From Value Discipline
Founded in 1910, FTD Group (FTD) is the largest floral company in the world.FTD, originally known as “Florists Telegraph Delivery” connects 20,000 North American florists as well as about 50,000 florists in 174 countries worldwide.
The business divides itself into two segments, the Consumer Segment and the Florist Segment. The Consumer Segment is an Internet and telephone marketer of flowers and specialty gift items to consumers, operating primarily through its www.ftd.com Web site and the 1-800-SEND-FTD toll-free telephone number. The Consumer segment does not own or operate any retail locations. The Consumer Segment is a particularly interesting business to me with very low working capital requirements because FTD-member florists and specialty gift providers maintain all physical inventory and bear the cost of warehousing and distribution. The Florist Segment provides a comprehensive suite of products and services to enable florists to send and deliver floral orders.The largest sub-segment within the Florist Segment is Member Services which is the primary provider of business services to FTD-member florists to promote their revenue growth and operating efficiencies. This includes national advertising and “clearinghouse services” which eliminate counterparty credit risks between sending and receiving florists.
The company was taken private in February of 2004 in a leveraged buyout by Leonard Green & Partners. It was taken public again in February of 2005. An interesting pass for Leonard Green et al. For its initial investment of $185 million, mostly in preferred but including $40 million in equity, the IPO brought total proceeds of $208.4 million, paying off the preferred, providing $14 million in management fees for the “experience” and providing investment bankers with $7 million in transaction and closing fees. The Green firm retains about 55% of the equity for what appears to be at this point, a zero investment at this point. Like I say, nice pass! Get ready for more...Green filed a shelf registration S-3 on October 13th. More about that a little later.
The company did report decent numbers this morning for the first quarter, reporting 18 cents versus 11 cents a year ago. The CEO was very enthusiastic about the quarter in the conference call, not often that you hear a CEO describe the quarter as “For those of you who have had a chance to get through the release, you’ll see we had just an amazing quarter...really great on all fronts....just kind of an across the board homerun.” It appears that about 4 cents of the increase came from tax rate and forex changes.
Revenues were up about 27% including the Interflora acquisition...ex that, up about 9%. The Consumer Segment had revenue growth of 14% with Internet orders constituting 88.1% of total.The domestic Florist Segment had revenues down 1.1% but that included a comparison against a greeting cards business that FTD no longer owns...on a comp basis, revenues were up only about 4%. Advertising and selling expenses in florist had averaged about $13.3 million per quarter last year...now suddenly, they are running at $10.47 million. That $11.3 million in savings would represent about 40 cents per share pre-tax in savings or 24 cents after tax. This is substantial, but is it sustainable?
Historically, the company has announced the number of florists in the network. The last year and a half has seen a decline in the number of florists from 20,000 florists to somewhere around 19,000. FTD management has decided that analysts no longer need to know about this. It seems that 1-800-FLOWER’s Bloomnet may be taking some share.
The balance sheet has been impacted by the Interflora acquisition with total debt of about $348 million versus the June 2006 FYE of about $220 million and the prior fiscal of $238 million.
The market seems to have liked today’s earnings report. Reduction of advertising and selling expenses especially this drastically has provided some decent leverage, but how is this addressing the shrinkage in the number of florists? If part of the package of services that the firm sells to its members is national advertising, will the network members be content to receive fewer benefits for the same membership fee? Will the number of florists in the network continue its decline?
Could the cost reductions be temporary to perhaps “grease the skids” for another offering? Excuse my cynicism.
Some years ago, Peter Lynch described the practice of selling one’s winners and keeping one’s losers as harvesting the flowers to grow the weeds. Ironically, FTD management, in my opinion, is doing exactly that. Slashing of unnecessary expenses is a good thing, but cutting important expenses on a distribution system that drives your business seems foolhardy.
Disclaimer: Neither I, my family, or clients has a current position in any of the securities mentioned in this post. And no, I am not a florist.
http://www.valuediscipline.blogspot.com/
Rabu, 01 November 2006
Merrill Ups Handset Sales Forecasts
By William Trent, CFA of Stock Market Beat
Merrill Lynch boosted their forecasts for handset sales in 2006 and 2007. The increases are a bit out of synch with recent disappointing reports from the handset channel. Cellular-news.com reports:
Merrill Lynch has upgraded their forecasts for handset sales next year to 1,067 million, in a research note from their analysts. Their 2006 handset estimate has also increased from 918 million to 970 million. In their view, 2006 could be the peak year for global and emerging market net adds at 440 million and 387 million.
They expect the annual growth rate of handset unit shipments to slow from 20-30% seen in 2003-06 to 10% or less in 2007-10, mainly driven by a slowdown in emerging markets subscriber growth from 28% YoY in 2006 to 18% YoY in 2007. However replacement handsets in emerging markets will grow at 66% in 2007 and provide the impetus for industry unit growth.
