Category: Uncategorized

Yes, I know what you’re thinking.

You’re thinking, how in the world can I declare “Best Press Release of 2007” only 42 days into the year, with another 230 or so business days remaining before the year 2007 officially ends?

Simple.

Get a load of the following explanation for a stock sale, excerpted from a press release which hit my Bloomberg late last week, issued by a company called “YTB International.”

“Coach Lloyd Tomer sold his dream home a few years ago to help fund YTBI at a critical time inthe Company’s growth. A few days ago he regained ownership of his dream home by giving one million shares of YTB International, Inc. stock to the person he sold it to, John Simmons. In return, Coach got the real estate back.”

—YTB International Press Release, 2/8/07

I make none of that up.

And while I certainly expect there will be some hefty competition for the title of Best Press Release of 2007 in the weeks and months ahead, I can’t imagine a more hilarious example of the dumbing-down of corporate America than the full release, which was headed as follows.

YTB INTERNATIONAL Chairman Provides Clarification Re: Real Estate

Press release “Clarifications” are always worth a glance, no matter what the company—even one so obscure as YTBI, which describes itself as follows:

ABOUT YTBI: YTB International, Inc. provides Internet-based travel booking services for travel agencies and home-based independent representatives in the United States, Puerto Rico, and the US Virgin Islands. It operates through three subsidiaries: YourTravelBiz.com, Inc., YTB Travel Network, Inc., and REZconnect Technologies, Inc.

Googling “YourTravelBiz” brings up a “YTB Demo Site,” which kindly provides the YTBI closing stock price ($9.20), but only fairly limited information about the exact nature of the business itself. See if you can figure out what the business of this company is:

The YTB companies offer two unique and powerful business opportunities, that of referring travel agent or “RTA” and that of independent marketing representative or “REP”. The travel agent opportunity has an initial fee under $500 and a monthly license fee of $49.95. There is no fee or travel agency purchase required to be a REP. You may choose to participate in one or both opportunities.

Hmmm. Does that smell like one of those direct-selling pyramid things to anybody?

Fortunately for the skeptics among us, the YTB Demo Site publishes a vast array of testimonials from satisfied customers, in a section titled “Testimonials.”

At the risk of boring our readers, I will reprint all the Testimonials from that front page, for the sake of accuracy. Bear with me. Here goes:

“YTB gives anyone who wants it, fun, financial freedom, and time with their FAMILY!”
–Kevin Adams

That’s it.

Now, before you rush out there and join Kevin Adams to get some of that fun, financial freedom, and time with your FAMILY, I suggest you read the full text of the press release in question, the one “clarifying” the recent “real estate transaction.”

WOOD RIVER, IL — (MARKET WIRE) — 02/08/07 — YTB International, Inc. (“YTBI” or the “Company”) (PINKSHEETS: YTBL) and its Chairman of the Board, J. Lloyd Tomer, provided clarification today regarding Mr. Tomer’s disposition of 1,000,000 shares of YTBI’s common stock in payment of the purchase price in a real estate transaction that had closed in January 2007.

Seems Mr. Tomer sold 1 million shares at $6.69 a share on January 24, which is not a bad gig for a company with no quarterly earnings reports that I can find since year-end 2005.

On the surface, Mr. Tomer’s sale might look a little opportunistic, considering the fact that the stock had doubled in three weeks. Furthermore, it constituted about a quarter of Mr. Tomer’s reported holdings, leaving him with 3.28 million shares.

Not to mention the fact that early in 2006 the company had “initiated an internal inquiry” into “accounting-related matters” causing the company to report, in a recent 10QSB/A, that it “needed to restate certain of the Company’s financial statements.”

The phrases “material weaknesses” and “deficient controls and procedures” appear as well, along with the fact that the company’s previous accounting firm “had provided prohibited services and appeared to have not followed the standards of the Public Company Accounting Oversight Board…”

However, YTBI wants to set the record straight: turns out, the sale had nothing to do with the price of YTBI stock or Mr. Tomer wanting to sell while the selling was good, nor the “material weaknesses” or “deficient controls.”

It has to do, instead, with getting back “his dream home.”

I am not making that explanation up.

As required under federal securities laws, Mr. Tomer filed a Form 4 disclosing the transfer of the shares as part of the purchase of a piece of real estate. While the disposition of the shares was technically deemed a “sale” under the rules that govern Mr. Tomer’s SEC filings, in reality the shares were merely used as a means to purchase a piece of property that had long-standing sentimental value to Mr. Tomer.

The Company released the following statement in clarification of the true story behind the share disposition: “Coach Lloyd Tomer sold his dream home a few years ago to help fund YTBI at a critical time in the Company’s growth. A few days ago he regained ownership of his dream home by giving one million shares of YTB International, Inc. stock to the person he sold it to, John Simmons. In return, Coach got the real estate back.”

And that’s it.

