Martin Whitman’s Third Avenue Value (TAVFX) has filed it’s 13-F
Disclosure (“none” means no position):Long TAVFX
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Lampert Files 13F
Here is what Sears Holdings (SHLF) Chairman has:
AutoNation (AN)= 72 million shares
AutoZone (AZO)= 23 million shares
Sears (SHLD)= 65.6 million shares
Citi (C)= 19 million shares
Home Depot (HD)= 19.5 million shares
Centex (CTX)= 608k shares
KB Home (KB)= 358k shares
SLM Corp (SLM)= 6 million shares
Full Filing
Disclosure (“none” means no position):Long SHLD, AN,C, none
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Ok, so Netflix (NFLX) has had an issue that stopped it from shipping DVD’s for a day. Am I the only one who is not sure why this is such a big deal? I mean, if your day can be ruined because your Netflix DVD will show up tomorrow instead of today, you may need to do a “priority check”.
Here is the jist of the problem.
And more on it:
CNBC ran with it for 5 minutes but I think enough is enough.
The really odd thing is that this could end up being a boon for the company. what does Netflix want to do? Push folks into the video-on-demand box. I am sure that they will offer people some discount for those affected by the mailing snafu and if they are smart, perhaps offer folks a small incentive to change their service to the online one, “so they do not have to worry about this again”.
Just idea of how to “fall in sh#% and come up smelling like a rose”
Disclosure (“none” means no position):None
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Wal-Mart Earnings Call
The Wal-Mart (WMT) earnings calls are usually non-events because there is no Q&A and they do not break-our detailed results for international operation. Here is some good news and some disappointing news.
– Consolidated gross margin was up 32 basis points for the second quarter, due primarily to the improvements Wal-Mart U.S. made in inventory management and merchandising flow. Inventory is one of five financial metrics that support efforts to improve free cash flow. The goal is for inventory to increase at half of the rate of our sales growth. Consolidated inventories were up 3.5% against a year-to-date sales increase of 10.4%, a good performance again driven primarily by Wal-Mart U.S.
– Return on investment from continuing operations for the trailing 12 months ended July 31, 2008 is 19.3%
– Capex, was approximately $5 billion for the first half of fiscal 2009, down from approximately $7 billion in the same period last year. As was said in mid June, they are forecasting capital spending for fiscal 2009 to be between $13 and $14 billion. This is down from our original projection of $13.5 to $15.2 billion for the total year.
– Repurchased approximately $845 million of stock, which represented approximately 14.7 million shares. Under the current $15 billion share repurchase facility, they have spent approximately $8.7 billion.
The share repurchase news is particularly disappointing after the record free cash flow results. As a shareholder, if Wal-Mart is decreasing capex, has no plans to significantly raised the dividend, then, why are they sitting on excess cash? One would think that they would expect share price appreciation over the next year and if that is so then buying more shares back now would seem to be the prudent thing to do.
They still have $6 billion under the current authorization and waiting to return that money to shareholders until later in this year or next year will be done with increasingly less impact than if it had been done last quarter.
That does somewhat sully what would have been a sterling report..
Disclosure (“none” means no position):Lomh WMT
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There was even more activity than the recent SEC Filing in Sears Holdings (SHLD) disclosed.
We all know Berkowitz went from 8.9 million to 12.3 million shares of Sears Holdings. What was not disclosed was that he added $75 call options and $60 call options, most likely when shares dipped last month.
Berkowitz bought $75 call options on 41,100 shares and the $60 calls on 358,000 shares. If exercised (along with the 354,000 shares already spoken for in the $80 calls) , Berkowitz would then own over 13 million shares.
There is going to be a short squeeze in this stock the likes of that have not been seen in a long time.
Disclosure (“none” means no position):
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JB sent me a great message this morning about the Barnes & Noble (BKS) and Borders (BGP) article in the WSJ today. It is well worth a read.
“I’m not sure how much I believe about difficultly in getting bank financing. It seems like CVS (CVS) didn’t have a difficult time and Waste Management (WMI) has received positive feedback from banks regarding the RSG offer. Not to mention the fact that BKS is under levered going into a potential transaction. BKS has 96.83mm in debt and netting out cash has 70.75mm in debt. This represents 5% of the company market cap and is only 20.5% of the estimated 2009 EBITDA.
