Posts tagged MLNK
The market closed moderately down today as investors, gamblers, and algorithms everywhere await tomorrow’s jobs report which will likely be as telling as one of Eddie Long’s altar boys (well for the ten or so years prior to this one) because thanks to the delightful birth/death model (where the output is more hard-coded than the Kryptos sculpture) the numbers will be more manipulated than Lexington Steele’s johnson on the set of any of the Manhammer films. Look Money McBags doesn’t have a crystal ball (though if he had a Krystal Ball, he would make sure he always wore a dildo on his nose just for her*), so he has no idea if the numbers will beat or miss guesses, but he talks to a hella lot of people on the Street and in business and many of them continue to be out of work with no end in sight so Money McBags will probably ignore the number released tomorrow and stick with his actual primary research which points to job openings being more non-existent than the tooth fairy, Steve Jobs’ liver, or money shots in lesbian porn.
Speaking of jobs, new claims for unemployment beat guesses today by coming in at 445k which was 11k below the upwardly revised 456k from last week and likely at least 5k below what it will be upwardly revised to next week as once again the “hold the shock and hope for no awe” strategy by the government (which is the worst kept government secret since Valeria Plame’s cover was blown or Bill Clinton’s cigar was blown) once again rears its ugly head.
Interestingly, some people were touting continuing claims dropping by 48k as somehow being positive since it was the lowest since June but the number of people on emergency and extended benefits increased by 257k. So look, Money McBags is no labor expert (though he did wake up for just long enough during that shitacular Knocked Up movie to see Katherine Heigl‘s character give birth, so that has to count for something), and he’s also no mathemetician (though he does know the difference between Ito’s lemma and Judge Ito’s dilemma, which of course was that he had to let OJ go free), but if the number of people getting emergency and extended benefits increases by more than continuing claims decrease, doesn’t that mean that net unemployment increased? Sure it would be great if the Underground Man were right and 2+2 did not always equal 4 and thus we could all ignore numbers as if we were long the S&P, but in this non-abstract universe we live in, the laws of math hold and thus instead of saying that continuing claims dropped by 48k to try to paint a rosy picture, what needs to be reported is that all claims increased by ~210k with the largest portion of that coming from people who still can’t find work and see their skills diminishing faster than Sheyla Hershey’s chest (and one can assume her social life) or Lou Dobbs’ credibility.
In other macro news, retail sales in September beat analyst guesses thanks to back to school specials like buy one get one free, 20% off, and something called “going out of business liquidation sales.” Analysts say the increased sales were driven by consumers feeling more confident thanks to a rising stock market (Way to go Ben! Nothing like putting the cart before the donkey), better weather, and widespread cognitive dissonance. Same store sales rose by 2.8% well above analyst guesses of 2.1% and were driven by retailers geared towards teenagers as those stores were up 6.7% as teens stocked up on Twilight paraphernalia, bottled nut sweat from that Justin Bieber kid, and plenty of lipstick for the start of rainbow party season.
In international news, the ECB held rates steady, whispered sweet nothings in their ear that everything will be ok, and gently caressed them as if they were Lucy Pinder. The ECB also announced they would start removing liquidity from troubled banks which means if Money McBags were European, he would start removing his liquidity from European banks as well. Elsewhere internationally, Greek public servants went on a 24 hour strike (or as it’s more commonly known in Greece: “Thursday”) while Fitch downgraded Ireland from AA- to A+ and Money McBags downgraded Fitch from F- to completely irrelevant.
In stock news, Adobe spiked up ~11% on rumors of a MSFT take out of the company while PEP fizzled out after lowering the top end of their guidance due to currency exchange rates expected to impact top line by 1% as the US dollar loses value faster than a single female after the age of 30. Elsewhere MAR put up a decent Q but sold off by 6% as an analyst from Raymond James was unimpressed with the company’s revenue guidance for 2011 citing the effect that reduced revenue will have on leverage and the fact that he recently stayed at a Marriot and still can’t get the mold and dead stripper smell off of his clothes. And finally YHOO dropped 2% as their unsavvy investor base got their dial up internet connections to work just long enough to realize that there is a little something these days called GOOG.
In small cap stocks, MLNK, which Money McBags has covered exhaustively here on the award winning When Genius Prevailed, was sent a letter by an activist investor group basically calling management out for being a bunch of asshats (no doubt after those shareholders read Money McBags’ scathing diatribe on MLNK’s last Q after their quarterly diarrhea struck for the third time in a row). The activists rightly criticized MLNK management for basically sucking at their jobs worse than a dyslexic trying to paint by numbers and for creating less value than “just being friends.” They mentioned many of the same issues Money McBags brought up such as shitty acquistions and lousy oversight (and remember, operating costs were up due to management receiving bigger bonuses despite the company destroying more value than an Abacus CDO, well maybe not that much value, but you get the point). The reason this company remains interesting to Money McBags is due to this simple paragraph from the activist letter:
“The Company’s $174 million in cash and investments are equal to approximately $4.00 per share, and working capital on hand exceeds $220 million, or 80% of the Company’s current market capitalization. Yet the Company’s enterprise value totals just $120 million, or less than three times its Fiscal 2010 EBITDA of $46 million.”
So the company is ridonkulously cheap and in an ok market and with a management team focused on creating value for shareholders rather than making sure they can adequately tip their caddies, the stock has the potential to really run. At one point this company was on a $72MM EBITDA run rate but in just three short quarters they have managed to cut that to a $20MM EBITDA run rate thanks to new business declining, pricing discounts, and shitty acquisitions leading to goodwill write downs despite this having been a huge buyer’s market. Money McBags fully supports these activist investors who are seeking to gain 3 board seats and will even selflessly nominate himself for one of those positions so he can make sure no one gets a bonus until this company figures shit out.
And to Money McBags’ new readers from zerohedge, welcome. Money McBags hopes you enjoy the insight, analysis, and dick jokes he brings on a daily basis. So far he has enjoyed his stay on zerohedge, especially when his column rotates through the top of the page and he finds himself as lucky pierre between Reggie Middleton and some guy named williambanzai7, something for which he has always aspired (well that and to be Karissa Shannon’s thong).
*As a brief aside, Money McBags is well aware that our society is devolving in to one where good manners, civility, and common sense are becoming more passe than full bush, and Money Mcbags is also aware that he has a very silly name for which he often derides his parents as it has caused him much trouble in life, but Mr. and Mrs. Ball, if you’re reading this, (and frankly, why wouldn’t you be?) why the fuck would you ever name a child of yours Krystal? Seriously, that is so annoyingly iditiotic that it makes Money McBags’ balls hurt, and not in the good way like he imagines they would hurt after overuse by the lovely Odette Yustman, but in the bad way like a jagged catheter gone awry. Having the last name Ball and naming your daughter Krystal should be grounds for child protective services to immediately take your kids away and supply a forced vasectomy. Most of all, it leaves Money McBags to wonder if those dickholes had a son and named him Harry,
The market was relatively quiet today as QE2 continues to dominate the financial headlines like Pablo Picasso dominated the cubist scene in the early 1900s (and the current disjointed and broken market is perhaps an homage to the long gone cubists) or Eugene Fama dominated the Chicago school of thought in the 1970s with his quaint and now outdated belief in efficient markets (perhaps in addition to the “weak,” “semi-strong,” and “strong” efficient market hypotheses, Fama should have also devoted time to exploring the “Shit is fucked up” and the “Beats the fuck out of me” hypotheses). Interestingly, non-voting member of the Fed (which as always, is like being a fluff girl for a lesbian porn movie, and let that one sink in for a second) Narayana Kocherlakota (gesundheit) was out today saying he is not really in favor of QE2 as it will have a more “muted effect” than the original QE and at twice the calories.
