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“Assuming no dramatic change in economic trends, we are planning for total sales growth in fiscal 2009 of 6% to 10%. We expect comparable store sales growth of 1% to 5% and identical store sales growth of zero to 4%.” Whole Foods CEO John Mackey. OK, so, what defines “dramatic” John?

I hate these conditional predictions. Essentially no matter what happens, Mackey is giving himself an “out”. How about just telling us either “we have no idea” or give us numbers that investors (I am not one) can rely on. Mackey basically told them nothing…

Here is a statement that struck me from Walter Robb at Whole Foods (WFMI). The questions he was asked was about consumer purchasing behavior. “Its cyclical in the sense as when the economy turns back up again and customers feel more financially secure we expect they’ll probably return to previous purchasing patterns so we’ll still have the value focus and we think that will position us better competitively for the long run but we do think customer purchasing patterns will evolve as the economy evolves.”

This is the “line in the sand” at Whole Foods. Simply put, they recognize that they are not a “value” proposition for shoppers. However, they think that when the economy turns (1 year? 2 years?) shoppers will resume spending more for the same items they can now get at Wal-Mart (WMT), Costco (COST), BJ’s (BJ) or every other local supermarket selling lettuce and potatoes.

Here is my problem with that. Just two years ago organic foods and grocery items were not widely available, leaving Whole Foods as the only real option. Since then offerings at all food retailers have exploded. For instance, when my boys were born years ago we had to go to Whole Foods to get the “Earths Best” baby food. When my daughter was born 18 months ago, I could get it anywhere. I no longer needed to make the trip to Whole Foods for it. The same goes for potatoes, tomatoes, and tons of other items.

Mackey expanded on Robb’s claim when he said, “Competition of course is a factor and as is cannibalization but they are not any more intense right now then they were in Q2 or Q1. So although we can’t know for certain we think it’s reasonable to conclude that the deceleration in our comp store growth has primarily been due to the economy.” I disagree. Just looking at the shelves in local markets tells me that more of what I want organically is available everyday. The change in the last nine months is dramatic. Is the economy a factor? Of course. I think Mackey is placing too much emphasis on it because it is an easy scapegoat.

As a shopper, I have no reason to return to Whole Foods unless I want a specific specialty item. I am in the middle. I prefer organic when I can get it but will not refuse a purchase because of it and at the same time I do not purchase solely on price. Either end of the spectrum will either avoid or solely frequent Whole Foods. Those of us in the middle need a better reason to go to Whole Foods than having a few extra bucks in our pockets. This is what Mackey and Co. are missing.

It isn’t the economy that that the main driver changing consumer behavior, it is the fact that Mackey is no longer operating in a market of one, but thousands. Consumers have a plethora of choices and given the choice of the same potato at $2 vs $.75, the cheaper option always wins.

This view by management is bad news for shareholders as it clearly signals the fundamental changes necessary for the company to become more appealing to a wider audience will not be happening anytime soon.

Want more evidence? Read this Q&A regarding the last “slowdown”: in 2001 and Whole Foods results:
Andrew Wolf – BB&T Capital Markets
“Looking back in 2001, the last slowdown, you fared a lot better, your comps were strong and the transactions were way up and I think at the time you posited that it was you were benefiting that the chain was benefiting from the trade down from restaurants so forth. What do you think has changed, do you think it’s either the economy is tougher or people shifting where they’re spending or do you think there’s more competition for the kind of restaurant equivalent type food or close to equivalent type food that can be provided at other outlets?”

John Mackey
“We’re not positive what it is. We speculate two things that are different in 2008 from 2001 is one the oil prices are so high and gasoline is so expensive. Whole Foods has always attracted because we have such unique and special stores, we’ve always attracted a wider geographical radius then conventional supermarkets do. People drive further to come to Whole Foods. And we think that with the price of gasoline right now that people aren’t driving as far as frequently to our stores as they used to. So we think on the margin that’s hurting our comps.

Secondly although we don’t want to break it out I will say that the real estate markets that have been the hardest hit on the whole subprime mess we have felt that. We’ve seen a greater slowdown in comps in those markets then we have in the markets that have been less affected. So I think those two things are factors, the price of oil i.e. gasoline and the markets that have particularly been hit hard by the housing downturn. Those have both affected Whole Foods comps.”

Notice the key words for excuses? “Subprime, gas ,oil, real estate”. What is really different? The competition and consumers choices for similar products, in 2001 there really wasn’t any, today there is tons.