Now, until a week ago I knew nothing of YTBI, and today I know only slight more than nothing, aside from what is quickly and easily at hand on my Bloomberg.

But I know this: a sale is a sale is a sale.

And I know this is the Best Press Release of 2007…unless YTBI has another one up its sleave.

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

The content contained in this blog represents 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 a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Long time readers may feel a certain assuredness reading the title of this particular post, believing they already know what company—out of the thousands of possibilities—The Not Making This Up Awards is nominating for Worst Conference Call of the Season.

But the fact that we here at Not Making This Up have chosen to label our “Worst Conference Call” award “The Patrick” does not actually mean that Overstock.com has won “Worst Conference Call.”

It’s just what we decided to call the thing.

After all, Overstock’s quarterly conference calls are like nothing else. To paraphrase the narrator in “A Christmas Story” when describing his father’s prowess in cursing, Overstock CEO Patrick Byrne works in non sequiturs the way Picasso worked in oils.

Take his wrap-up on this last quarter’s conference call: see if you can figure out what this means…

I have never heard Jason [Lindsey, Overstock President] so optimistic for the future actually. Okay, that is all we have to say. Thank you, owners, for sticking with us, those that have.
We have been through tough times. ’06 was a wipe out year. And there was a lot of pain, but a lot of it — all the pain of tightening the belt and resizing our expense structure, we got our infrastructure fixed, but our expense structure still isn’t there. But we have already taken steps at the end of the year and the first part of this year. We have made most of the decisions and made some of the changes. And there is — we just have to carry them out in the next few months.

But I actually have never heard Jason — I’m just not going to comment on my own emotions, but those of you who know Jason, know you probably never heard him so optimistic. But we do have our work cut out for us still. But we do think we’ve gotten through the toughest part. Thank you all for your time. Bye-bye.

Why it matters that “Jason” has “never been so optimistic for the future” is beyond me—“Jason” is both President and Chief Operating Officer of the company, yet he failed to correctly answer a pretty basic question earlier in the call:

Jason Lindsey, President and COO: Bill asked three questions. The middle question I don’t think we answered, which is where do you see the $5.5 million co-location termination payment. And Dave correct me if I’m wrong, that is in our G&A expenses, is that correct?

David Chidester, SVP Finance: It is actually in our technology expenses which relates to the co-location facility

As far as I can tell, even a cursory glance at the Overstock “L” statement (that’s a “P & L” without the “P”) would have revealed the likely placement of the one-time $5.5 million line-item to the most casual financial observer—but you be the judge:

Overstock’s G&A expense rose $4.2 million year over year, from $11.6 million to $15.8 million; Overstock’s technology expense rose $15.4 million year over year, from $9.9 million to $25.3 million. Where would you guess the $5.5 million technology related co-location payment had been expensed?

Still, the point here is not to belabor the latest public statements of a company whose operating problems are well known, and whose CEO has, lawsuits and conspiracy theories notwithstanding, taken the blame for those operating problems.

The point here is to highlight a company whose fourth quarter conference call was one of the worst I have ever heard.

The company in question is a biotechnology company with a great product (Synagis, an anti-viral medication for premature infants) and a less-great product (FluMist, a nasal flu vaccine that has generally failed to meet anybody’s expectations since a much-ballyhooed introduction flopped a couple years back).

On the plus side, the company provided key IP for Gardisil, the new Merck HPV vaccine that is on track to be one of the blockbuster new products of the decade, so it should ride a fast-growing royalty stream from the HPV vaccine for years to come.

In the meantime, the company has been struggling to demonstrate to Wall Street’s Finest—almost uniformly skeptical since the FluMist debacle—that it has a worthwhile pipeline of new products, and held what is generally referred to as an “upbeat” analysts day almost exactly 60 days ago to showcase all the great things it was doing to extend the Synagis franchise, to get FluMist back on its metaphorical feet, and to hit two bucks a share in earnings in 2009.

On the surface, this company’s Q4 numbers looked like a pretty good start towards that goal. According to the press release issued Wednesday morning,

[The company] also announced today that it had exceeded its earnings guidance for 2006 by reporting net earnings of $75 million, or $0.30 per diluted share, excluding share-based compensation expense. Including share-based compensation, [the company’s] net earnings for 2006 were $49 million, or $0.20 per diluted share, as calculated in accordance with generally accepted accounting principles (GAAP).

The casual reader would be pleased especially with the fourth quarter, which by all appearances was a bang-up way to end the year:

For the 2006 fourth quarter, [the company’s] net earnings were $155 million, or $0.64 per diluted share, excluding share-based compensation.

Wall Street’s Finest had been looking for $0.54 per share.