Money McBags’ favorite part of the linked to article above is (bolding is from Money McBags):
Quantitative easing is often thought of as reducing the rate risk for the private sector, but it actually only shifts risk, from bondholders to taxpayers, he said.
“The ultimate macroeconomic impact of QE depends on the extent to which the extra tax risk deters economic activity on the part of this second group,” he said. “We know little about this effect, either theoretically or empirically.“
So with taxpayers already struggling, the Fed may exact some form of quantitative easing even though LITTLE IS KNOWN as to the effects of this on the taxpayer. Wow. Talk about throwing spaghetti against a crisco rubbed wall and hoping it sticks. So the Fed can do nothing, and there will be an uncertain, though slightly more certain outcome (deflation, potentially followed by hyperinflation, but letting the system start to work shit out) or the Fed can get their quantitative ease on once again and either make things worse or better, potato-puhtato. Sounds like a great plan to Money McBags because afterall, if the Fed does nothing, then it will seem like the market doesn’t need them and if that happens then Ben Bernanke will have to go back to teaching unproven theory at Princeton instead of testing that unproven theory out on unwitting taxpayers. Oh well, at least the latest government Treasury offering didn’t go off at it’s lowest yield ever (oh wait, scratch that).
The only macro news out today was that mortgage applications fell once again despite record low rates as why buy when you can squat? The slight good news (or as Money McBags likes to call it, randomness) was that the purchase index was up 2.4% and thus it was refi mortgage applications that drove the overall decline by being down 1.8% because apparently you can’t refi what you no longer own. Of course whether the number was up 2% or down 2%, it is completely irrelevant because until the economy picks up and people have job security (or jobs) housing will remain blissfully crawling along the bottom like an ass fetishist at Jessica Biel‘s house.
Internationally, Europe is on strike to protest austerity measures, economic uncertainty, and Madonna’s faux british accent. Spain is leading the way with their first general strike in 8 years and they say 72% of union workers joined the strike which also means that 28% of union workers showed up for work which is the 2nd most ever after last year’s Nereida Gallardo free calendar day. Of course most Europeans don’t know the difference between fellatio and inflation, so it’s not clear they understand that the current spending rates of European governments is less sustainable than a boner in Kathy Griffin‘s boudoir (unless it is her boner).
In stock news, Family Dollar put up a good Q as they beat wall street guesses, had same store sales growth of 6%, forecast earnings for 2011 that will likely beat analyst guesses, and simply said: “It’s the economy stupid.” As people in this country grow poorer (well, except for the ultra-rich and Lindsay Lohan‘s legal defense team), owning FDO, NDN, and other discount retailers should continue to yield outperformance, so while they’re not cheap, they’re also likely to continue to churn out growth unlike just about every retailer not named Apple. Finally Green Mountain Coffee (GMCR), a momo’s wet dream for the past several years dropped ~17% as they announced the SEC was looking in to how the company recognizes revenue (and apparently the answer “deliciously” was deemed unacceptable). The company has had a ridiculous run and has not been cheap for years so if Money McBags owned this stock, he would be puking it out faster than a 10 day old Filet-O-Fish sandwich because there is no point being involved in shit when the SEC is trying to remind people that they can be relevant.
In small cap stocks, CRUS is once again going nuts as apparently Jim Cramer yelled about them during his infomercial for euthanasia, or whatever it is he is now calling his show. Remember, Money McBags told you about this stock when it was in the $7s so hopefully you bought then so remember Money McBags when you are buying festivus gifts this year. The stock has actually been performing like shit for a while but Money McBags fully expects them to put up a HaYuge quarter when they report. This was Money McBags analysis of their last Q and nothing for him has changed since then, well except for his socks and his newfound love of everything Karissa Shannon.
In other small cap news, MLNK put up their quarter today and traded down ~14% and Money McBags would say they shit the bed this Q, but that wouldn’t have made a difference since they were already in a shit-infested bed from the previous two bed shitting quarters. No what they did was worse than shitting the bed, they actually shit the entire room, including the faucets, the phone receiver, and even inside the toothpaste tube. And remember, Money McBags first told you about this stock when it was ~$10, so you might want to hold off on that festivus present (well, unless it is a ticket to a Justin Bieber concert, because Money McBags loves him some Biebs. And yes, that was a fucking joke), though to be fair, last week he said the stock was running up and putting in a $7 limit sell order wasn’t a bad idea.
Anyway, MLNK’s revenue was basically flat with slight growth in core business (~3%), a bump up from acquisitions, and then a 33% drop to $26MM for new business, and this is the second quarter in a row in which new business has cratered which is probably a bit of a warning sign that this company might be fucked (and “a bit” of a warning sign in the same way that Veronica Varekova is “a bit” hot). They also saw their gross margins drop again, this time to 10.7% from 13%, which they said was a result of revenue mix, new client programs (though as they had fewer of these, so it is a bit flummoxing how that would lead lower margins, but logic be damned), and an increased bonus accrual because the company hit 2 of their 3 targets. And yes, read that last part again as Money McBags is not making it up. So despite horrible execution and a declining business, the management team is going to get bigger bonuses as apparently the two targets they beat were “running a shitty company” and “destroying value” while the third target “not sucking at their jobs” remains unattainable for the forseeable future.
The company also took a ~$25MM goodwill impairment, mostly on recently purchased businesses, so management proved they can not only suck at execution, but also at acquisitions. They had ~$5MM in operating cash flow (a decent enough proxy for EBITDA) which was down from $12.6MM last year and $8MM last Q in their race towards $0. Other highlights include a decrease in their business in Asia (which is their most profitable business), increasing pricing pressure (including a $4MM concession to a large customer), and guidance for things to remain this shitty as even though customers want to cut costs (which Money McBags thought was A SELLING POINT for MLNK), those customers are cutting costs by no longer holding inventory (and this all sounds very strange).
So what to do with this company? Honestly, stay the fuck away from it. They have ~$160MM in cash and a ~$270MM market cap with positive free cash flow, so in theory they should have ~30% downside protection, but Money McBags has no faith in this management team being able to do anything other than create declining EBITDA streams. We’re now at ~$20MM EBITDA run rate so the company is trading at ~5.5x that, and while EBITDA has been a fuckload higher in the past, this company deserves no credit for that so be glad you don’t own it and if you do, perhaps renting a NSFW room in Rome will cheer you up (and yes, Money McBags is morally and contractually obligated to link to that once a week).
