Thursday, August 6, 2009

Earnings: FR, PRU, CSCO, NWSA, UL/Statoil/ Medical Costs/

1. First Industrial Realty Trust (owned-Lottery Ticket): FR was a lottery ticket purchase, still a tad under water after rallying yesterday based on this REIT's 2nd quarter report. I was not impressed with the report for the 2nd quarter, though there was nothing to cause me to sell my remaining small position in a cumulative preferred issue and the even smaller common stock (FR) lottery ticket. FFO was 50 cents in the 2nd quarter, which is not so hot, and that was achieved by special items. Occupancy fell to 82.1% from 86% in the 1st quarter of 2009, a bad trend, and rental rates declined 4.2%. The issue with this REIT is whether it will survive until the economy starts another upturn and demand for FR's properties returns, so that both occupancy levels and rents will start to increase again rather than to continue going down. The company is making progress on paying down debt as it comes due, selling some properties, and buying back some senior debt maturing after 2009 at discounts to par value. In addition, the company noted that 87% of its properties were unencumbered by mortgages and only 19 million of debt was maturing to the end of 2010, which gives this REIT some much needed breathing room.

2. Post Office Losses: It seems that I rarely can work my way through a roll of postage stamps before another rate increase is made by the U.S. Postal Service. Yet, the Post Office lost 2.4 billion in the last quarter, and is on track to lose 7 billion for its fiscal year ending in September 2009.

3. Cisco: I am not much of a tech investor, never have been, and most likely never will be. Though, it is probably best never to say never. I did venture recently into buying 100 shares of XLK, the ETF for the technology stocks in the S & P 500. I doubt that the Young Turks would be impressed by that foray. Cisco's results released after the close left me with the same feeling as the PG earnings release earlier in the day, a blah feeling coupled with a shrug of the shoulders. Revenues declined 18% and earning fell 22.5% from the year ago quarter. On the bright side, revenues did rise sequentially. Cash on the balance sheet rose to 35 billion. Unlike the old days, however, Cisco has issued debt and its balance sheet shows 10.295 billion in long term debt. Cisco purchased 42 million shares in its last quarter at an average cost of $19.02 per share. Cisco expects its next quarter, its first in a fiscal year, to show a revenue decline of 15 to 17% from the year ago quarter. Chambers was cautious on the conference call, basically saying that he wants to see positive trends for the next two quarters before calling the bottom.

4. News Corp (NWSA-owned): I last discussed News Corp last Fall. I currently own over 100 shares with the last buy on 11/18/2008 at $6.65, in what I call a scatter buy with cash flow. LATE DAY TRADES: GCI, CBL, FR, SLG, NYT, NWSA I am not enthusiastic about this stock. News Corporation reported "adjusted operating income" of 3.6 billion on an 8% decline in revenue from the year ago quarter. The net loss was 8 cents a share compared to net income of 43 cents in the firm's 4th quarter of 2008 (fiscal year ended in June 2009). The loss was caused by impairment charges and other charges of 680 million. Rupert apparently believes that he can charge readers for accessing his newspapers online, as News now does with the WSJ and Barrons. News said it expected its fiscal 2009 to show a high single digit rise in operating income but the first quarter will have difficult comparisons with the year ago quarter. Murdoch said that there was no clear signs of a fast recovery, though advertising markets were seeing "good signs of life".

5. Statoil (owned until yesterday): I did not mention my purchase of Statoil (STO), the Norwegian oil company. I will briefly mention that I sold my shares at $22 yesterday. While watching Cramer for my obligatory ten minutes a day, I noticed that he was recommending this company. I sold it after it rose from around $15 to $22, and after reading its last earnings release. While I understand why StatoilHydro paid almost 100% in taxes to the Norwegian government last quarter, their tax rate is still too high for me. I will simply find another oil company, an ETF, or a CEF to plough the proceeds realized from the STO sale today and the previous sales of IRR. As the WSJ. article on the subject noted, the firm called this 100% tax rate "unusually high", no doubt in a deadpan kind of manner, but the WSJ then noted that STO paid at a 69.6% tax rate in the year ago quarter. Wow-the Beanpole must be salivating over those kind of numbers. Maybe I missed something in Cramer's discussion of STO but I did not hear any reference to the confiscatory tax rate.