WCDMA handset market should accelerate, driven by HSDPA adoption, to 67% YoY to 168 million, up from 10% to 15% of the market in 2007.
The Cellular-news article has a decent chart showing the specific forecast changes, for those tracking such things.
The author may hold a position in the securities discussed. A current list of the author's holdings is available here.
http://stockmarketbeat.com/blog1/
Merrill Lynch boosted their forecasts for handset sales in 2006 and 2007. The increases are a bit out of synch with recent disappointing reports from the handset channel. Cellular-news.com reports:
Merrill Lynch has upgraded their forecasts for handset sales next year to 1,067 million, in a research note from their analysts. Their 2006 handset estimate has also increased from 918 million to 970 million. In their view, 2006 could be the peak year for global and emerging market net adds at 440 million and 387 million.
They expect the annual growth rate of handset unit shipments to slow from 20-30% seen in 2003-06 to 10% or less in 2007-10, mainly driven by a slowdown in emerging markets subscriber growth from 28% YoY in 2006 to 18% YoY in 2007. However replacement handsets in emerging markets will grow at 66% in 2007 and provide the impetus for industry unit growth.
WCDMA handset market should accelerate, driven by HSDPA adoption, to 67% YoY to 168 million, up from 10% to 15% of the market in 2007.
The Cellular-news article has a decent chart showing the specific forecast changes, for those tracking such things.
The author may hold a position in the securities discussed. A current list of the author's holdings is available here.
http://stockmarketbeat.com/blog1/
Merck Paying $1B for Sirna, More Deals Likely
From Peridot Capitalist
Pharmaceutical giant Merck (MRK) is clearly looking for ways to boost growth. It's no secret that big pharma companies face increasing competition from generic drugs and pressure to keep rising healthcare costs in check. Small to mid size acquisitions of biotechnology companies are a solid way for companies like Merck, Pfizer (PFE), and Glaxo SmithKline (GSK) to strengthen their product pipelines.
On Monday we learned that Merck is paying more than $1 billion for Sirna Therapeutics (RNAI). It's is quite possible that they overpaid. After all, MRK is paying $13 per share in cash, a premium of more than 100 percent over Monday's closing price. However, overpaying by a couple hundred million dollars isn't a big deal for a company the size of Merck if several of Sirna's products eventually reach the market.
There is no doubt that deals like this one will continue. I am generally leery of trying to predict which firms will get taken out next. So, I would suggest that biotech investors pick stocks that have solid fundamentals, not just those that some speculate could get a bid from big pharma.
As for the pharma companies themselves, I like Pfizer at current levels ($27 per share). It trades at a discount to most of the other pharmaceutical companies and yields well over 3 percent. Pfizer has done mid size deals before and likely will do so in the future. In fact, I made a ton on a company called Esperion Therapeutics when it was bought out by Pfizer for $1.3 billion.
With a hefty yield and a below-market multiple, conservative, defensive, income-oriented investors should take a look at PFE. A recent analyst downgrade has knocked the stock down a buck.
Full Disclosure: I own shares of Pfizer personally, as do some of my clients.
http://www.peridotcapitalist.com/
Pharmaceutical giant Merck (MRK) is clearly looking for ways to boost growth. It's no secret that big pharma companies face increasing competition from generic drugs and pressure to keep rising healthcare costs in check. Small to mid size acquisitions of biotechnology companies are a solid way for companies like Merck, Pfizer (PFE), and Glaxo SmithKline (GSK) to strengthen their product pipelines.
On Monday we learned that Merck is paying more than $1 billion for Sirna Therapeutics (RNAI). It's is quite possible that they overpaid. After all, MRK is paying $13 per share in cash, a premium of more than 100 percent over Monday's closing price. However, overpaying by a couple hundred million dollars isn't a big deal for a company the size of Merck if several of Sirna's products eventually reach the market.
There is no doubt that deals like this one will continue. I am generally leery of trying to predict which firms will get taken out next. So, I would suggest that biotech investors pick stocks that have solid fundamentals, not just those that some speculate could get a bid from big pharma.
As for the pharma companies themselves, I like Pfizer at current levels ($27 per share). It trades at a discount to most of the other pharmaceutical companies and yields well over 3 percent. Pfizer has done mid size deals before and likely will do so in the future. In fact, I made a ton on a company called Esperion Therapeutics when it was bought out by Pfizer for $1.3 billion.
With a hefty yield and a below-market multiple, conservative, defensive, income-oriented investors should take a look at PFE. A recent analyst downgrade has knocked the stock down a buck.