In addition if BKS were to buy BGP for $10/share financing the transaction with debt, the combined entity would only have a Debt/Ebitda of 2.55x and this is exclusive of any synergies and also uses the current analyst estimated EBITDA where the analyst community for the most part doesn’t include the $120mm in SG&A cuts that BGP has announced ($60mm this year and $60 mm next year). So I find it hard to believe that BKS investment bank wouldn’t see this and would be reluctant to lend.
As far as the concern about the length of leases, without further detail on the financials of each location, according to the 10K over the next 5 years on a cumulative basis BGP domestic super stores have 2.2%, 4.9%, 9.6%, 11.2%, 14.5% of the leases expiring and more importantly the company has (on a cumulative basis) 52.4%, 76.5%, 88.4%, 95.1% and 97.3% of the Walden stores coming off lease. This is important b/c the Walden business loses money and is drag on cash flow. So closing these stores would be a big benefit to a combines entity. While many of the super stores overlap with BKS stores I would think that a controlled closing of overlapping stores could be achieved.
The companies share approximately 112 investors. Below is a list of the top 12 BGP investors who also own a position in BKS. I would think that Pershing Square, T2, Brandywine and Hawkshaw all have talked with both companies about the merits of a combined entity.
Shareholders are listed followed by the % of share held in Borders and then Barnes & Noble
Pershing Square Capital Management= 17.5% , 11.9%
Deutsche Investment Management Americas, Inc.= 6.4%, 0.6%
Barclays Global Investors NA (California)= 4.7% , 2.7%
Vanguard Group, Inc. = 3.2%, 3.1%
T2 Partners Management LP= 2.2%, 0.5%
State Street Global Advisors = 2.2%, 2.5%
Citigroup Global Markets (United States)= 2.0%, 0.3%
Millennium Partners = 1.4%, 0.2%
Brandywine Global Investment Management LLC = 1.2%, 0.5%
Hawkshaw Capital Management LLC= 1.1%, 0.5%
Northern Trust Investments = 1.1%, 0.5%
LSV Asset Management= 1.1%, 5.3%
While the deal would be looked at by the government I think ultimately the companies would be allowed to combine using the argument that online retailers are serious competition. Also I’m not entirely sure what the point of the article is tough b/c it goes though all the reasons why it won’t happen but states that BKS could changes its mind.”
I think maybe it was just a slow news day?
Disclosure (“none” means no position):Long BGP, None
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So, Barnes and noble (BKS) “may” not be interested in Borders (BGP) “now” and that has folks running around screaming. Yeah, um…. has anyone looked at the job CEO George Jones is doing there?
First the news from the WSJ:
“Barnes & Noble’s decision not to bid reflects in part the tight lending markets that likely would make it difficult to arrange bank financing. The retailer was also known to be concerned about the length of some of the leases that Borders has signed.
To be sure, Barnes & Noble could change tactics and return with a bid, but it would have to act quickly. Borders hopes to complete the auction by the end of September, according to a person close to the company. At its current trading price, Borders has a market capitalization of only $344 million, and as it’s a cash-flow business, it could be expected to attract some interest from private-equity shoppers.”
Now, lets look. Later in the article.
“Borders currently is cutting costs and reducing overhead, in recent months has continued to trumpet its new prototype stores, which it believes are essential to its future. In addition, the retailer lowered its debt to $591.9 million at the end of its fiscal first quarter ended May 3 from $722.8 million a year earlier.”
Borders problem has always been its debt in recent years. Lowering it 18% in the previous quarter is the most important thing they could do and Jones promised more reductions in the future. The new concept stores are working and the new website in fantastic and will be profitable for the company this year.
I think Barnes & Noble’s decision is more of a matter of its own situation than its desire to own Borders. Barnes did not say “no”, this may be a simple negotiating ploy on their part to attempt to extract a better price. Who knows. There are plenty of interested buyers and even if a sale does not materialize, the direction Jones is taking the company and the moves he is making in a struggling economy will pay off either way.
We will find out more next week when they report earnings. I would expect sales to be sluggish but want to see more debt reduced and are very interested in new store results and web traffic to date since its rollout.