It is only by reading further down, under “Gains on Sale of Asset and Investment Activities” do we find that the company—which, yes, is MedImmune—did not get to those chest-thumping numbers by dint of strong sales and reduced costs alone:

During the fourth quarter of 2006, MedImmune completed the sale of the CytoGam … product line, recognizing a gain of $49 million. Also during the fourth quarter of 2006, MedImmune realized gains of $42 million, after impairment charges of $6 million, primarily from the sale of two investments in its venture capital investment portfolio. For all of 2006, gains on investment activities totaled $34 million, net of impairment charges of $15 million.

One of Wall Street’s Finest—taken aback at the convoluted disclosure—later described the super-duper reported earnings as “almost fictional.” But that was later, after the conference call.

Another “almost fictional” number trumpeted in the press release was the U.S. revenue number for Synagis—an important and very profitable but highly seasonal drug under pressure from managed care providers—in the press release:

In the fourth quarter of 2006, worldwide sales of Synagis grew to $457 million from $439 million in the 2005 quarter, due primarily to an increase in reported sales for the U.S. to $403 million in the 2006 period from $379 million in 2005.

That U.S. Synagis number was right in line with Wall Street forecasts, although a little disappointing to the optimists. But in one of the greatest “oh, by the way” bombshells I’ve ever heard, the CFO disclosed on the conference call that $20 million of those so-called sales had actually been the result of a reversal in previous reserves “with respect to Medicaid rebates.”

Management also used the conference call to drop two other bombshells: first, that FluMist doses fell about 20% short of managements guidance at the analyst meeting 60 days ago; and that the introduction of Numax, a follow-up drug to Synagis on which management has placed great emphasis, has been pushed back following a meeting with the FDA.

Now, business is full of risks—and the medical business is probably full of bigger risks than any other. If a new drug isn’t toxic, and doesn’t kill patients, and actually does what the drug discoverer hopes it will do, there’s no telling whether the FDA will approve it, the government will reimburse it, and doctors will use it.

So there is no shame in a company—any company, but especially a biotech company—missing quarterly numbers and adjusting new product schedules without mentioning all the details in the earnings press release.

But MedImmune not only missed numbers and pushed out an important new product without discussing the details in the press release: on the ensuing conference call, the company limited Wall Street’s Finest to one question each and cut off the call after an hour, with only nine of Wall Street’s Finest able to ask questions.

I am not making that up.

For the record, I counted 12 questions from the floor, including three brief, apologetic follow-ups from those of Wall Street’s Finest who dared cross the “one question only” rule, before the CEO wrapped things up by noting that the hour was up.

By way of contrast, when Boston Scientific was missing numbers last fall, I counted 36 questions on their third-quarter conference call, from ten analysts with no limits on their questions or their follow-up questions.

As I said, there is no shame in a company missing numbers.

But companies that do miss numbers, or push out new product releases 60 days after reaffirming those product releases, or fail to highlight non-recurring gains in their earnings release—or all three, as in this case—generally spend the time to take all questions, in public, however they hurt, and answer them.

This award—“The Patrick”—is named for the CEO of Overstock.com, whose conference calls some find as unintentionally amusing as a grade-school production of “Fiddler on the Roof.” But I will give Patrick Byrne one thing: he takes questions on his calls, good, bad, ugly, from Wall Street’s Finest, no holds barred, as MedImmune did not.

Hence, the first “Patrick” award goes to David Mott, CEO, MedImmune.

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

The content contained in this blog represents 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 a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

“What’s exciting is when you buy them when no one wants them,”

—Carl Icahn to the Wall Street Journal

Carl’s back. As reported in today’s Journal,

Carl Icahn is making a $2.75 billion bet that battered U.S. auto-parts suppliers are poised for a comeback.

His rationale?

Mr. Icahn said the beaten-down share prices of auto suppliers like Lear have made them attractive values.

“What’s exciting is when you buy them when no one wants them,” Mr. Icahn said in an interview [emphasis added].

And truer words word never spoken: it is exciting to invest when nobody else sees the value, or wants to take the risk that that value will be realized some time in the uncertain future.

But, according to my Bloomberg, the time when nobody wanted Lear—which happens to be one of many auto suppliers struggling to make something out of a commodity business under severe price pressure with a high cost union work force—was a year ago March, when the stock bottomed at $15.60.

Not yesterday, at the $34.20 opening price before Icahn’s bid got even fewer people not wanting the shares.

Now, I understand that when Carl Icahn walks into any room, he is very likely the wealthiest individual in that room. And his record for creating value for himself and his investors ranks up there in the thermosphere of all-time great investors.

But by my calculation, nearly $1.5 billion of potential value has already been absorbed by public shareholders who ventured to buy Lear when the stock was being thrown out in the mid-teens—the time when “no one” wanted to own poor, suffering Lear.

And grey-hairs will remember another company Carl Icahn bought “when no one wanted to own it.”

That company was TWA.

And Icahn’s tenure over that veil of tears turned out to be merely one of several times “no one” wanted to own what was, in the end, a commodity business under severe pressure with a high cost union work force.

Let the excitement begin!