Full Disclosure: I own shares of Pfizer personally, as do some of my clients.
http://www.peridotcapitalist.com/
Comprehensive Sears Holdings (SHLD) Analysis
By Yaser Anwar, CSC of Equity Investment Ideas
Sears has successfully managed through its turnaround phase of extensive cost cutting and inventory rationalization to yield impressive margin expansion and cash build up.
Due to the high turnover at the senior management level and Eddie Lampert’s limited history of driving long-term sales improvement, investors should expect growth through
acquisitions to be the likely strategy (that's where the massive cash flow comes handy).
SHLD has projected $500 million in annualized merger-related cost and revenue synergies by the end of 07, consisting of- $200 million in increased revenue through Kmart-to-Sears store conversions and cross-selling opportunities between Kmart and Sears proprietary brands; $200 million in purchasing cost reductions as a result of increased purchasing scale in both merchandise and non-merchandise procurement; and $100 million from other cost reductions, particularly with respect to the consolidation of shared headquarter functions and corporate services.
Projected cost reductions seem attainable, as SG&A expenses decreased by $399 million in FY 06 on a pro forma basis, which assumes the merger had occurred at the beginning of FY 05.
According to a Goldman Sachs research report
Valuation: somewhat appealing, but outlook still unclear
"We are initiating with a $188, one-year price target based on four separate analyses—sum
of the parts, best-/worst-case scenarios, CROCI, and DCF. Our price target is equavalent to
16.2X our fiscal 2008E EPS, slightly below two-year averages of 16.8X.
• Sum-of-the-parts analysis leads to a $185, one-year valuation: Our analysis breaks out the three operating segments of Sears Holdings and uses comparable EV/EBITDA multiples from representative mass retailers, department stores, and hardline competitors;
• Best- and worst-case scenarios point to a $182, one-year valuation: Our analysis “shock tests” various EPS and multiple scenarios and probability weights the outcomes.
• Our CROCI analysis points to a $195, one-year valuation: Sears Holdings trades at a discount to other retail names when plotted on our retail regression line.
• Our detailed DCF model points to a $192, one-year valuation: Our model contains explicit forecasts through fiscal 2014.
Given its somewhat appealing valuation, we see greater risks to the upside based on continued margin expansion, a successful sales recovery, and continued acquisitions."
http://www.equityinvestmentideas.blogspot.com/
Sears has successfully managed through its turnaround phase of extensive cost cutting and inventory rationalization to yield impressive margin expansion and cash build up.
Due to the high turnover at the senior management level and Eddie Lampert’s limited history of driving long-term sales improvement, investors should expect growth through
acquisitions to be the likely strategy (that's where the massive cash flow comes handy).
SHLD has projected $500 million in annualized merger-related cost and revenue synergies by the end of 07, consisting of- $200 million in increased revenue through Kmart-to-Sears store conversions and cross-selling opportunities between Kmart and Sears proprietary brands; $200 million in purchasing cost reductions as a result of increased purchasing scale in both merchandise and non-merchandise procurement; and $100 million from other cost reductions, particularly with respect to the consolidation of shared headquarter functions and corporate services.
Projected cost reductions seem attainable, as SG&A expenses decreased by $399 million in FY 06 on a pro forma basis, which assumes the merger had occurred at the beginning of FY 05.
According to a Goldman Sachs research report
Valuation: somewhat appealing, but outlook still unclear
"We are initiating with a $188, one-year price target based on four separate analyses—sum
of the parts, best-/worst-case scenarios, CROCI, and DCF. Our price target is equavalent to
16.2X our fiscal 2008E EPS, slightly below two-year averages of 16.8X.
• Sum-of-the-parts analysis leads to a $185, one-year valuation: Our analysis breaks out the three operating segments of Sears Holdings and uses comparable EV/EBITDA multiples from representative mass retailers, department stores, and hardline competitors;
• Best- and worst-case scenarios point to a $182, one-year valuation: Our analysis “shock tests” various EPS and multiple scenarios and probability weights the outcomes.
• Our CROCI analysis points to a $195, one-year valuation: Sears Holdings trades at a discount to other retail names when plotted on our retail regression line.
• Our detailed DCF model points to a $192, one-year valuation: Our model contains explicit forecasts through fiscal 2014.
Given its somewhat appealing valuation, we see greater risks to the upside based on continued margin expansion, a successful sales recovery, and continued acquisitions."
http://www.equityinvestmentideas.blogspot.com/
Cramer Features Brazil Stock Pick: (RIO-NYSE/ADR)
Cramer on MAD MONEY last night also went over his Best of Breed picks in Brazil. Cramer says it is Nirvana down there with high growth and decent inflation. The election there was electing a socialist who is becoming a great quiet capitalist. He said that the situation in Brazil merits that investors need to be there.
