Category: Articles

AutoZone, Inc. (AZO) today announced that its Board of Directors has authorized the repurchase of an additional $500 million of the Company’s stock, bringing its current unused repurchase authorization to $608 million. Including the additional authorization, the cumulative share repurchase authorization approved by its Board since 1998 totals $6.4 billion.

Additionally, as part of the Company’s ongoing evaluation of its capital structure, the Company has decided to increase its adjusted debt / EBITDAR leverage metric to at least 2.5x from the previously established 2.1x. The Company believes this will better optimize its current capital structure and also reflect the ongoing strength of its free cash flow generation.

AutoZone also announced that it has entered into an agreement with ESL Investments, Inc. (with its affiliates, “ESL”) setting forth certain understandings and agreements concerning ESL’s continued investment in AutoZone. ESL currently owns approximately 36.2% of the outstanding AutoZone common stock. Pursuant to the agreement with ESL, the Company has agreed to use its commercially reasonable efforts to achieve at least the new 2.5x adjusted debt / EBITDAR leverage metric by the end of the Company’s second quarter fiscal 2009.

“We are very pleased to have reached this agreement with our long-term and significant stockholder, ESL, which was motivated, by our desire to continue to return excess capital to stockholders in the context of appropriate, mutually agreed governance arrangements,” said Bill Rhodes AutoZone’s Chairman, President and Chief Executive Officer. “We appreciate ESL’s belief in the Company and its management over the past eleven years and look forward to its continued involvement in helping us achieve our goals for the benefit of all stockholders.”

The agreement with ESL provides, among other things, that, should ESL’s percentage ownership of Company shares increase above certain thresholds, ESL will vote its shares owned above such thresholds in the same proportion as shares unaffiliated with ESL are actually voted. The initial threshold is 40%, which will reduce to 37.5% following the 2009 annual meeting of stockholders. The agreement also states the Company’s intention to add three directors in the near future, two of whom will be identified by ESL for consideration by the Company’s Nominating and Corporate Governance Committee, thereby increasing the Board’s size to 12 members. Thereafter, the Company expects to reduce the Board’s size to 10 members in conjunction with the 2008 annual meeting in December. The agreement also contains certain other protections for non-ESL affiliated shareholders as well as for ESL.

The agreement with ESL or certain of its provisions will terminate, except as the parties otherwise mutually agree, upon the earlier of the date upon which the shares (a) owned by ESL constitute less than 25% of the then outstanding shares or (b) owned by ESL constitute more than 50% of the then outstanding shares, provided that ESL has acquired subsequent to the date of the agreement additional shares representing above 10% of the then outstanding shares.

Disclosure (“none” means no position):None

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I started following the soon to be doomed park operator after a trip there last year. After a recent Hershey Park vacation, I am even more convinced they are done…

After large shareholders began selling and management began blaming god for poor results, I couldn’t wait for the latest excuse. Fortunately, you really only need wait a quarter.

At least they have begun to attempt some honesty with shareholders. Although, they still are blowing smoke up investors…well…

Dealscape Reports:
“The second-largest U.S. amusement park company, Six Flags Inc. (SIX), has been on a downhill ride over the last decade with its latest twist, a downgrade to selective default from CCC+ by Standard & Poor’s.

The move highlights the financial woes Six Flags has been suffering as the company has been hit hard by the slowing economy, particularly impacted by the rising price of gas, and intense competition from other forms of entertainment. The company has tried to save money with its recent move of exchanging $530.6 million in notes due in 2010, 2013 and 2014 for $400 million in bonds maturing in 2016, resulting in a net savings of $130 million. Additionally, the company has divested and closed some of its properties to free up more cash.

Despite these measures, Six Flags has not been able to stop the trend of losing money every year since 1998, plagued with a massive debt load of more than $2 billion due to overexpansion. With all the financial pressures that Six Flags has been experiencing, the only remedy for the theme park operator may be a merger with a stronger partner. However, when rival Cedar Fair Entertainment Co.(FUN) tested the M&A waters last year, it found no takers. So Six Flags’ ride may end in bankruptcy”

Six Flags is the only company I have ever seen that has a debt level ($2.3 billion) that is 14 times larger than it market cap ($160 million). Stunning….

Good news is that at $1.60 a share, you can skip a soda at the park and pick up three shares for the cost of the soda. Although, the soda at least will give you some enjoyment.