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

The content contained in this blog represents 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 a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

“Very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very…very.”

—Eric Schmidt, Google CEO, earnings call

Earnings season is winding down, and even Google has proved itself mortal—or at least subject to the same law of large numbers that causes all things, eventually, to regress to the mean.

The Mountain View boys’ U.S. revenue growth rose 53%, a number Microsoft would kill for but which is nothing like the 80% growth in 2005. In fact, Google’s U.S. revenue accelerated during the first three quarters of 2005, but has decelerated every 90 days since.

It was up to non-U.S. countries to carry the ball, which they did with 90%-type growth, but the rising cost of doing business online and Google’s own spend-for-growth mentality—which has paid off in spades since the IPO—caused a slight but notable company-wide margin contraction.

Overall, Wall Street’s Finest “reiterated” their positive ratings on Google, which in these post-Enron days of extreme skittishness may take the form of “Buy” or “Outperform” or “Overweight” or “Legally We Do Not Want to Be Held Liable if You Lose Money But We Do Believe the Stock May Be Appropriate For Certain Accounts Assuming You Are Not a Moron But Before You Invest Please See the Attached Sixteen Pages of Legal Disclaimers.”

Google’s conference call did not, alas, generate the kind of fawning from Wall Street’s Finest that makes for good copy here, although CEO Eric Schmidt did do his usual impersonation of a kindergarten teacher at Parent’s Night, both congratulating his class on their work and expressing his great satisfaction to his listening audience, repeatedly, to the point where you want to either break something or vomit, or both.

In fact, Schmidt gets our first award of this second installment of The Not Making It Up Awards:

The Most Use of “Very” as an Adverb in One Sentence Award

Eric Schmidt, Google Inc. – CEO

Thanks very much, Kim. Business continues to be very, very good here at Google, and we are very happy to present another very strong performance from the Company.

And that was just the first sentence. In fact, he used it 11 times in his opening remarks and 43 times during the entire call.

I am not making that up.

Here are the other awards we deem worthy of either Wall Street’s Finest or the Captains of American Industry, in no particular order:

The Why They Call Us a Cyclical Award

Bill Foote, USG Corporation – Chairman, CEO

Each downturn is unique, and a distinctive feature of the downturn that began in 2006 has been the speed with which adjustments have been made by both homebuilders and drywall dealers to keep inventories under control. For us, that has meant a rapid contraction in wallboard demand.Let me illustrate. Industry wallboard shipments were up 6% in the first six months of 2006 year-to-year. They were down 17% in the last six months year-to-year. Up 6 in the front, first half; down 17 in the second half.

The Worst Reason for Not Answering A Simple Question Award

Antonio Perez, Eastman Kodak Company – Chairman, CEO


Analyst: And would it be possible to give us some sense of what you think investable cash flow or what you now call net cash generation will be in ’07?

Perez: For the year — on the 8th, again, we’ll talk to that. We won’t have the time — if I give you a number now, I won’t have the time to explain why we reached that number. The — and why we have the — the two, three hour meeting on the 8th. We’ll do a much better job at that time.

Analyst: Okay. Okay, I tried. Thank you.

The Bob Nardelli Lives! Award

Mark Ketchum, Newell Rubbermaid Inc. – President, CEO

In 2006, we also announced the building of a new headquarters building in Atlanta, which will bring together several of our business units and functions, further supporting our cultural transformation. At the new Newell Rubbermaid, we want to foster a Company culture that embraces consumer centric innovation and branding, collaboration and team work, training and development, diversity in all its forms, and best-in-class performance.

The More “Cute Stories About Inflation” Award

Mike Mangan, Black & Decker Corporation – CFO

During the fourth quarter, we had about $39 million in incremental commodity inflation. So for the year, that resulted in 2006 with a number of $95 million. As we look to 2007, we are expecting about $120 million of incremental inflation, weighted a little more towards the first half.

The Eddie Haskell Lives! Analyst Award

Eric Katzman, Deutsche Bank – Analyst


Katzman: Good morning, everybody.

David Mackay, Kellogg Co. – President, CEO Good morning.

Eric Katzman: Congratulations on your new titles.

David Mackay: Thank you.


The Most Bizarre Impersonation of a Low-Cost Airline Award

David Neeleman, JetBlue Airways – CEO

First of all…our primary goal is to institutionalize low cost carrier spending habits. We are really, really focused on not only keeping low cost but even driving our cost even lower through improved productivity and through automation. And we think that we have some room to go on our cost initiatives, and John’ll — like I said, will give you a lot more detail on that.

The Most Refreshingly Candid CEO Award

Reuben Mark, Colgate-Palmolive – Chairman, CEO

Let me back up for a moment. Well, we’ll wait until the next question. I assume somebody else will ask about margin because I have some interesting things, I think, to say about gross profit.

Why did I screw that up? Who knows? Okay. Anyway, sorry. Go on.