The market ran up again today because Warren Buffett said the economy is fine (and as we at the award winning When Genius Prevail know, if you keep saying something, people will eventually believe you) as noted by the fact that he is back to eating four scrambled faberge eggs for breakfast with his soylent green as opposed to just two, Basel III was agreed to by central bankers, regulators, and shamans (to be potentially ratified sometime later this year), and all of the regression models which use outdated data to forecast the economy have decided to draw hockey stick charts in honor of the coming winter season. So it was a good day if you were long equities and locked in some profits, but probably a better day if you were long Sophie Monk and locked in your twig and bits (and yes, that is the worst pun in the history of the award winning WGP, but you get what you pay for).
The new bank regulations caused financials to rally as the regulations are seen as not stringent enough to keep banks from further manipulating the market, and yet stringent enough to give the optics that they will curtail the predatory lending behavior that started this whole global economic recession cum depression. The most important part of the new requirements is that banks will now need to hold 7.5% of common equity as reserves (up from 4% in the US, 2% in most of Europe, and 0% in Greece) and will be forced to comply by 2019, which only gives banks 9 more years to manipulate the shit out of lending and cause another global meltdown before different rules are not put in to place when these become outdated before they are even implemented. Whew.
Seriously, Money McBags is breathing so much easier now that in potentially 9 years (that is if Basel III is fully ratified by the end of the year and the EU still exists by 2019), banks will have to hold more reserves, or simply just push more loans down to off-balance sheet accounting sleights of hand like conduits, structured investment vehicles, and the inconceivable Lloyd Blankfein‘s E*Trade account. The market simply wants to rally but you’ll excuse Money McBags if he is more fascinated that blind people read Playboy than he is in anything that will likely not happen for 9 years as with the exponential acceleration of technology and medicine, in nine years we all may be living on Uranus (or the slightly larger and infinitely more comfortable Ines Sainz’ anus) grokking the downfall of society and not caring one iota about whether or not C or BAC is holding reserve capital.
There wasn’t much US macro news today which allowed investors to forget the worsening fundamentals and instead focus on their feelings. Internationally, the EU raised their 2010 growth forecast to 1.7% from “fuck if I know.” Growth forecasts were raised based on strong second quarter output and bored analysts who want to see how long they can mess with people before being caught. That said, the recovery is still going to be more uneven than a Kafka novel or Tara Reid‘s boobs as the EU has disparate economies that misreport their borrowings in many different ways (for instance, Greece misreports their borrowings in semaphore).
In the market, just about everything was up led by financials thanks to Basel III (and Money McBags hears Basel III will contain much more nudity than Basel II: Regulator Bugaloo and the original BASEL I: Central Bankers Have More Fun). In M&A news, HPQ is buying ARST for a ~25% premium and Hertz is spending $1.5B on Dollar Thrifty (with most of that money going to clean out the puke stains in the back seats of the cars). While in T&A news, Sheyla Hershey sold off her assets for nothing but the promise of living another day in a world where no one will ever pay attention to her again, damn you vanity, damn you. MSFT was bizarrely up 5% today on no news other than Steve Ballmer pimping technological innovation and that people apparently like companies that haven’t innovated in 20 years and sell a product that sucks. Strangely, classic large cap growth company VMW, which has been bending the market over for months now as if it were Bedman and the market were Throbbin, was down on the day. As always, Money McBags is a big fan of VMW and the whole cloud computing space but it is time for some sector rotation after the run up but that should soon yield a decent entry point for VMW.
In small cap news, just about everything was up as well. One company that has had a strong last two weeks and Money McBags has no idea why, is MLNK. Money McBags broke the company down after their awful earnings the other month (and if you’re going to read one thing today, it should be that analysis, if you’re going to read two things today, it should be that analysis and Leticia Cline‘s fortune). Basically MLNK is a global supply chain management company levered to the consumer technology industry. They have 50% of their market cap in cash and are at a $32MM EBITDA run rate so are trading at ~5x EBITDA and with any kind of consumer pick up should be back earning positive EPS as there is more bottom line leverage in the model than there is bottom line leverage in this model. That said, the company’s last conference call was a bit confusing and as for management’s execution, well, Money McBags is all for it with how they have crapped the bed as of late. Money McBags didn’t ditch his shares after the last Q because it was just too cheap but he may look to do so in the next few days. However, volume has been good (300k+ shares traded at the bottom on both 8/31 and 9/1, but perhaps a fund was just liquidating or something) so Money McBags may hold on for a bit longer with a nice stop loss order at $7ish. Just strange timing for this stock to be moving, though earnings are in a couple of weeks so maybe someone knows something (unfortunately that someone is not Money McBags because all he knows is that this company sucks). Worth keeping an eye on this name but Money McBags would not be a buyer in front of their Q.
6/25/10 Midafternoon Report: New finance legislation may cause banks to find different ways to screw customers
The market is up today after congress reached an agreement on legislation to better regulate the financial services industry after only two short years of debate and an economy that people have less faith in than Scientology. The legislation, being called the Dodd-Frank bill (and Money McBags only laments that Senator Tim Johnson did not sponsor the bill instead of Senator Dodd and thus we could have had the Johnson-Frank bill), was watered down though as politicians were worried it might actually accomplish something so they unanimously decided take out anything that might cause someone to change anything meaningful that they do. If passed, the new laws will include the creation of a Consumer Financial Protection Bureau (whose first rule of action will be to tell people to stop borrowing so much fucking money), a requirement for banks to segregate their derivatives portfolios by doing more than just creating separate water fountains for them on the trading floor (though banks are still allowed to use derivatives to hedge, still allowed to trade currency and interest rate swaps, and still allowed have a few years to move their CDS into capitalized subsidiaries, so suck on that Blanche Lincoln), and a monthly reminder to be delivered by Timothy Geithner to stop fucking so much shit up. What the legislation doesn’t do is restrict the size of banks and thus banks still have ability to grow too big to fail (which is the only way banks won’t fail). The most controversial act though was the Volcker Rule which was supposed to limit banks from proprietary trading through bank owned investment vehicles for the near future until banks could find loopholes around it. Luckily, they won’t have to waste their valuable time finding loopholes as the rule now merely limits banks’ ability to invest in these kind of investment funds to no more than 3% of a bank’s tangible equity or 3% of a fund’s capital, so bankers can go back to spending their time dreaming of AnnaLynne Mccord and new products to be used for predatory lending.
While agreement on legislation that may or may not turn in to law and may or may not be affective (and Money McBags will bet on the “may not” if anyone wants to take the other side) dominated the news today like the winner of a NSFW Ultimate Surrender match dominates her conquered foe (though the news domination involved many fewer dildos), the government managed to sneak in a downward revision of GDP. Due to consumers spending less than the Commerce Department previously guessed, GDP for Q1 was lowered from 3% growth to 2.7% growth which wouldn’t be a terrible number if the economy weren’t coming back from nearly going to 0. Finally, consumer sentiment rose according to the University of Michigan’s survey thanks to the one employed person in the state of Michigan the University found to answer their questions.