CVRD-Companhia Vale do Rio Doce (RIO-NYSE/ADR) just bought Inco, and this is a great company for Cramer. He said the stock was beaten up for the acquisition of Inco, but he thinks it is highly accretive and it should have been bought instead of sold off. He also likes the cost containment they are doing, and he thinks the estimates are toolow for 2007. He said BHP & RTP are the stocks that are popular now with money managers, but he thinks money managers will turn this into a core holding soon. He isn't calling it a double, and investors need to know that it already has a $61.8 Billion market cap. He thinks there may be 1 or 2 months before the street switches its stance.
Jon C. Ogg
CVRD-Companhia Vale do Rio Doce (RIO-NYSE/ADR) just bought Inco, and this is a great company for Cramer. He said the stock was beaten up for the acquisition of Inco, but he thinks it is highly accretive and it should have been bought instead of sold off. He also likes the cost containment they are doing, and he thinks the estimates are toolow for 2007. He said BHP & RTP are the stocks that are popular now with money managers, but he thinks money managers will turn this into a core holding soon. He isn't calling it a double, and investors need to know that it already has a $61.8 Billion market cap. He thinks there may be 1 or 2 months before the street switches its stance.
Jon C. Ogg
Cramer on MAD MONEY Calls Hansen Natural a Scary Stock
Yesterday on MAD MONEY Cramer gave a stock to avoid as a scary stock on Halloween. He said that Hansen Natural (HANS) is that scary stock. He said even after the sell-off it is up 150% and it has nothing proprietary about it.
For a Backgrounder with Cramer on HANS: On September 13, 2006 Cramer gave the same call saying its trajectory made it a broken stock. It closed at $29.76 back then, but a duelling analyst call with a big upgrade the next morning caused it to rise 10% immediately.
HANS shares closed up 1.3% at $31.75 yesterday, but fell 2.3% after-hours to $31.00 after Cramer panned it.
HANS will report earnings next week, but he thinks you need to get out before the report. He reminded about the 20+% drop after last earnings. He also said that Budweiser even took over its distribution.
Jon C. Ogg
For a Backgrounder with Cramer on HANS: On September 13, 2006 Cramer gave the same call saying its trajectory made it a broken stock. It closed at $29.76 back then, but a duelling analyst call with a big upgrade the next morning caused it to rise 10% immediately.
HANS shares closed up 1.3% at $31.75 yesterday, but fell 2.3% after-hours to $31.00 after Cramer panned it.
HANS will report earnings next week, but he thinks you need to get out before the report. He reminded about the 20+% drop after last earnings. He also said that Budweiser even took over its distribution.
Jon C. Ogg
Baidu.com Down More After Earnings
Sometimes beating earnings just isn't good enough. If you owned Baidu.com (BIDU) going into earnings today you know what that means. BIDU posted EPS of $0.37, $0.10 better than the $0.27 estimate. Revenues beat also at $30.3 million, but not by as wide of a margin with consensus revenues at $30.2 million. The revenue guidance was the disappointment with the company saying $34 million to $35 million was expected, but consensus is $36.25 million.
The sad thing is that this was the springloaded year, because its revenues were up 170% year-over-year and earnings were up essentially tenfold.
The street was already nervous ahead of the report, because shares of BIDU were down 9%, or -$8.72, to $87.28. Shares are down another -4.2% to $83.65 in after-hours trading. Its 52-week trading range is $44.44 to $96.67, although it looks like shortly after the open today it had traded as high as $99.00.
BIDU still carries a triple-digit P/E on a trailing basis. If you use the $83.65 after-hours price and company meets the $0.91 EPS target for 2006 and the $1.70 target for 2007 it has forward P/E's of 91.9 for 2006 and 49.2 for 2007. We would have adjusted the EPS target up except for the guidance miss on revenues.
Baidu.com is still listed as the #4 site as far as web traffic out of Alexa's Top 500.
Jon C. Ogg
The sad thing is that this was the springloaded year, because its revenues were up 170% year-over-year and earnings were up essentially tenfold.
The street was already nervous ahead of the report, because shares of BIDU were down 9%, or -$8.72, to $87.28. Shares are down another -4.2% to $83.65 in after-hours trading. Its 52-week trading range is $44.44 to $96.67, although it looks like shortly after the open today it had traded as high as $99.00.
BIDU still carries a triple-digit P/E on a trailing basis. If you use the $83.65 after-hours price and company meets the $0.91 EPS target for 2006 and the $1.70 target for 2007 it has forward P/E's of 91.9 for 2006 and 49.2 for 2007. We would have adjusted the EPS target up except for the guidance miss on revenues.
Baidu.com is still listed as the #4 site as far as web traffic out of Alexa's Top 500.
Jon C. Ogg
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