To be continued. Nominations from the floor are welcomed.

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

The content contained in this blog represents 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 a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Chinese United by Common Goal: A Hot Stock Tip
—The New York Times

Anybody else remember the impact of Alan Greenspan’s “Irrational Exuberance” speech ten years ago last December?

I do: I was in a hotel room, back from a breakfast meeting, calling into a trading desk to find out what was going on pre-open.

What was going on, the trader told me, was the market was freaking out following remarks by Federal Reserve Chairman Alan Greenspan, who had given a speech the night before in which he used the somehow irresistible term “irrational exuberance” to describe a stock market still several years away from its ultimate peak.

Actually, the trader didn’t say the market was “freaking out.” Nor did he call Greenspan “Federal Reserve Chairman Alan Greenspan”: he used far more colorful words. He used the kind of words guys use when a driver cuts them off without looking—only angrier, and with more “Fs.”

In any event, I had a flashback to that morning while reading yesterday’s excellent New York Times story on the current state of so-called “investing” in China. The headline, shown above, only hints at the riches of this-must-be-a-top anecdotal evidence the reporter uncovered.

BEIJING, Jan. 29 — “Irrational exuberance” has no exact Chinese translation, but no explanation seemed necessary in the bustling lobby of GF Securities. Grungy-looking college students, office workers, retirees and even a pregnant woman in suede boots all jostled into the brokerage on a recent morning, eager to buy stocks and buy them now.

Wang Yu, 20, slouching on a black sofa in the lobby, said he had already doubled his initial investment of 100,000 yuan, or about $12,900, after jumping into the Chinese stock market barely a year ago. His parents had lent him the start-up money, but now he was feeling confident and mulling over a new investment. Commercial shipping containers, he predicted, could bring big profits.

“A lot of the older investors lost a lot of money, so they are not as optimistic,” Mr. Wang said. “I think it is going just fine.”

Less than two years after share prices collapsed, China’s stock markets are almost going mad, actually, with the leading Shanghai Composite Index approaching 3,000 and Chinese investors flocking to buy shares in record numbers. The bull market is so powerful — the Shanghai market hit a record high last week and was among the best performing in the world last year — that one senior Chinese official has warned against “blind optimism.”

That phrase, “blind optimism,” has reminded more than one observer of Greenspan’s “irrational exuberance” speech, with skeptics latching onto it as an indicator that the hour is late for the Great China Bull Market.

Of course, non-skeptics can point out that Greenspan was three years too early in his warning of impending disaster—if that is indeed what the famously opaque economist was trying to get across at the time.

I recall a widely-reprinted New Yorker cartoon of the era with the erudite, double-speaking Greenspan announcing interest rate policy as follows:

“’Twas brillig, and the slithy toves Did gyre and gimble in the wabe; All mimsy were the borogoves, and the mome raths outgrabe fifty basis points.”

Now, it is a fact that “irrational exuberance” did not peak in this country until roughly three years after Greenspan’s supposed warning, and “blind optimism” may indeed carry things ahead in China longer than that.

But the signs are not good, at least if the anecdotal evidence in the Times is any indication:

College students, young professionals, retirees and others are buying individual shares or investing in China’s swelling mutual funds. One mutual fund raised $5 billion in a single day. Day trading, meanwhile, is becoming popular with investors, many of whom monitor the market from home on personal computers.

Everyone seems to want a stock tip.

“When I go to the beauty salon, even the girls who give me a manicure are talking about stocks!” said Shirley Lei, a consultant in Shanghai who worries that inexperienced buyers could be cheated. “They ask me, ‘What should I invest in?’ They say they are doing research.”…

“Of course, the market in China is not as regulated as in America or Britain,” Mr. Lu said.
“The Chinese market is much younger, so you are going to have risk. But I think the government is trying to straighten things out so that the market will become stronger.”

His goal was simple. “I want to get rich,” he said.

Don’t we all?

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

The content contained in this blog represents 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 a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

The ritual of the quarterly earnings call is in full swing, as even the “Mad Money” denizens of Cramerica know, and it really does pay to listen in on these regular updates from corporate America.

For starters, a conference call provides a quick quarterly snapshot of a company—what’s happening, where and why.

But even beyond the dry basics of the business itself, an earnings call is a great way to assess the personality of the enterprise, which—as readers of this blog know—is frequently a direct reflection of the personality of the CEO who runs the place, for good or ill. And when you invest in a company, you’d better understand that personality or else, as they say, caveat emptor.

Now, how can a tightly scripted conference call reveal much of anything beyond a few numbers, you ask?

I’ll tell you: no matter how tightly the corporate attorneys craft the CEO’s introductory remarks and the CFO’s recitation of the numbers, something happens when they get to the Q&A portion of the call and the conference operator tells the CEO, who is sitting in a conference room full of his or her peers with a speakerphone on the table and a couple hundred of Wall Street’s Finest and their clients on the other end of the line, “Your line is open for questions.”