Disclosure (“none” means no position):Long BGP, none
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It now appears after gloomy reports from Target (TGT), JC Penny (JCP), and Macy’s (M) that Wal-Mart may just be the only large retailer actually growing.
Wal-Mart (WMT) today reported its sales and earnings for the quarter ended July 31, 2008. Net sales for the second quarter of fiscal year 2009 were approximately $101.6 billion, an increase of 10.4 percent from $92.0 billion in the second quarter last year.
Income from continuing operations for the second quarter was $3.385 billion, an increase of 9.3 percent from $3.097 billion in the second quarter last year. Diluted earnings per share from continuing operations for the second quarter of fiscal year 2009 increased to $0.86 from the previous year’s second quarter result of $0.75 per share (after reclassifying for discontinued operations, as noted below). The prior year included a net benefit of $0.04 per share from three items: the net impact of a reduction of general liability and workers’ compensation claim accruals, gains from the sale of certain real estate properties, and charges for legal and other contingencies.
In the 8-K released today Wal-Mart said:
“Free cash flow should be considered in addition to, rather than as a substitute for, net income as a measure of our performance or net cash provided by operating activities as a measure of our liquidity. Additionally, our definition of free cash flow is limited and does not represent residual cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt service and other obligations or payments made for business acquisitions. Therefore, we believe it is important to view free cash flow as supplemental to our entire statement of cash flows. “
So, how much “free cash flow” did Wal-Mart generate? $4.9 billion in the year’s first six months.
Increases Guidance
“For the third quarter of fiscal year 2009, we estimate the Company’s comparable store sales increase in the United States to be between one and two percent, which continues to reflect some sales volatility from week to week,” said Tom Schoewe, Wal-Mart Stores, Inc. executive vice president and chief financial officer. “We expect the Company’s earnings per share from continuing operations for the third quarter to be between $0.73 and $0.76 and are raising our current forecast for earnings from continuing operations for the full fiscal year to a range of $3.43 to $3.50 per share.”
Not in the release? Share repurchases. Anything less than $1.5 – $2 billion would be disappointing.
Wal-Mart is just on auto-pilot now. Those who were lamenting their sales release just a week ago must now be perhaps wishing they were not so, alarmist?
Even at the new earnings guidance levels I think it is safe to say those are “in the bag” so to speak and one ought to really be looking at how much Wal-Mart can surpass those.
Disclosure (“none” means no position):Long WMT, None
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Housing, Worst Over?
So, here are the CEO of the two largest home builders, Robert Toll of toll brothers (TOLL) and Ara Hovnanian of Honvnanian (HOV). Let’s see what they have to say.
Toll:
Hovnanian:
Now, here is what matters. Neither Toll or Hovnanian have been very positive in the past and both are not jumping up in down in glee in these reports. But, and this is the big point. Both are seeing the deterioration of conditions waning. Toll said “it doesn’t feel good but isn’t getting any worse.”
This seems to back Wilbur Ross’s claim yesterday that he sees housing conditions lasting “well into 2009”.
Hovnanian mentioned the $7500 tax credit and compared it to the $2000 credit back in 1975 that was very successful.
Both Honvnaina and Dennis Gartman (“Squawk” guest) mentioned the “baby boom” currently underway in the US that is always bullish for housing. The thing that struck me was that both homebuilders were very calm and breathing rather easily as though they both, while they would not come out and say it, felt the worst was over..
Disclosure (“none” means no position):None
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Ross talks about the current housing troubles (lasting though 2009), subprime (those lenders have a better business due to pricing), bond insurers & debt rating agencies (they do not understand the business) and more. It is a great interview.
Part 1:
Part 2- He talks about his Assured Guarantee (AGO) Investment. He makes a very good case for it:
Disclosure (“none” means no position):none
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The Candidates Health Plans (video)
Investors in health related stocks will want to know what both McCain and Obama plan to do if elected.
Obama:
McCain:
Personally, I think the more gov’t gets involved, the more expensive it always becomes…..always…
Disclosure (“none” means no position):McCain voter
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Thursday’s links
Thank you,Blackberry, Dowd, BJ’s, Race
– Thanks for the mention in the WSJ
– Iwhat?
– Do people really still read her?