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

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Once again the MSM coverage skews actual results…This time they do it to Archer Daniels Midland (ADM)

The headlines “ADM Profits Falls” and “Archer Daniels fourth-quarter profit slips by more than half” are as misleading as they come. Why?

What do we really care about? The health of operations. ADM’s profit of $3.30 a share last year was boosted $1.01 by asset sales. That means actual operations, what is does to make money, had a profit of $2.30 a share. This year, operations posted a profit of $2.79 a share. That is growth… Just as we tend to discount “one time” charges when they hurt earnings, we should do the same when they help and focus on core results.

Earnings call notes:

– 90% of the increase (in net sales and profits) was attributable to increases in selling prices, primarily resulting from the significant increase in underlying commodity costs. The remaining 10% of the increase in sales revenue was due to higher sales volumes.

This is important because it signals higher selling prices are sticking and not hurting demand. ADM is coming off a year of record demand and it increased, along with prices in the current one.

Along with this was that gross profit grew approximately 12% for the quarter to $807 million, as overall operating margins improved. In short, higher commodity costs are not hurting results.

– ADM expects to see higher selling prices for ethanol in this current quarter that we are in compared to last quarter and shipments should remain at a good pace. As current market prices for ethanol remains very attractive relative to unleaded gasoline.

Here was an interesting comment that came out of a question of what ADM will do in regards to debt repayment vs share buybacks:
“The agencies, of course, discourage share buy backs, but we still have some commodity volatility. We have our ongoing CapEx program that’s got a little more than a year to kind of run out. We’re kind of at the peak spending period as we stand here. And we see some good M&A opportunities out there that we’re evaluating each and every day.”

M&A is almost never mentioned on an ADM call in any way. The fact that the subject was broached in this way gives real credence to last weeks reports that ADM is planning to announce something in Brazil very soon.

Ethanol mandate:
“We’re already blending over the mandate right now. Ethanol is a lot cheaper than unleaded gasoline. So everybody is going to be trying to expand and blend as much as they can. So even if there is a waiver, which really doesn’t make much sense, we still do not see the ethanol demand slowing down at all, just because it is very price competitive.”

On the increased ethanol supply coming on;line:
Diane Geissler – Merrill Lynch: “In terms of picking up (demand) the incremental supply that’s scheduled to come online over, say, the next 12 months?”

John Rice: “Yes. We keep seeing new markets come in and as ethanol is $0.60 to $1 under unleaded gasoline, more and more people keep blending it and using it.”

Ethanol Tariffs:
“There is a lot of talk about the tariffs, but logistically, Brazil is just not set up to handle and ship any more ethanol than they already are. I mean we have the infrastructure issues, we are very involved in the Brazil infrastructure. Probably over the long term, that can change, but it also comes down to just a revenue issue, doing away with the tariff, it’s just less revenue in the United States because X amount of gallons will come to the United States one way or the other.” John Rice

All in all as an investor, there wasn’t anything that alarmed me a a whole lot that was encouraging. Capex will peak in 2009 as new processing plants begin to come online ans that will further boost earnings. Brazil will open up and there does not seem to be anything (other than the media) stopping the blending of ethanol into gas with or without the tariff. People still need both food and fuel and until they don’t ADM will be just fine.

SEC filing

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

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Owens Corning’s CEO was on CNBC recently and had this to say about his composite products use in auto’s.

Watch the video:

The word “housing” was not used once…….good.

Some interesting notables from the earnings call:

– “Today, about 10% of our revenue in composites results from wind energy sales. It is a fast growing market. Wind energy generates just over 1% of the world’s electricity. Wind energy in terms of me”gawatts generated is expected to grow at an average of greater than 15% annually over the next decade. The mono glass fiber in each window blade is significant. There are about 18 tons of fiber glass in each window, 6 tons per blade. Wind is an immediate and long-term growth opportunity for Owens Corning.” Thalman

– “There is little doubt that use of glass fibre composites will continue to replace traditional materials like steel, aluminum and wood as a lightweight, non-corrosive and affordable alternative. The opportunities in this business have few limits.” Thalman

Regarding housing starts:
– “I mean year-to-date start to been about a million. There were a little bit weaker in the second quarter. So, we would expect that the full year will probably come in less than a million, and I think that’s pretty consisting with consensus.

