The folks at Yum! Brands [Yes! That’s! the! name! of! the! company!] have
been knocking the cover off the ball for so long they ought to be excused for
whiffing once in a while, as happened this week when poultry supply miscues in
China caught up with the company’s wildly successful Chinese KFC restaurant
business—a business that happens to drive half the company’s total profits—causing a 25% drop in comp store sales.
been knocking the cover off the ball for so long they ought to be excused for
whiffing once in a while, as happened this week when poultry supply miscues in
China caught up with the company’s wildly successful Chinese KFC restaurant
business—a business that happens to drive half the company’s total profits—causing a 25% drop in comp store sales.
Now we have no doubt those Chinese KFCs will
recover. Neither does the company. But to hammer that message into the brains of
Wall Street’s Finest, the company used a technique that gets a little tiresome,
especially when one is subjected to it for an entire earnings call: they
treated Wall Street’s Finest like 2 year-olds.
recover. Neither does the company. But to hammer that message into the brains of
Wall Street’s Finest, the company used a technique that gets a little tiresome,
especially when one is subjected to it for an entire earnings call: they
treated Wall Street’s Finest like 2 year-olds.
How?
Well, by EMPHASIZING every other WORD in the PREPARED SCRIPT,
particularly ADJECTIVES like STRONG and GROWING, not to mention GREAT, which
was used nine times in various forms during the call, including three times in
three consecutive sentences:
Well, by EMPHASIZING every other WORD in the PREPARED SCRIPT,
particularly ADJECTIVES like STRONG and GROWING, not to mention GREAT, which
was used nine times in various forms during the call, including three times in
three consecutive sentences:
“From day one, we have always had a strategy
to earn our right to own. And where we want to put Company equity is where we
have great returns. We continue to have great
returns in China and three-year cash-on-cash returns even in tier 1 cities, 3
to 4 years now. So across the board, we have outstanding returns in China. We
have great operating capability and we expect to be
predominantly, predominantly equity in China.”—David Novak, Yum! Brands CEO.
to earn our right to own. And where we want to put Company equity is where we
have great returns. We continue to have great
returns in China and three-year cash-on-cash returns even in tier 1 cities, 3
to 4 years now. So across the board, we have outstanding returns in China. We
have great operating capability and we expect to be
predominantly, predominantly equity in China.”—David Novak, Yum! Brands CEO.
Such browbeating works, of course. (Only 3 of the 29 analysts following the
company downgraded the stock subsequent to the earnings miss and guide-down,
while one upgraded the stock.)
company downgraded the stock subsequent to the earnings miss and guide-down,
while one upgraded the stock.)
Readers who think the title of this piece an
exaggeration would do well to listen to a replay of the Yum! earnings call for
themselves—or, better yet, listen to the Spectrum Brands call held earlier this
evening.
exaggeration would do well to listen to a replay of the Yum! earnings call for
themselves—or, better yet, listen to the Spectrum Brands call held earlier this
evening.
Spectrum, purveyor of Rayovac batteries,
Remington shaving gear and other second-tier brands, was recently given the big
boo-yah by a member of the Barron’s Roundtable, mainly for a seemingly
well-timed acquisition of hardware and home improvement products from Stanley
Black & Decker—products that should get a lift from the housing boom now
underway in America.
Remington shaving gear and other second-tier brands, was recently given the big
boo-yah by a member of the Barron’s Roundtable, mainly for a seemingly
well-timed acquisition of hardware and home improvement products from Stanley
Black & Decker—products that should get a lift from the housing boom now
underway in America.
You would think Spectrum, with a friendly
Barron’s mention and a big acquisition under its belt would be content with
sticking to the hard, cold facts of the business…but no, the CEO and then the CFO read from their script
like, well, like they were reading to 2 year-olds.
Barron’s mention and a big acquisition under its belt would be content with
sticking to the hard, cold facts of the business…but no, the CEO and then the CFO read from their script
like, well, like they were reading to 2 year-olds.
The laugh-out-loud part came when the CFO—who
employed a lot of non-GAAP numbers—bragged about the gross margin after
stripping out the newly acquired business by emphasizing an extra
fifty-basis-points in the adjusted, theoretical, yadda-yadda number as if it represented the discovery of the Higgs boson:
employed a lot of non-GAAP numbers—bragged about the gross margin after
stripping out the newly acquired business by emphasizing an extra
fifty-basis-points in the adjusted, theoretical, yadda-yadda number as if it represented the discovery of the Higgs boson:
“I am pleased to note that the gross profit margin in the
first quarter of fiscal 2013 was 34% for Spectrum Brands legacy business, and
was actually 34.5% on a constant currency basis.”—Tony Genito, Spectrum
Brands CFO.
first quarter of fiscal 2013 was 34% for Spectrum Brands legacy business, and
was actually 34.5% on a constant currency basis.”—Tony Genito, Spectrum
Brands CFO.
No doubt Wall Street’s Finest will dutifully
report on the thirty-four-point-FIVE percent theoretical gross margin with great
enthusiasm, and plug it into the models on which their lives seem to depend.
report on the thirty-four-point-FIVE percent theoretical gross margin with great
enthusiasm, and plug it into the models on which their lives seem to depend.
We prefer Tesla’s quarterly earnings (or lack
thereof, if you have a cynical view of that company’s business model) calls, in
which founder Elon Musk limits his script to this:
thereof, if you have a cynical view of that company’s business model) calls, in
which founder Elon Musk limits his script to this:
“All
right, I think we can go right into questions. So, let’s go ahead and start
addressing the questions.”
right, I think we can go right into questions. So, let’s go ahead and start
addressing the questions.”
Maybe Wall Street’s Finest couldn’t handle
that. But we’d like to think they could.
that. But we’d like to think they could.
Jeff Matthews
Author “Warren Buffett’s Successor: Who It Is And Why It Matters”
(eBooks on Investing, 2013) $2.99
Kindle Version at Amazon.com
Kindle Version at Amazon.com
© 2012
NotMakingThisUp, LLC
NotMakingThisUp, LLC
The
content contained in this blog represents only the opinions of Mr.
Matthews. Mr. Matthews also acts as an
advisor and clients advised by Mr. Matthews may hold either long or short
positions in securities of various companies discussed in the blog based upon
Mr. Matthews’ recommendations. This
commentary in no way constitutes investment advice, and should never be relied on
in making an investment decision, ever.
Also, this blog is not a solicitation of business by Mr. Matthews: all
inquiries will be ignored. And if you
think Mr. Matthews is kidding about that, he is not. The content herein is intended solely for the
entertainment of the reader, and the author.
content contained in this blog represents only the opinions of Mr.
Matthews. Mr. Matthews also acts as an
advisor and clients advised by Mr. Matthews may hold either long or short
positions in securities of various companies discussed in the blog based upon
Mr. Matthews’ recommendations. This
commentary in no way constitutes investment advice, and should never be relied on
in making an investment decision, ever.
Also, this blog is not a solicitation of business by Mr. Matthews: all
inquiries will be ignored. And if you
think Mr. Matthews is kidding about that, he is not. The content herein is intended solely for the
entertainment of the reader, and the author.