filmed Entertainment segment were primarily due to decreased worldwide home entertainment revenues. Television segment revenues decreased primarily due to decreased advertising revenues as a result of general weakness in the advertising markets. The decreases at the Book Publishing segment were primarily due to strong title offerings in the corresponding periods of fiscal 2008 with no comparable titles in fiscal 2009.

These decreases were partially offset by increases in revenues at the Cable Network Programming and Newspapers and Information Services segments. Cable Network Programming segment revenues increased primarily due to increases in net affiliate and advertising revenues. The increases at Newspaper and Information services were primarily due to the inclusion of revenue from Dow Jones & Company, Inc. (“Dow Jones”), which was acquired in December 2007.

This is very important news. At a time when ad rates are falling like stones throughout the industry, News Corp. is actually increasing them. That can only be taken as it having a industry best “brand” that advertiser recognize and want and one could take that even further to say they do have a moat around their news division.

Essentially you have News’ cable operations getting stronger during the industry downturn and this bodes well for the recovery.

Here are the revenue results (click to enlarge):

Cash:
As of December 31, 2008, the Company complied with all of the covenants under the revolving credit facility, and it does not anticipate any violation of such covenants. The Company had consolidated cash and cash equivalents of approximately $3.6 billion as of December 31, 2008.

Debt (from 10-K):
News has $13 billion of debt outstanding. Over $12 billion of that does not come due for in excess of 5 years ($1 billion is due in less than 5) and of that $12 billion, 30% has maturities extended out until 2035 and 2037. This will not be a strain on cash.

Valuation:
Even after writing down $8.4 billion in Q4, NWS shares prices at $8.50 sell at 65% of book value of $29 billion. 20%o the current market cap of the company as of 12/31 is the cash sitting on the books. Here are the write-down details:

As a result of this impairment review, the Company recorded a non-cash impairment charge of approximately $8.4 billion in the three and six months ended December 31, 2008. The charge consisted of a write-down of the Company’s indefinite-lived intangibles (primarily FCC licenses) of $4.6 billion, a write-down of $3.6 billion of goodwill and a write-down of Newspapers and Information Services fixed assets of $185 million in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” As a result of the continued adverse economic conditions in the markets in which the Company conducts business, the Company will continue to monitor its goodwill, indefinite-lived intangible assets and long-lived assets for possible future impairment.

Insider Controlling Shareholder:

As of December 31, 2008, Cruden Financial Services was the beneficial owner of 306,623,480 Shares, constituting approximately 38.4% of the total number of outstanding Shares at such date. All of the 306,623,480 Shares beneficially owned by Cruden Financial Services are also beneficially owned by the Murdoch Family Trust. Cruden Financial Services has the power to vote and to dispose or direct the vote and disposition of the Shares owned by the Murdoch Family Trust. Cruden Financial Services, the sole trustee of the Murdoch Family Trust, is a Delaware limited liability company with six directors.

As of December 31, 2008, the Murdoch Family Trust was the beneficial owner of 306,623,480 Shares, constituting approximately 38.4% of the total number of outstanding Shares at such date. The Murdoch Family Trust is a trust governed by Nevada law whose trustee is Cruden Financial Services. Cruden Financial Services, as sole trustee, has the power to vote and to dispose or direct the vote and disposition of the Shares owned by the Murdoch Family Trust.

As of December 31, 2008, K. Rupert Murdoch was the beneficial owner of 317,290,709 Shares, constituting approximately 39.7% of the total number of outstanding Shares at such date. Of the 317,290,709 Shares beneficially owned by K. Rupert Murdoch, 306,623,480 of such Shares are directly owned by the Murdoch Family Trust. Cruden Financial Services has the power to vote and to dispose or direct the vote and disposition of the Shares owned by the Murdoch Family Trust. As a result of Mr. Murdoch’s ability to appoint certain members of the board of directors of Cruden Financial Services, the corporate trustee of the Murdoch Family Trust, Mr. Murdoch may be deemed the beneficial owner of the Shares beneficially owned by the Murdoch Family Trust. Mr. Murdoch, however, disclaims any beneficial ownership of such Shares.

This is much like my AutoNation (AN) purchase. A company doing well in a poor operating environment. 75% of operating profits are from very stable and growing segments of the company. The other 25% is cyclical and release date dependent which causes volatility. Currently shares are excessively being punished for that section of earnings and being given very little credit for the other 75%.

That gives us a ValuePlay…I’m getting very close to buying some at these levels…

Disclosure (“none” means no position):Long AN, none

Tags AN