I mean just a note, I think since consensus started keeping records, that’s the first time housing starts were been less than a million if this impact happens since 1959 when they started publishing these numbers. So, it’s bad out there. The consensus seems to be that we’re going to continue to see this for another year. And we might even see a second consecutive year less than a million. We are certainly building our business plans as we go into our planning season here in the fall or not counting on the big market turnaround or to drive performance.” Thalman

Regarding composite sector:

– “We’re participating in a market that in total will grow at 1.5 to 2 times global GDP organically with some segments like wind energy that could grow high double-digits for the coming decade.” Thalman

Essentially a return to modestly normal housing conditions will mean a large increase in Owens earnings. That earnings are increasing under housing conditions not seen in 5 decades is a testament to the work Thalman has done changing the earnings profile.

View 10-Q

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

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Mark Shaprio is working overtime “putting some lipstick on the pig” that is Six Flags (SIX).

Ready?
“We told you on our last call that we planned to be flat in attendance through May. Then in June internally we knew we had difficult comps in June. 2007 was up 10% in attendance in June over 2006 and revenue in June for 2007 was up 13% over June 2006, so we knew we had a difficult June in front of us. Therefore for us to come out flat for the first six months in attendance plus 5% in revenues and plus 3% in guest spending is extremely gratifying. We’re in a good position so to speak walking into July. We knew this business, this year for us, was going to be about July, obviously going up against the I would say favorable comps we had last year with the Texas rain which really hurt us and of course the accident in our Kentucky park which we had at the end of June last year that impacted us negatively for the month of July. Remember July is essentially 30% of our business and August is 20% of our business, so July is historically the most significant month for the company.”

So, what did he just say? If we go with last years results, based on the “difficult comps” they are going up against last year, they are in real trouble. Even though last year was so good, the suspended the dividend, refinanced debt at oppressive terms and had large shareholders throw in the towel.

Remember though, it was just last fall that Shapiro blamed God for the disappointing results then that are “tough comps” now. Funny what time can do…. It should be noted here that the weather was credited as having a “positive effect this year”.

More Shapiro:
“We are at or above all time highs on our guest satisfaction scores, ranging from overall visit, intend to visit again, intend to recommend to a friend, cleanliness, restroom cleanliness, speed of our ride lines, speed of our food lines. I could not be happier with the product that our parks and our park presidents by way of leadership are putting out there.” So, why do results suck?

Jeff Speed got into the act:
“Attendance for the quarter declined to 8.6 million while year to date attendance was flat at 10.1 million. As we highlighted on our first quarter call, the second quarter attendance reflects fewer operating days this year due to the Easter holiday falling in the first quarter this year as opposed to the second quarter last year.”

Now, remember the Q1 call when they jumped up and down and patted themselves on the back because of the Q1 attendance jump that was cause by the very Easter Holiday they now blame for the Q2 drop? Of course Easter got far less credit then than it does blame now.

More Speed:
“we ended the June quarter with approximately $153 million of cash and liquidity consisting of $66 million in cash and $87 million available on our revolver and we have since paid down the revolver further such that we now have approximately $150 million available. However, as you and we are well aware, the redemption date for our mandatory redeemable preferred stock or [PERS], is approximately one year away, and we have approximately $130 million of senior notes remaining outstanding and due in February 2010.

At this point I’m not going to comment on the what, when, how, or why regarding the strategy to deal with these obligations.”

Uh, why not? If you are going to end every sentence with “free cash flow positive” (EBITDA) then you have to address the fact that cash is already spoken for. You also should mention that, next August, Six Flags is obligated to pay $288 million to preferred stockholders. On Thursday, for the second straight quarter, it suspended dividend payments to those shareholders. That will save the company $5 million, for now, but the amount will be tacked on to next summer’s bill.

Three words not mentioned on the call? Earnings Per Share…..wonder why?

Disclosure (“none” means no position):None

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Why does he insist on going out there and setting himself up? Why?

Lest we forget, some “Thainisms”….:
In January:
* “We’re very confident that we have the capital base now that we need to go forward in 2008.”

In March / April:
* “Today I can say that we will not need additional funds. These problems are behind us. We will not return to the market.”
* “We have more capital than we need, so we can say to the market that we don’t need more injections. We can confirm that we have tackled the problem.”

Now, after financing the dumping of assets for 22 cents on the dollar, and breaking yet another of the above promises, Thain is at it again.

Watch the “explanation”:

The best part of the interview? “If the world stays as it is today, we will not need additional capital”. What?????????? When has it ever not changed?