I’ve heard grown men blame earnings shortfalls and business disruptions on everything from cows on the highway to an excessive number of organ transplants.

You think I’m making that up? Here are the quotes:

We actually have a truck full of important parts trucking in through — coming in from L.A. through southern Utah, ran into a cow and tipped over the cab, and that actually, literally, has stopped the project for two weeks. But short of any more cows on the interstate, I don’t see how that gets delayed.
—Patrick Byrne, Overstock.com 4/28/06

We have — there are certain things that are beyond our control, for example the medical costs. We are reviewing them. We’ve got an outside company coming in to audit all the medical costs. As you know, we’re pretty much self-insured and we had — Bob Hensley can correct me on this — I think we had like 12 organ transplants versus 3 last year. Is that right, Bob?
—Robert Wildrick, Jos. A. Bank Clothiers 6/8/06.

While the current batch of earnings calls hasn’t provided quite those levels of head-scratching or did-he-just-say-what-I-thought-he-just-said? queries from Wall Street’s Finest, there have been a number of note-worthy items to “call out,” both in a positive sense and in a negative sense, as we will do here in the form of the first Not Making This Up Awards, to be handed out to anybody we deem worthy.

The Best Reprimand of Wall Street’s Finest Award:

Carl Camden, Kelly Services, Inc. – President and CEO

For the particular quarter, there has been — we have this issue now for the last three years where the calendarization of some of the folks who follow us is just wrong. They overestimate how much earnings will pop in to the first quarter and underestimate what comes in the remainder of the year. And it’s kind of spectacularly replayed itself again in the first quarter numbers this year.

The How Time Flies Award

Don Blankenship, Massey Energy (Coal)

…as we went through 2007 [sic], a lot of utilities have bought some strong volumes at large prices, as well as the met [metallurgical coal] customers, and as ’07 [sic] wound down, a lot of people were looking at lower prices and they have taken off volume.

The Why Interest Rates Are Not Going Down Any Time Soon Award

Dustan McCoy, Brunswick Corp. (Boats)

In addition, we are assuming that price increases will not fully offset inflationary pressures on our raw materials and labor costs. And while we will see the benefit of our restructuring actions, this, too, is offset by higher research and development spending and additional work on our strategic objectives.

The Most Frightening Euphemism Ben Bernanke Ever Heard Award

John Lundgren, The Stanley Works (Tools)

We got pricing in the quarter. We were pleased with what we got all-in…we are quite pleased with pricing. We’ve established pricing centers of excellence in the majority of our large businesses. We are getting quite granular on all forms of pricing, how to achieve it.

The Clearest Answer Award

Stephen Russell, Celadon (Trucking)

Chaz Jones, Morgan Keegan: And then maybe similar to the question that John asked…. The decline in utilization that we saw in the numbers, was that all purely demand driven or was there anything else in there related to whether it be drivers or mix shift or changes or any of those factors?

Stephen Russell, CEO Celadon Group: It was demand driven. There was less business from existing customers.

We’ll have more as earnings season winds down. Nominations from the floor are welcome.

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

The content contained in this blog represents 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 a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

THE author’s beautiful live-in girlfriend is asleep upstairs, the author himself is relaxing in his workroom, having just returned from a recording session in New York City. His life looks pretty good.

So begins the article carried in Friday’s publication—and I leave it to readers to guess which publication we are talking about—titled, “A Life Lived in Fear, But Not Half Bad.”

The “author” in the article is Allen Shawn, a composer and professor at Bennington College who just wrote a book about his phobias.

The gist of the piece is that despite a turbulent upbringing and his fears of “open spaces, closed spaces, highways, subways, elevators, planes, tunnels,” Mr. Shawn is leading a good life: after all, as the reporter says right there in the first paragraph, the man has a “beautiful live-in girlfriend.”

What else could a guy want?

Now, who, you might ask, has any interest in Allen Shawn? Well, superannuated old-timers such as yours truly are interested because his father was William Shawn, editor of The New Yorker during its long, post-Thurber slide into near-irrelevance.

(James Thurber, for you YouTube kids, wrote probably the best short story ever crafted: “The Secret Life of Walter Mitty“. Google it some time.)

The senior Shawn, as the article later mentions, was a bizarre family figure who took phone calls from his mistress at home in a closet, and whose best moments appear to have been reserved for editing manuscripts, as opposed to hanging with his sons, Allen and Wallace.

Which leads to a second demographic that might be interested in Allen Shawn: twenty-somethings who recognize Allen’s brother, Wallace, a serious play-write (“The Designated Mourner”) and actor (“My Dinner with Andre”) in his own right.

But they would not recognize Wallace because of the serious stuff.

No, they would recognize him from his gigs as the nerdy Mr. Hall in the actually quite funny “Clueless,” and the sort-of-amusing villain in likewise funny “The Princess Bride.”