Internationally, not a lot was going on today as world financial leaders spent their day trying to get through customs in Toronto and exchange their currency for singles to prepare for this weekend’s G-20 summitt and group outing to the NSFW Brass Rail. Chinese currency hit a new high as China’s central bank set its key daily reference rate for the renminbi at 6.7896 per dollar meaning you now need ~350 renminbi to be loved for a very long time in Shanghai.
As for the market, with the Dodd-Frank bill more toothless than the perfect hummer, financial stocks are getting a short term boost. Investors were expecting worse so there is a bit of a short squeeze going on today since capital raises for derivatives books will be lower than previously thought and banks will still be allowed to partially invest in hedge funds, private equity funds, and any other type of SPE, SPV, or BBW to which they desire. While the market is mostly up, Ontario based RIMM is taking it in their arse (“arse” of course being Canadian for “badonkadonk“) as they once again missed analyst guesses of revenues which is becoming more of a trend than twitter, bros icing bros, and condoms. For those of you who don’t know RIMM, they are the company that produces the blackberry, you know, the thing people used to use for communicating before the iPhone came out. The company reported revenue of $4.24B which was up 24% but below analyst guesses of $4.36B while EPS was also up 24% to $1.38 and bested analyst guesses of $1.34 and yet featured no earnings leverage. The average blackberry price fell as did new subscribers but guidance was basically inline. RIMM maintains that their new product releases at the end of the year will help boost revenue growth but this company needs to start beating estimates as competition is only going to get more difficult.
In small cap news, QCOR is up 6% for no reason and even noted piece of shit MLNK is up 4% which means today’s rally is likely on light volume and just short term trading. Money McBags broke down MLNK after their last Q (just use the search box if you’re so inclined) and concluded that the company is cheap as balls in the Castro, yet is that way for a reason. Their performance has been worse than a Rich Little stand-up routine without the impressions and nothing about their business should turn around in the short term. Long term it could be a great value if you’re willing to stick with it, but there are probably better ways to not make money between now and a couple of years from now (like keeping your money under your mattress or joining the Peace Corp). Money McBags mentioned SPRT as a potential trade earlier this week but he hasn’t been able to get to a full break down yet but he will try to next week. That said, you should also keep your eyes on EPAY as they have traded down, yet have an interesting little niche business where they are building a payments network for banks as well as continuing to help automate bank cash management and business payment functions. The stock is trading at ~11x guidance with ~$2 of cash on the balance sheet and should continue to grow revenue at 20%+ while also having nice recurring revenue streams. So while you’re lounging around tomorrow trying to shake off your hangover, check out EPAY and do some due dilligence. Money McBags will try to get to it and SPRT next week, but until then, enjoy the weekend.
Oh yeah, Money McBags is trying to figure out this facebook thing so feel free to be his friend (just don’t ask him to hold hands, unless your hand hand is well manicured and is attached to this body).
The market has been relatively quiet today after yesterday’s meteoric rise on news less relevant than the Pound-Dong exchange rate (and oddly enough Pound Dong was also the name of Alexis Texas‘ last movie) or the 93rd decimal of Pi (which incidentally is 2). In US macro news, consumer sentiment was better than analysts guessed, largely because the survey was taken on payday and was done while Melinda Messenger lovingly massaged consumers’ fears away. The index came in at 75.5 which was up from 73.6 last month and above the median guess of 74.5 and was driven by consumers’ stated interest in buying durable goods such as cars and storage crates to put all of their shit in when the repo man comes to take over their homes. Interestingly enough, while consumer sentiment was up, US retail sales dropped proving once again that actions speak louder than words and all of the data is made up anyway. Spending fell 1.2% last month driven by auto sales being down 1.7% even though according to the consumer sentiment numbers, peple are looking to buy autombiles. These two data points couldn’t be more diametrically opposed than John Calvin and free will, Hemmingway and adjectives, or Richard Simmons and pants. Consumers intend to buy cars, but they’re not. Hmmm, maybe because 10% of them are unemployed and another 10% are underemployed or just not looking? Hey, Money McBags intends to buy a gold plated, diamond encrusted caviar dispenser that runs on the dreams of wide-eyed children, but he is just a few million euro short, but that is just a minor detail. So University of Michigan, put that in to your ridiculously misleading consumer sentiment survey and report it. One other interesting data point from the consumer spending numbers warrants mentioning and that is that sales in hardware stores were down 9.3% which likely means that people are spending less time fixing up their houses as they anticipate foreclosure.
In market news, Mary Schapiro is going after high frequency traders as tenaciously as a squirrel (or Ricky Martin) goes after a sack of nuts. High speed transactions now account for half of the market volume which is as healthy for the markets as Miley Cyrus‘ singing is to a hemophiliac (because her singing of course makes one’s ears bleed). Money McBags applauds Ms. Schapiro for not letting this relatively arcane corruption of the markets continue without regulation especially as high frequency trading was more negligent in the “flash crash” of the other week than the E! channel has been negligent in the devolution of american culture. Circuit breakers are now being put in to the market to halt shares of actively traded stocks when they move by +/- 10% in a 5 minute period which means BP stock should be halted on an hourly basis.
Internationally, things are relatively quiet today as the market awaits Greece’s impending default which is a worse kept secret than Burt Reynolds’ toupee or Lindsay Lohan’s implants. Greece has less ability to pay back their debtors than Athens did of defeating the Spartan-Persian alliance that ended the Peloponnesian war. Europe continues to hope that the IMF bail out can push Greek’s default out far enough so that Spain, Italy, and Amy Winehouse, can get themselves in order before the figurative shwarma hits the pita. In other international news, inflation in China rose to a 19 month high with consumer prices up 3.1%. Given the increasing pricing pressure and the rapid growth, China may start to allow their currency to fluctuate in a tight band, that is until the drummer of the band OD’s on heroin and the lead singer shacks up with the 2010 version of Bebe Buell.
In stock news, BP is pondering a dividend cut, something about needing the funds to help to clean up a mess resulting from spilling a fuckload of oil all over the Gulf and ruining an entire ecosystem. BP shares are now down nearly 50% after they tried to turn the Gulf into their own personal scat film.