Now, Thain recently bought $11.3 million of stock in the secondary offering recently. Before we get all excited about that, let’s not forget he received a $15 million bonus for joining Merrill (MER) last fall and is buying because the options he received to buy shares at prices between $60 and
$100 are, well, worthless.

John, just stop talking and let the performance of your company speak for itself. Had you just never said anything, all the CDO dumping and write-downs could be blamed on your predecessor and you would be “cleaning up his mess”. But, since you keep telling us “everything is fine” only to then have it not be, now you are on the hook.

Nobody believes bankers now. Just stop talking..

Has anyone else wondered why we do not hear promises from execs at Wells Fargo (WFC), Goldman Sachs (GS) or Bank of America (BAC)? They are too smart to make them.

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

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Full posting should resume tomorrow

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Public grieving, Thank you, Gumshoe, Ambac

– More Pausch. This is fascinating and I think a good thing. Rather than the internet being impersonable and pushing people apart, in this way it seems to connect them and bring them closer, as a part of a huge extended family. Good

– Thanks for the kind words

– More crap uncovered

– Is the worst over?

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So, where is this recession any way? Isn’t the economy supposed to actually “contract” during one or is the news definition “not growing as fast as we want it?”. Q2 GDP was up 1.9%.

Correct me if I am wrong but we have not even had a single quarter of negative growth yet much less the two in a row that is required to be “in recession”. Unless of course the definition changed and no one told me.

Why are we so fixated on the need to be in recession? I know why the media does it, they need extremes. Without the words “crisis, bubble, recession, meltdown, collapse, turmoil, and speculators”, CNBC would have nothing to talk about all day. We have a daily “crisis” on TV and if you only watched the tube and never actually went out into thew world, you’d be convinced it was coming to an end.

Take a look at the following papers. The NY Times and LA Times paint a doom and gloom scenario? Anyone have a political agenda?

What gets me is the people who ought to know better who are out there stumping for something that has not even begun yet. Q2 GDP growth was better than Q1 and Q3 looks just as good.

This has been going on since January. Back then we “were in recession” and here we are 8 months later now and the economy is still growing. I know folks are in the prediction game and someone has to make the early call but enough is enough. If you predicted we were actually in recession in January or February or March for that matter, step up and admit you were wrong.

You do not get points if we actually slip into one in January of next year for “seeing down the road”. You get nothing. What is the saying, “even a broken clock is right twice a day”. Believe it….

Banks and housing are hurting. Shareholders of Citigroup (C), Washington Mutual (WM) and even good banks like Wells Fargo (WFC) and Bank of America (BAC) have had a year of pain. Shareholders of builders like Toll Brothers (TOLL) and Centex (CTX) probably think banks shareholders do not what paint is.

None of that means we are in recession. Just that some companies made some very bad choices (as did homeowners). Time to pay the piper.

Is the economy optimal now? Of course not. It is also not nearly as bad as some folks want you to think it is.

Disclosure (“none” means no position):Long WFC, C, None

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One things says it all, “sales growth in our global composites business continued to be solid.”

Back in February I said that one ought to expect a storm or two this year and that the $240 million EBIT they predicted at the time was too conservative.

Today Owens Corning (OC) said it now estimates that 2008 adjusted EBIT will be at least $265 million, a 10-percent increase from its prior estimate of at least $240 million.

More good news was that the company repurchased approximately 1 million shares at an average price of $23.55 during the second quarter of 2008. This represents 16 percent of the company’s repurchase authorization. As of June 30, 2008, the company had 130.7 million shares outstanding. This was the first purchases under the plan, announced in Q1 2007.

Compaoite were the big driver. Composite Solutions net sales for the second quarter of 2008 were $660 million, a 70-percent increase from $389 million during the same period in 2007. The increase was primarily the result of the company’s 2007 composites acquisition and continued strong global demand for glass fiber reinforcement products. EBIT from continuing operations for the second quarter of 2008 was $71 million, compared with $26 million during the same period in 2007. The increase was primarily due to incremental earnings associated with the company’s composites acquisition and the impact of improved manufacturing productivity.

Owens has finally reached the point were the new residential housing downturn will not destroy earnings. They are also now poised so that when housing does rebound, they will fully benefit from it and earnings will be significantly impacted to the upside.

This company is no longer the Owens Corning of old as its earnings profile has been changed.

Kudos to management for a job well done.

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

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