Yet with all this fodder—odd, famous father; famous and literate brother; plus Allen Shawn’s own career as a composer and author—the reporter seems obsessed with the pulchritude of Mr. Shawn’s “beautiful live-in girlfriend”:

A follow-up question: How did a guy who is afraid of his shadow end up with a beautiful girlfriend — who from the pictures around the house is a good deal younger?

“Oy, yoy, yoy,” Mr. Shawn says, using an expression that his late father, the longtime editor of The New Yorker, William Shawn, who did not exactly advertise that he was Jewish, is unlikely to have uttered publicly. “You didn’t mention short. Um, I really can’t account for it…. ”

Two paragraphs later, the reporter tells us more about another physical characteristic of a talented female writer than about that writer’s own career while mentioning Mr. Shawn’s previous marriage:

Mr. Shawn’s former wife, to whom he was married for 25 years and with whom he has a daughter and a son, is the writer Jamaica Kincaid, who at six feet tall towered over him….

This focus on the physical attributes of women would be par for the course if this were, in fact, Vogue, whose cover stories are generally given over to Tom Cruise or whatever Hollywood star is trying to resurrect his or her image via precisely crafted puff pieces that month.

But this is The New York Times that’s telling us about a “beautiful live-in girlfriend” and a six-foot Amazonian ex-wife.

Maybe it’s a lazy editor, or maybe in fact we’re seeing the final dissolution of the printed word at the hands of the Internet—now that the Wall Street Journal (as reported here last week in “Sergey and Larry Hit the Panic Button”) is moving to “scratch ‘n sniff” advertising…and the New York Times is trying to spice up “All the News That’s Fit to Print” with Page Six material

Thurber himself would be turning in his grave.

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

The content contained in this blog represents 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 a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

.‘Wall Street Journal’ to Offer ‘Rub ‘n Sniff’ Ads

That is the headline, and I am not making it up. Just in case you don’t believe I’m not making it up, I’ll quote the article itself:

NEW YORK (AdAge.com) — And you thought the Small Street Journal was a new experience. The Wall Street Journal is on the verge of offering scented print-ad units that will appear on the regular pages of the paper. The technology takes “scratch ‘n sniff” to a more refined level — think “rub and sniff.”

That was in yesterday’s online version of Advertising Age, and in case you are wondering, as I did at first, if this is a hoax by The Onion, it actually quotes not one of The Onion’s regular “American Voices,” but the publisher of the Wall Street Journal itself:

“You actually have to rub some part of the ad,” said L. Gordon Crovitz, publisher, The Wall Street Journal. “This won’t be like the early days of magazine ads, where you picked it up and felt like you were walking through Bloomingdale’s and spritzing you.”

I hear from sources in Mountain View that Larry Page and Sergey Brin pulled an all-hands-on-deck all-nighter in the Googleplex last night to try to come up with a response to this latest salvo from the sinking ship otherwise known as the newspaper industry, which appears eager to capitalize on the raging success of its most recent killer idea, the smaller-sized newspaper.

Word has it that after racking their brains over pizza and Red Bull, the only response Larry and Sergey could come up with was,“Is this a hoax by The Onion?”

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

The content contained in this blog represents 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 a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Sara Michelmore, Cowen: “My question was specifically to the molecular business…I assumed if it had been available for sale that GE would have been interested in it.”

Miles White, Abbott Labs: “That’s a good assumption.”

—Abbott Conference Call, 1/18/07

I don’t know about anybody else who listened to that call, but the folks at Abbott sure sounded to me like they pulled off a good one by selling the least valuable bulk of their clinical diagnostics business to GE for a cool $8 billion.

Certainly Abbott CEO Miles White, as the above dialogue demonstrates, made it clear on the call he thought he was keeping the good, faster growth stuff and selling the plain-vanilla, lower growth stuff.

Funny thing is, that’s exactly what Jeff Immelt was telling Wall Street’s Finest the very next morning, during a conference call to discuss earnings and some details on the multiple acquisitions he recently pulled off, including the aforementioned deal with Abbott.

Now, the $8 billion Immelt agreed to pay amounts to roughly three times 2006 sales for the Abbott businesses, and a whopping 25 times their 2006 operating income, based on numbers provided by Abbott and later massaged by Wall Street’s Finest—yet nowhere in the GE earnings conference call did the phrase “25 times operating income” come up.

Of course, Jeff Immelt didn’t get to where he is by being an easy mark for companies desperate to sell their losers, and his healthcare team made a good case for getting sales and margins of the acquired Abbott businesses up substantially by “Year 3,” to the point where the deal price would look like a more comforting 11 times operating income, based on my math.

Furthermore, Immelt certainly knows a great time to sell the dregs of his own portfolio when he sees it.