Finally, Money McBags promised he would get to MLNK today. Why? Because apparently he likes writing about shitty stocks that underperform on a more consistent basis than the Alabama public school system. MLNK is a global supply chain management company that basically sets up shop next to electronics makers in Asia/Europe/The US. They manage the shipping process of the electronics makers’ products, the rebates and warranties, and then either don’t charge enough for their services or haven’t figured out how to do them efficiently, hence they lose money. They also recently bought a company called Tech for Less which sells used and refurbished computers which would seem like a good business to be in given the economy, but this business is only ~4% of revenues and based on how they run the rest of their business, is likely losing money. Anyway, this quarter MLNK’s revenue was down 7% to $213MM and below expectations because their new business is taking longer to set-up and their unit volumes are shrinking as inventories are no longer being added by retailers due to the fact that people seem to have stopped buying shit. New business revenue was $16MM compared to $44MM in fiscal Q3 last year which is so bad that Bernie Madoff wouldn’t even want to fake invest in this company. With revenue down, gross margin was down as well from 14% to 11% and EPS was a loss of $.08. However, taking out discontinued operations (though perhaps the whole operation should be discontinued), the loss was only $.03 per share. Non-GAAP income which is a proxy for EBITDA was $8.3MM, down from $16.1MM and defines the term “fuckawful.” That said, the company has no debt and $161MM of cash, cash equivalents, and broken promises. Free cash flow was $500k, just below last year’s fiscal Q FCF of $16MM, and yes, that was sarcasm. They did institute a new $10MM share buyback plan which Money McBags appreciates since he will likely be selling his shares so is glad there will be a buyer. And in the most bizarre ending to an earnings call ever, there were no questions. None. Zip. Zero. Nada. Investors were more silent than an electrolarynx user with a severe case of laryngitis.
So basically the only one who marginally gives a shit about this company is Money McBags since despite their consistently awful performance, MLNK is cheaper than a tattered Rusty Kuntz rookie card (and quick bit of trivia: “Rusty Kuntz” was actually the pre-production working title for the sitcom The Golden Girls). The company has a $288MM market cap and $161MM in cash so an enterprise value of $127MM. Their EBITDA had been as high as $18MM per Q, but this quarter shrunk again to $8MM. If we annualize the $8MM, they are trading at 4x EV/EBITDA and they previously said they expect business at the end of the year to be better. Of course last year they said they expected business at the beginning of this year to be better and it has fallen off faster than Yasmine Bleeth’s looks, so what they say needs to be taken with a grain of salt, or several grains of salt around a shot glass filled with tequila which is what the management team seems to be drinking before they give guidance. Money McBags has no idea how to evaluate this company any more as consumer spend is once again going in to the toilet and MLNK has shown less ability to execute than the state of Ohio. There is basically no good news for this stock on the horizon, they have significantly underperformed for several quarters in a row, and no one is interested in the company. So basically this is a value investor’s wet dream (well, that is if MLNK were going Lucky Pierre between Benjamin Graham and David Dodd, then it would be a value investor’s wet dream), or it’s a straight up value trap. Money Mcbags is likely going to dump his shares but it’s such a small position (and growing smaller by the day), that he may hold it for the improbable chance that they get better at their jobs.
Readers, Money McBags apologizes for his absence yesterday, unfortunately he has a life outside of the great When Genius Prevailed and that life required him to spend all day watching Anna Paquin scenes now that she is oh so comfortable with her bisexuality, so you can’t really fault him for that. Anyway, today the market seems to be running like a lobotomized senior citizen with an advanced case of alzheimers as it forgets Europe is about to collapse under a pile of oversized debt, the US unemployment rate is stagnating like the rebuilding of the Twin Towers, and the great Hannah Hilton remains retired. That said, short term macro news is pushing the markets to new heights, levels it hasn’t seen since at least last Friday, so ring those bells because the economy is all of a sudden back (until tomorrow).
Driving the market up today was that the ECB raised their growth forecasts, China showed an increasing trade surplus, and clothes-less emperors are now becoming the rage (because despite today’s numbers, the economy still has no pants). The ECB said GDP growth for 2010 will now be 1% which is above the .8% they had repviously predicted and above the potential 0% on which most investors are betting. While they raised 2010 GDP forecasts, they lowered 2011 from 1.5% to 1.2% which means the absolute level of GDP at the end of 2011 is now expected to be lower than it previously was (since multiplying last year’s GDP by 1% and then 1.2% yields a lower number than multiplying it by the previous forecast of .8% and then 1.5%), but why let math get in the way of a market rally? Honestly, if logic, common sense, and facts mattered then the markets would be efficient and Burton Malkiel would be so celebrated that he would be applauded by young and old on his daily random walks. In other big news, China’s trade surplus rose in May giving investors hope that China can keep fueling an expanding global economy. Imports and exports both grew by ~50% in May driven largely by an increase in purchases of lead paint to go with an increase in sales of toys. With a $19.5B trade surplus for the month, the Chinese government should get loved for a long time at the Beijing Rick’s Cabaret but is getting even more pressure to let the renminbi float like Kelly Madison‘s renminbis in the deep end of the pool in her San Fernando Valley abode. Finally, Japan revised their GDP upwards from 4.9% to 5% as they forgot to include the new buttress they put up around Tokyo to defend Godzilla’s impending attack.
While international news seemed to be strong, US macro news was mixed at best, which has left Money McBags scratching his head over today’s rally (though it could also be the lice). The good news is that the budget deficit fell to $136B (and for those of you scoring at home $136B might be more than the price of all of the tea in China) thanks to higher tax receipts. Money McBags is not clear where the higher tax receipts came from as unemployment has remained the same so perhaps it is from people filing their quarterly capital gains taxes which should have been higher with the strong market rally which has now fallen faster and harder than Money McBags did for the lovely Amanda Seyfried. So we’ve got that going for us. In other US news, the trade deficit widened and housing foreclosures fell largely because banks have run out of repo men as bank repossesions reached a record high last month. While fewer foreclosures are good for the markets, the reason for it is as positive as saying fewer people walked out of the last Robin Williams movie (since of course fewer people attended). Finally, new claims for unemployment came out today and were worse than analyst guesses as claims fell by 3k to 456k. Making things more confusing was that last week’s new claims for unemployment were 453k so once again the (No) Labor Department has either confused the basic tenets of addition, lost some beads off of their abacus (no doubt purposely taken off to replace one of the office’s missing anal beads that likely got lodged in Hilda Solis’ shapely derriere during the department’s recently passed Memorial day picnic), or is just MAKING THE FUCKING NUMBERS UP. Last week Money McBags wrote how 460k -10k somehow = 453k and now the (No) Labor department is at it again by restating last week’s number from 453k to 459k, which is how this week we get 453k – 3k = 456k. So last week’s disappointing number was actually more disappointing than previously thought (which Money McBags predicted) which makes the new claims for unemployment numbers now less believable than Ellen Degeneres as a romantic lead (like in the ironically named Mr. Wrong, and of course what was wrong with Mr. was that he peed standing up). The market seems to think that continuing claims falling by 255k to 4.46MM is good news except for the fact that: 1. It’s not clear that the 255k drop wasn’t just people exhuasting their benefits, having been unemployed longer than the making of The Man Who Killed Don Quixote has been in production. and 2. 4.46MM people unemployed is still a fuckload of people. But hey, rally on my freinds, rally on.
In stock news, just about everything was up except for GS which has broken through their $135 support level on their way towards extinction. It will be interesting to see how aggressive the government goes after itself (I mean Goldman) because even Meagan Cheung could find fraud on their trading desks. Also, BP rose 6% after Jim Cramer finally said to sell which once again proves his ability to be negatively correlated with the markets. That said, Money McBags wouldn’t go near BP unless he were wearing an extra strength contamination suit and had a lifetime supply of Lamivudine.