– Not what your’re thinking
– This has to be tough
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So, is this a repeat of 1990-1991? While the other banks are going bust, shedding assets and dumping garbage on their books for pennies on the dollar, Wells Fargo (WFC) quietly stays above the fray and expands. Today it announced the purchase of Century Bancshares (
From the release:
“Wells Fargo & Company (NYSE:WFC) and Century Bancshares, Inc. said today they have signed a definitive agreement for Wells Fargo to acquire Century Bancshares and its banking operations in Dallas-Fort Worth, and Texarkana, Texas and Arkansas in a stock-for-stock merger. As a result of the acquisition, Arkansas will become Wells Fargo’s 24th community banking state.
The acquisition – requiring approval of regulators and Century Bancshares shareholders, and expected to be completed by the end of this year – will increase Wells Fargo’s presence in Dallas-Forth Worth, the U.S. metro area with the largest population increase from 2006 to 2007, according to census data. It also will make Wells Fargo No. 1 in deposit market share in Texarkana.
Closely held and based in Dallas, Century Bancshares has $1.4 billion in assets, $1.3 billion in deposits, $1.2 billion in loans, 32 banking locations and 485 employees. It has 28 Century Bank locations in nine Texas communities – Dallas (11); Atlanta; Addison; Farmers Branch (2); Frisco; The Colony; Plano (3); New Boston; and Texarkana (7). Four Century Bank locations are in Arkansas – Texarkana (3); and Ashdown. Century Bank is the leading financial institution in Texarkana and surrounding communities.
“The combination of Century Bank and Wells Fargo will be a great benefit for our customers, our employees and the communities we serve,” said Joe Nichols, CEO, Century Bancshares. “By teaming with Wells Fargo, we can continue delivering the excellent personal service and financial advice our customers expect, and offer them more products and services, and more convenience throughout Texas and the western United States. We also will remain a leader in supporting our north Texas and Texarkana communities.”
The key here is that Wells Fargo is now one of the largest institutions on a region that is growing at a break-neck pace and up until this point, has been relatively immune to the economic malaise affecting so much of the country.
This is the same playbook Wells Fargo played by at the turn of the 1990’s during the last housing downturn. It worked stunningly for shareholders then and looks to be loading them up for similarly out-sized gains now in the year to come. You’ll remember that Wells latest 10-Q did not contain the despair that other banks like Citi (C), Wachovia (WB) or even JP Morgan (JPM) did.
Berkshire’s (BRK.A) Warren Buffett bought heavily into WFC then, one has to wonder if he is picking up more now..
Disclosure (“none” means no position):Long WFC, C, WB, None
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Once again Jane Genova got the scoop. Jane probably had a copy of the response before the Court Clerk in RI did. Sherwin Williams (SHW) has officially filed its response to RI.
Anyway, here is her post
The line that gets me:
“Here you can download the Rhode Island lead defendants’ rebuttal of the state’s contention of sovereign immunity as well as the state’s argument that costs should be denied because defendants’ “failed to exhaust the remedies available to them from the outset.”
Exhaust remedies? Really? I thought the RISC just ruled the case should never have been brought in the first place? What would RI AG Patrick Lynch have proposed the defendants do? Beg for forgiveness? Grovel at his feet?
I can’t wait to read the response. I hope it is with keeping with this whole farce from the beginning…hysterical…
It must be hard to write a professional response to the court the way the defendants do. Recite the law on one hand and remind us of the absurdity of the entire situation on the other.
Disclosure (“none” means no position):Long SHW
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John Paulson, otherwise know as “the guy who made over $3 billion shorting mortgages” has files a 13F in his hedge fund Paulson & Co.
Notable moves:
Added 7 million shares of Phillip Morris International (PM)
Added 2.7 Million shares of Bank of America (BAC)
Increased NYMEX Holdings (NMX) ownership from 1 million to 2.5 million shares
Added 3.4 million shares of Wrigley (WWY)
Sold 4.5 million shares of Altria (MO)
What is interesting is the purchase of Bank of America. Paulson, who it can be argued saw the current housing and mortgage market mess before anyone, must see some light at the end of the tunnel. Either that, or he thinks BAC’s valuation is so low, he is protected from more bad news.
Either way, it does bode well as a glimmer of hope….
Full August filing
Full May filing
Disclosure (“none” means no position):Lonh PM,MO, none
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