I do not buy the recent excuse du jour, gas prices. If anything, the regional parks ought to benefit as people will not travel long distances for vacations but seem more likely to do the day trip that is Six Flags. Witness this report

What is the problem? Simple really. A lousy experience that lacks any value.

Until that changes, expect nothing but more excuses, until the end, which, may not be much longer..

Disclosure (“none” means no position):none

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Fisher, SNS & SHLD, Gas, Google

– Phil was one of the greats

– Some thoughts

– Demand is falling

– Who to believe?

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Fisher, SNS & SHLD, Gas, Google

– Phil was one of the greats

– Some thoughts

– Demand is falling

– Who to believe?

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Visit the ValuePlays Bookstore for Great Investing Books

So, if Hershey (HSY) is not going to be sold, it needs to acquire to keep pace with the new Mars & Wrigley (WWY) combo.

Recently Hershey reaffirmed its fiscal 2008 guidance and expects net sales growth to be in the range of 3%-4% and earnings per share-diluted from operations (EPS) to be $1.85-$1.90. They reported revenue of $4.9 billion in fiscal 2007. According to Reuters Estimates, analysts on average are expecting the Company to report revenue of $5.1 billion in the same period.

On another note:
Gene Marcial, Business Week’s Inside Wall Street Columnist, says Tootsie Roll is a buyout candidate:

Here is a review of the article:
1. Though the company has not performed well lately, as first-quarter sales tumbled, costs spiraled higher, and earnings are on a downward slope.

2. However, the “smart-money crowd” is starting to gather in the stock. That has lifted Tootsie’s share price since late April, when the stock traded at $23. It sprinted up to $27 by early June, where it has remained.

3. Tootsie Roll possesses many of the ingredients that make it a palatable buyout target; the company certainly needs new energy to spark a lift in sales, earnings, and stock price. And Tootsie Roll’s management hasn’t displayed the skills to improve the company in the current environment of rising commodity prices and stiffening competition.

4. Tootsie Roll’s chairman and CEO is now 88, and his wife, the company’s president and chief operating officer, is 76. They control some 76% of the class B voting stock and 54% of the common shares of the Chicago-based company, so the question of a hostile or unsolicited takeover at the Chicago-based company seems out of the question.

5. According to Mario Gabelli, “It looks like a sale will happen, although the big question is when.” Other big shareholders include Wells Capital Management, with a stake of 9.5%, T. Rowe Price (TROW), which holds a nearly 5% position, and Barclays Global Investors (BCS), with 4.3%.

6. Tootsie Roll is a well-recognized brand name, the balance sheet is strong with understated assets, cash flow, and dividend. But, earnings have been flat for years. And, that might attract its bigger rivals, which could see the prospect of rewarding synergies and potential growth in combining with Tootsie Roll. Such larger competitors include Hershey (HER), Mars and Wrigley (WWY).

Hershey needs to expand its offering and Tootsie Roll is both ripe for buying and an iconic brand to add to the stable. Even after the recent price increase. Tootsie sports a valuation of only 1.5 billion, roughly 1/4 that of Hershey.

One has to think that what Hershey would want is the name, close some outdated production facilities and consolidate operations and cost saving would surely be available.

PS. On a side note. A recent vacation to Hershey Park with the kids was a smashing success. First class amenities and and fantastic park. Not a single complaint to be had other than wishing we had chosen to spent more time there. Maybe next year….

Disclosure (“none” means no position):None

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Why?

For this reason:

Not that he supports Ford (F) or GM (GM) but that he calls out Cramer…

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Why?

For this reason:

Not that he supports Ford (F) or GM (GM) but that he calls out Cramer…

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Visit the ValuePlays Bookstore for Great Investing Books

This really does not even qualify as news today….

The Fed Said:
“The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters.

The Committee expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high.

The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time. Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred an increase in the target for the federal funds rate at this meeting.”

What mattered here more than the action was the statement. As hoped, Bernanke & Co. have turned their sites on inflation and are giving the market time to adjust to the higher rates that are coming.

This was the right move and the upcoming increases will be the right moves also.

I have been saying this since way back and still believe it. When the current crisis passes, and like all the other in the past it will. Bernanke will finally get credit for the outstanding job he did maneuvering financial markets through it. He thought outside the box and used some unique tool available to him while at the same time allowing those in the market who made mistake to pay for them….

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