In small cap news, KITD hit its first short squeeze and jumped 8%+ and Money McBags hopes this is the first of many while MLNK was up a bit after crapping all over itself with yesterday’s earnings announcement. Money McBags is short on time today but tomorrow he will break down MLNK’s shit awful Q where their EBITDA dropped in half, their cash flow barely broke even, and they continued to pawn it off on new business taking longer to start-up. Wow. You know what Money McBags calls it when your new business takes longer to develop? Deep doodoo, and yes that is a bit of a technical term.
The market was chugging along today, taking a brief respite to lick its wounds after Friday’s jobs report gave even the most virulent Bull a bad case of Foot in the Mouth disease, until it dropped precipitously in the last half hour like Helen Thomas’ reputation at a B’nai B’rith fundraiser. With Europe’s ongoing debt problems and the US’ stagnant at best job growth, investing long in the market remains more perilous than fighting a land war in Russia in the deepest of winters (though not as deep as Money McBags would go in Ophelie Winter) or challenging Anamika Veeramani to a spelling bee (or just challening Anamika Veeramani to spell her name). The US news that had the most effect on the markets early today was that Goldman Sachs was issued a subpoena from the FCIC, also known as the “too little, too late” commission. Money McBags eagerly awaits the FCIC’s findings in several years, after no doubt much excrutiatingly toilsome research and much tax payer money has been spent, where they will 100% determine that we are fucked (of course we could save the time and money and just look for the reset button, but that would be too easy). Seriously, that we need a 10 member commisson to figure this out makes as much sense as firing an employee because she is too hot (reason #989 why C is going to $0. And as an aside, if Money McBags owned a bank, he would hire Ms. Lorenzana to manage his branch deposits anyday). Anyway, the subpeona was issued as Goldman refused to submit documents the commission requested and when reached for comment, a Goldman spokesman said they just wanted to see if FCIC Commissioner Heather H. Murren would deliver the subpoena in person. All along, Goldman Sachs has maintained that the suit is “unfounded in law and fact” and if one can’t believe what a company that has manipulated the market while bringing in absorbitant profits and destroying value for average citizens thanks to their buddy-buddy taint tickling relationship with the federal government says, then whom can one trust? As Money McBags has maintained all along, Goldman and every other Wall Street bank were complicit in the destruction of the US financial system and it would be easier to find incriminating evidence on them than it is to find rolls of back fat on a topless, sunbathing Kathy Bates, you just need to find someone with the stomach to do that dirty job. So it’s good that the FCIC is trying to grow a sac and go after them, but until they actually make some charges, this is all still lip service (though if the lip service is coming from the aforementioned Heather Murren, perhaps it’s not all that bad).
Internationally, German factory orders apparently grew faster than the cells of Henrietta Lacks as they surged due to the weaker Euro, increased private sector investment, and the uptick in demand for industrial strength floor buffers to help clean up the sets of Germany’s growing scat film industry. Orders were up 2.9% in April from the 5% they were up in March which for the first time ever makes Germany Europe’s shining example. Also, Hungary is still in the news as investors continue to try to find it on a map and wonder if to solve their financial crisis they should just gobble up Turkey. Hungary’s financial crisis is the biggest turd to hit the country since the famous Diet of Turda in 1558 which established the freedom to practice Catholicism, Lutheranism, or by the name, apparently coprophagia. Finally, fears are starting up again that China is increasing prices which will cause world wide inflation as they raise the minimum wage by 20%, though it will still leave workers wanting more half an hour after they receive their paychecks. However, if China unpegs their difficult to spell renminbi from the dollar and allows their currency to appreciate while the their own product prices increase, foreign exports could become more competitve than Alan Greenspan at a bubble blowing contest.
In stock news, BP is showing their first signs of progress in stopping the oil leak which is destroying the Gulf and causing the slogan “drill baby drill” to be returned to Peter North where it rightfully belongs. At this rate, the oil leak will be stopped and cleaned up somewhere around the time Paris Hilton finds some dignity. Also, Money McBags favorite Dick “don’t call me Richard, or Rich, or Rick, or Rightaboutanything” Bove (and again, Bove rhymes with “Oy vey”) lowered his price target on BAC yet maintained his buy rating, mimicking his brilliant market call of Lehman right before they collpased. Bove cited increased regulation, foreign exposure, and his lack of understanding of the financial markets for the price target cut. Finally, BMY shares are taking off today as they announced that their experimental drug for skin cancer was found to extend the lives of patients with incurable melanoma by 4 months. Patients were ecstatic, until they were told that four months that were being extended were Winter.
In small cap news today ISLE is falling back to where it was pre-earnings and after earnings Money McBags said the jump up was likely a quick short squeeze as the stock wasn’t cheap and the company is debt-ridden, and features bleaker properties than the Detroit version of Monopoly. Not only is ISLE falling but WGO is finally ticking down under $11 on its way to $7.50. The price of this stock makes less sense than the 11 dimensions of M theory or any song by the Black Eyed Peas. And look out tomorrow for MLNK earnings. Money McBags has written about this company many times as it is cheaper than a kissing booth being manned by Gabourey Sidibe after she downed a gallon of extra spicy garlic fries and 2 liter of Dr. Pepper. It is trading at 3x a run rate EV/EBITDA with 50% of their market cap in cash. They key to tomorrow’s release will be their cash flow statement to see if they were able to avoid burning cash as their business will likely have another sluggish quarter (according to them, though Money McBags doesn’t quite understand why, since their biggest customer HP had a good Q, but perhaps tomorrow they’ll make it more clear). So look for the release because when the markets get better (which is sometime between 2015 and the next Galactic Empire), this stock should have some nice upside with its current limited downside (again, barring a huge cash burn this quarter).
4/15/10 Midday Report: Tax day causes 53% of the US population to be pissed, other 47% pissed every day about being broke
Oh shit, just when the economy was looking better than a threesome with Hayley Atwell and Alice Eve, new jobless claims for last week rose for the second week in a row and economists didn’t have Easter to blame this time. Well, actually they did, as a government analyst once again warned that the numbers could be skewed since Easter falls on a different day each year. Wow, really? You’re going with that excuse again? Umm, if Money McBags is correct the numbers are seasonally fucking adjusted and since calendars have existed since shortly after the fucking neanderthals were exterminated (which was caused by too much contaminated dinosaur meat since those smallbrained fuckers never learned how to fucking use fire), shouldn’t that seasonal adjustment adjust for Easter? Seriously, it’s not like the day it fell on surprised anyone last year or this year (well, except for maybe Amy Winehouse or the hippocamus-ly challenged), so that excuse is lamer than Spectacular Bid or Boy Meets World reruns. Claims rose by 24k to 484k which is the highest since late February and the highest since the Great Walmart Lockout of 2006. There are still over 10MM people receiving some kind of unemployment benefit and since those benefits don’t include being tucked in by Ashley Dupree (very NSFW, but required viewing), that’s not good. In other macro news, defaults doubled in the government’s loan modification program which is weird to think that people who couldn’t afford mortgage payments still can’t, even at lower rates. It’s like being surprised that a kleptomaniac might want to steal again after being released from jail or that Tiger Woods is likely boning skanks again despite going to the laughable sex therapy (by the way, it’s not called “sex addiction,” it’s called “having a penis”). In positive news, manufacturing production in the US gained as output of factories rose .9% with companies building back inventory while the Empire State manufacturing report demolished expectations. The survey came in at 32%, well above the expected 24%, and Money McBags has no idea what that means other than beating expectations is good and at least New Yorkers have something to cheer themselves up about while watching the Mets.