Private equity buyers need to do deals, if only for the sake of doing deals, so why not swap a cyclical, low-multiple-from-Wall-Street business (GE Plastics) for a stable, value-added, long-term grower (Abbott’s diagnostic business) for roughly equal multiples of future operating income?

But Jack Welch’s successor better hope for two things:

1. His healthcare team comes through with those “Year 3” numbers on the Abbott business, and;

2 The buyers of GE Plastics don’t make the same kind of quick killing the Hertz buyers did when they picked off poor Bill Ford.

Otherwise, Immelt’s own words from last week’s conference call could come back to haunt him:

When you see us do or see me do $15 billion in two weeks, sometimes you say is he crazy? But this is all part of a 5-year disciplined, diligent, long-term focus on the company and I just want to give you a sense for that. And basically on strategy. You know, redeploy from slow growth into high growth and a real target on health care and infrastructure.

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

The content contained in this blog represents 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 a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

• HILLARY CLINTON SAID she was forming an exploratory committee for the 2008 presidential race, embarking on a widely anticipated campaign for the White House. (Clinton’s statement) 9:49 a.m.

• New Mexico Gov. Richardson Sets Committee

• Sen. Brownback Declares Presidential Bid

• Road to 2008: See Who’s in the Race

— Wall Street Journal, online edition

I appear before you today to announce that yet another newcomer has formed an exploratory committee to investigate a potential candidacy for the 2008 presidential race.

The candidate is my dog, Lucy, and the committee consists of her sibling, Rosie, and three cats: Marvin, Ralph and Kitty.

I admit to being somewhat surprised by this development: Lucy is a mutt whose major concern in life has been, until today, primarily limited to the Universal and Unrestricted Availability of Affordable Dog Treats to all canines regardless of age, creed or mixed heritage, not to mention getting scratched on the rump once in a while.

Nevertheless, Lucy wants me to tell the world, to paraphrase the memorable words of Senator Dole when he quit his Senate seat to prepare for his doomed Presidential bid,

“I sit here, more or less still except when one of the cats walks by and swats my nose, just a dog.”

Lucy apparently reached her courageous decision after hearing about the inordinate number of politicians who have likewise announced their plans for the World’s Most Powerful Office without having the faintest chance of making it to the first meaningful party caucus—Iowa—yet for some reason feel compelled to call the press together and make an announcement such as this:

“Search the record of history. To walk away from the Almighty is to embrace decline for a nation… To embrace Him leads to renewal, for individuals and for nations.”

That comes from Senator Brownback, a Kansas Republican who may in fact be the best candidate of any candidate who ever threw his or her metaphorical hat into the ring for any political office ever created…but if it’s any indication of how he plans to run for President, I can’t see how the good Senator from Kansas has any better shot at reaching the White House than my dog Lucy from the Humane Society.

Certainly, not being electable to an office doesn’t mean a person shouldn’t try for it. This is, after all, America: Abe Lincoln famously tried and failed many times before his moment came, and he is now widely acknowledged as the greatest President we’ve ever had.

Still, one would think a savvy pol such as Bill Richardson, the politically ambitious Governor of New Mexico whose main claim to fame is that he could not get the streets plowed after a recent snow storm hit his state, would know that Hillary Clinton is going to be the Democratic Presidential candidate in 2008—period, end of story.

Yet here he is, announcing the formation of yet another Committee to Yadda-Yadda-Yadda:

“I am taking this step because we have to repair the damage that’s been done to our country over the last six years…. Our reputation in the world is diminished, our economy has languished, and civility and common decency in government has perished.”

I will go on record here and say that as highly as they may think of themselves, there is not a declared or undeclared Democratic candidate, Mr. Richardson included, who has a chance of beating Hillary for the nomination.

Not “Fighting Joe” Biden, nor our own “Senator Forehead”—Chris Dodd—or the earnest John Edwards, the curiously bloated Al Gore, the humorless John Kerry, the frighteningly incompetent Dennis Kucinich, or the I-don’t-know-enough-about-him-to-precede-his-name-with-a-remark Tom Vilsack.

Not even—and I say this strictly as a matter of political reality—Barack Obama has a chance to win the nomination, although I would put money on Obama to be Hillary’s Vice Presidential candidate, which is, I imagine, what the current the posturing is about.

As for the Republicans, I’d be likewise willing to bet Mitt Romney is the candidate in 2008. Not for nothing, but Bill Clinton and George Bush before him were each terrific fundraisers and former Governors. Plus I hear Mitt gets people excited…and this is from people who don’t usually get excited about politicians.

Unfortunately, when it comes to the chances for my dog Lucy, I must tread lightly on these pages, for while I admire her stance on Mandatory Dog Treats for All, I must admit the rest of her platform is pretty thin.

Still, Lucy has promised to flesh out her positions on Iraq, global warming, energy independence and tax-code reform…so long as I give her more treats, and keep scratching that itch.

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

The content contained in this blog represents 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 a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.