Internationally, Greece is back in the news again trying to screw up something good we all had going with the markets. It’s like we’d been asking the markets out for 2 years, finally got her to come to dinner, got her home, and as we were about to inspect her large Sharpe ratios, the ruphies wore off. So thank you Greece for scaring the markets again with your rising interest rate spread. Of course there is more of a chance of the Laffer Curve being right than there is of Greece going bankrupt, so Money McBags will be buying at any big market dislocation caused by rumors of our Hellenic friends going to take a ride on the river Styx (though if they go to Styx, they should give a big “domo arigato” to Hades).
Also interntationally, China’s economy is surging like William the Conqueror’s popularity among the French in 1066. GDP was up 11.9% from last year which is more bubble-icious than Gonzo Grape. Not only that, but investment in real estate was up 35.1% and housing prices were up 11.7% in March alone. Wow. China is definitely hitting on all cylinders and their economy is busting out more than Lina Li thanks to the ginormous government stimulus, the artificially deflated currency value, and the accelerating population growth.
In stock news GOOG is running up in to earnings since, you know, they are fucking GOOG. Money McBags should have bought more but it is already an outsized position for him so he’ll root for the best with their earnings report and likely buy any dip. UPS pre-reported their earnings today and grew profit by 37%. They earned $.71 per share, well above analyst guesses of $.58, and upped their full year EPS guidance from $2.70-$3.05 to $3.05-$3.30. Wow. Apparently people really want to ship some shit that can’t be attached in an e-mail. This is a huge signal to the strength of a business rebound. International shipping was up 18% and while US shipping volumes were up less than 1%, it was the first growth in US shipping in two years. So yeah, it is barely up from a much lower base, but this is how things start out. A very encouraging quarter from UPS.
In small cap news, NTRI is starting to run and Money McBags has broken their business down a number of times here. They are cheap but operational issues keep Money McBags from owning this stock. Also, MLNK is trying to rally back from a huge sell off after missing their quarter. Money McBags has analyzed the fuck out of this company but it is ridonkulously cheap on an EV/EBITDA basis, trading at ~4x with a bigger cash cushion than Jennifer Lopez’s ass cushion. This is a small holding of Money McBags and he is currently down ~10% on it but is thinking about nibbling at some more. The biggest issue is that their excuse for missing the quarter made less sense than Kathy Griffin’s career as HP is their biggest customer and was up 10%, yet MLNK’s sales were down 9% even including revenue from an acquisition. It is more head scratching than crabs as to why their revenues performed so poorly and why their guidance was down as the global economy and the consumer are picking up so this company should be seeing revenue growth off of such depressed numbers. That said, the stock has started acting better, so it is worth watching.
Before we get to the markets, Money McBags found a picture of the hottest female in the history of history and wanted to share it with his readers as a sign of his gratitude. This is the hottest female ever*, so you’re welcome. Anyway, stocks are up today as macro data was more encouraging than a Stephen Hawking pinky raise or Anne Sullivan Macy. The ISM reported that manufacturing expanded at its fastest pace in 5 years to a whopping 59.6 (and if it had been 59.9 the market may have shot more loads than a Japanese bukakke film). Prices paid (cough, inflation, cough) drove the index higher while the unemployment gauge slipped once again. More importantly, first time jobless claims fell to 439k, while even more importantly, Audrina Patridge is hot. The Street is hoping that the 6k drop in first time unemployment claims will bode well for the Labor Department’s unemployment report to be released tommorow on paper made from the tears of the homeless. However, providing the proverbial turd in the punchbowl, or the penis in the MFF scene, was a report released today by some firm called Challenger, Gray, and Christmas who bah humbugged on the labor market by reporting that job cuts accelerated in March. The outplacment firm announced that the pace of job cuts had increased 61% sequentially from February but optimists will point out that the job cuts were down 55% from March of last year. So hoo-fucking-ray. The economy is either better or worse depending on your comparison. It’s like the old saying, in the land of the blind, the one-eyed man is king (though in the land of the blind, the one-eyed man better not develop macular degeneration because there sure as fuck won’t be any ophthalmologists).
International markets are all a buzz today as Asia and Europe saw strong manufacturing reports which signal the recovery is coming. China’s manufacturing expanded for a 13th consecutive month, Europe’s manufacturing industry expanded at its fastest pace in three years, and somethng in Japan called the Tankan index of sentiment jumped from minus 25 to minus 14. April fucking fools!!!!!!! Oh wait, that data is actually real. Wow. The international markets may have found their Viagra or Peter Gowland’s private photo collection.
In stock news, RIMM missed their earnings estimates by $.01 eps and their revenue estimates by 6%. So despite earning $1.27, showing better margins, and growing 18%, the stock is down 5%+. Money McBags is actually surprised it isn’t down more because when a growth stock in a competitive market needs to make their numbers and whiffs, nothing good can happen. Goldman Sachs cut their rating on RIMM to sell and basically called them a has been in the handset market. Their products are less differentiated than a Dahm triplet and a whole lot less delicious. Money McBags puked out his RIMM shares because fool me once, shame on me, fool me twice and you can go fuck yourself.
In small cap news everything is up except for Chinese power generation company APWR who handed out fortune cookies with their earnings release yesterday that all read “suckers.” Their guidance was 30% below analyst guesses who apparently were just chasing windmills when covering the stock (and that is funny because APWR produces windmills, but you all knew that anyway, right?). Also, there was a comment in yesterday’s blog comment section asking about MLNK and Money McBags will address it here. The reader wanted to know what was going on with MLNK and if it is still a hold. Money McBags broke down their fuck awful quarter a few weeks ago and nothing has changed since then of which he is aware. They earned $13MM of EBITDA and said this upcoming Q was going to be worse while they would see some sequential improvement after that. Of course they also said that last quarter would be flat and it was down worse than a than a clinically depressed person who just lost their dog and had a virus wipe out their computer’s porn collection, so who the fuck knows if management can be trusted. Their excuse for missing the quarter is still a little squirrely as they blamed their clients for delaying decision making but Money McBags doesn’t quite get that. HP’s revenues were up ~10% and HP is like 25% of MLNK’s business, so why the fuck didn’t that help drive revenues more? And if MLNK is earlier in the cycle, why did they not see revenues jump by more in the previous Qs or why is their revenue being impacted by clients delaying their decision making now (since decisions should have already been made for this upcoming cycle). The simple fact is the company is underperforming, but even so, they still earned $13MM of EBITDA in the Q. They have a $163MM in cash and a $375MM market cap so an enterprise value of $210MM. If you think their business bounces back after likely sucking this Q coming up (Money Mcbags’ words, their guidance), then a $52MM EBITDA run rate is possible and thus they are trading at 4x that. The stock is cheap on that basis, but on an EPS basis, they’ll probably be lucky to earn $.45 this year so are trading at almost 20x that for no growth. The EV/EBITDA and cash give us some downside protection so Money McBags sees no reason to sell, but he also thinks this is dead fucking money for a while. Their business should ramp with electronics sales (though it didn’t despite HP being up 10% as Money McBags said earlier, so if someone can explain that, Money McBags is all ears), so if the economy can really come back, they should be able to grow the business. Look, it ain’t fucking AAPL, but it is sort of cheap with a cash cushion that has some nice operating leverage. So in short, the downside seems a bit limited but the upside may be further away than Paris Hilton’s Academy Award (One Night in Paris excluded).
*April fucking fools’.
Today marks the one year anniversary of the bear market’s devilish low of 666. To celebrate the nearly 70% rise since then, unemployed workers throughout the country are taking a day off from job hunting to resole their well worn and tattered shoes while Wall Street bankers are wiping their delicate behinds with their beluga caviar scented toilet paper made from the eyelashes of the Dalai Lama as a symbol of their spoils. That said, macro news is more non-existent today than John Edwards’ ethics. The only slight news comes from Federal Reserve Bank of Chicago President Charles Evans saying that weakness in the job market will cause the Fed to keep rates low for some time and they will continue to be more accommodative than Mr. Roarke was to Heather Locklear when she visited Fantasy Island (and one can only imagine the fantasies Tattoo had about her islands). Mr. Evans also said that as a result of the deep recession, policy makers may need to shift their view of full employment to correspond to a 5.25% unemployment rate as opposed to the 4.75% they currently use as a base line. So good on you Charles. Way to lower the bar instead of trying to find proactive solutions. It’s like if Perfect 10 magazine(NSFW) all of a sudden started putting 9s in their photo spreads or if Einstein rejiggered his theory of general relativity by adding some fictitious comological constant (umm, ok, maybe scratch that last one). At least we now know why Charles Evans is considered to be one of the Fed’s fluff girls as he is a Federal Reserve Bank President and yet not a voting member of the FOMC.
In international news Greek Prime Minister George Papadopolis is supposed to meet with President Obama, though there is no word as to whether Mr. Papadopolis will be bringing Webster along with him. In the meeting, the Greek Prime Minister will walk through his detailed plans of economic recovery with President Obama which will include vilifying hedge funds who bet against Greece and their faltering economy while placing the rest of the blame on a faulty johnson rod Greece had installed last year.
In stock news, Burger King had disappointing same store sales numbers for the first two months of the year posting 8% declines across the US and Canada. They blamed 3% of the decline on bad weather and the other 5% on shitty food. This comes a day after McDonalds posted slightly up US same store sales. Burger King’s CFO Ben Wells said “For us weather is a big deal because you don’t stroll to a Burger King restaurant, you have to be in an automobile.” Now look, Money McBags is no Le Corbusier so he is not an authority on how cities are laid out, but if the weather is bad, wouldn’t more people be getting in to their fucking cars and driving places than walking? Yeah, I get that if you’re snowed in you’re not going anywhere, but that should have hit McDonalds too. Consider Money McBags skeptical of that excuse.
In small cap news MLNK came out with their earnings last night and to call their earnings crappy would be an insult to crap everywhere. Now Money McBags is an owner of MLNK and has been touting them on When Genius Prevailed from time to time, so this just shows that nobody is perfect (except for maybe Jayde Nicole). This was Money McBags’ break down of MLNK last Q, the key part being management said this Q (their fiscal Q2) would be flat with fiscal Q1 and the end of the year would see an uptick. So they earned $18MM of EBITDA in fiscal Q1 and taking their guidance that put them at a $72MM run rate or an EV/EBITDA so ridonkuously cheap that even Matthew Lesko couldn’t believe it. That said, they fell short of their guidance this Q and earned only $13MM of EBITDA and then took down guidance for next Q (fiscal Q3) saying it will be flat to lower than fiscal Q2, with fiscal Q4 then being up sequentially from fiscal Q3 (though unclear if it will be up from this Q). Oy, fucking vey. So let’s use $13MM as the new EBITDA run rate assuming it drops next Q but picks up to this level again in 2Qs, with anything after that being unknown (though it should be up). So a $52MM annual EBITDA run rate with $163MM in cash on the balance sheet and no debt yields an EV/EBITDA of still only 5.5x after today’s drop. So it is still cheap and Money McBags has no intention of selling, but the fact that they were down when ther biggest customer HP had revenue up 8% this Q (and HP is 28% of revenue) is a bit head scratching (though if it were Money McBags’ head and Destiny Dixon were doing the scratching, everything would be ok). MLNK revenues in the Q were down 9% Y/Y and 4.5% sequentially, but those numbers include $4.8MM of revenue from their acquisition of Tech For Less, so comparable revenues were actually down about 2% more than that (though they said this is usually a sequentially down Q). The good news is that gross margins were up 100bps and they generated about $30MM of FCF and guided to positive FCF for the year. Europe was a main driver of weakness, down 16%, as were getting new engagements which were down 62% from last year’s fiscal Q2 which probably isn’t a great sign unless you hate making money. They said this was “a direct result of our clients delayed decision-making due to the economic headwinds in the spring and summer of 2009″ but then later they say that the six month lead times they get should put them at the front of the cycle. Hmm, Money McBags is now more confused about their business cycle than Larry Craig is about his sexuality (or at least publicly about his sexuality, because he knows in private he loves burgling turds). Luckily, Money McBags is not the only astute one out there as some guy from Harvest Capital Strategies spoke up on the conference call and asked: “you initially had expected Q2 to be flattish with Q1 and then a gradual uptick in Q3 and Q4 to now a down Q2 versus Q1 and the subsequent down Q3 versus Q2 before we see a resumption of sequential growth. Maybe if you can can just provide a little more color around what changed in the last three months?” Management said there were three reasons for the change: 1. Volumes were simply less than they expected in their base business. 2. Start-up activity is taking longer to get up and running so new business that was supposed to be in Q2 will now be in late Q3 and early Q4. 3. A little something called “Shut the fuck up” (ok, maybe they didn’t say this one). Anyway, to sum this all up Money McBags can’t be right all of the time. With consumer technology spending bottoming out, he though MLNK would see the benefits (as did their management) and they didn’t. That said, the company remains cheap (thanks to the 10% drop today) but their growth may now take longer to come back than John Travolta’s career after Staying Alive or Tiger Woods’ dignity (ok, hopefully not that long). Money McBags is not selling here, but he’s not buying either. This company simply should have done better.
Also, WILC is up almost 10% today on big volume after their Q last week. Money McBags will break that Q down in the next couple of days, but he has let you know many times that this company isn’t just chopped liver.