6. Democrats Ignore Cost Containment Assessment by CBO of their Health Plan: You would hardly know from listening to Obama's speeches that the CBO director claimed that the Democrats were not containing the rise in medical costs with their trillion dollar plus health care plan, more like 2 or 3 trillion when all is said in done over the next ten years. This is the advice that the administration received from Julian Zelizer, a Princeton Professor, in an article published in politico. I do not have the impression that there are any Democrats who are in favor of this legislation who are the least bit concerned about controlling the rise in medical costs, at least in a responsible manner, which is driving the spiraling increases in insurance premiums. The unnecessary procedures and tests that bloat the cost of health care, and the administrative burdens, need to be the focus of politicians, rather than launching an expensive new program which does not control costs and will probably exacerbate medical inflation in the years to come.

There was a story on the CBS Evening News last night that was interesting. Physicians have been eager to perform a surgery, costing anywhere from 2 to 5 thousand, called Vertebroplasty to ease back pain. Two studies were just published in the New England Journal of Medicine that proved no benefit compared to a placebo. In other words, tell the patient you are doing something to ease their pain, give them a fake treatment, and there is no difference in the results after six months between those patients and the ones who received the expensive surgery. I could give thousands of examples of this issue. This is a link to a CBS News Video that highlights that 36% of women undergo an invasive surgical procedure to perform a biopsy after an abnormal mammogram, as opposed to the recommended procedure of a needle biopsy which costs substantially less. It is really about money in many types of procedures and tests rather than what is best for the patient.

7. Prudential (own only senior bonds): Prudential Financial reported a profit, its first in a year. Excluding investment gains and losses, the firm earned $1.88 a share. Pru did lower its forecast for the year to a range of $5 to $5.2 from $5.25 to $5.65. As a bondholder, I am not concerned about the lowering of the full year forecast, but simply whether Pru is likely to continue paying me interest and the likelihood of paying par value at maturity. I am not currently concerned about Pru honoring its bond obligations. I own short term bonds maturing in 2012 that pay interest monthly; the CPI floater PFK maturing in 2018, and the long bond in TC form, JZH.

8. First American Senior bond in the TC PJS: When I last mentioned the Trust Certificate PJS, I noted that the trading in the underlying bond was practically non-existent, with the last trade occurring in May 2009. I had checked the trading history at FINRA for about the last 6 months and found trades only on two days in May. The last trade was at the 58 price and it was a small one. Several larger trades took place on the 27th at prices between 68.250 and 71.203. Since May 28th, the corporate bond market has improved and the business of FAF is picking up as shown in its last earnings report. I wanted to mention these points to highlight the need to drill down in the FINRA data rather than to just rely on the data contained on the main page for each bond which contains the yield and last trade information. I want to know the frequency and size of trades. To me, a small trade several months ago or even yesterday is meaningless if it is outside the range of large institutional trades.

9. UNILEVER (OWNED): Unilever was one of the consumer staple stocks added by the RB in March. I still own shares bought at $18.05 (Added to UL) after the LB, being way too cautious as usual, sold the shares at $23.38 bought first at $18.22: Pared Unilever So, as RB would say, LB cost the Headknocker money once again. Unilever is rising over 6% this morning to over $27.8 in early trading after reporting earnings this morning. Sales beat expectations with volume up 2% compared to the expectation of a small drop. Excluding currency, divestitures and acquisitions, Unilever's second quarter sales rose 4.1%. Unilever's largest market is now Asia and Africa, where sales grew 6.6%. Net income did slip 16% however. I view Unilever in much the same way as my purchase yesterday of Kraft. /Earnings from Kraft At my purchase cost of $18.05 for my remaining UL shares, the dividend yield is better than most investment grade corporate bonds now.

10. Miscellaneous: I have noted the recent upward price spike in my S L Green common shares. But, given my small stake, possibly a corner slice of a Manhattan brick, it is hard to get too excited. My best gainer this morning was the 550 shares of the TC XKK, which contains a senior bond from Goodyear, up over 8% in early trading. The market has reacted favorably to the last earnings report from Goodyear even though GT reported a loss. The TC XKK does have a coupon 1% higher than the underlying bond. I also noticed that the market was reacting favorably to the earnings report this morning from Great Plains Energy (GXP), one of my electric utility holdings. I am under water on that one, and I quit reinvesting the dividends. I have discussed many times the money market rates that are now hovering just above zero, with some U.S. treasury funds at zero. I complained just recently about not being able to buy a McDonald's happy meal for 1 person with the interest paid last month from all my cash stashed in those funds. Yet, notwithstanding that consternation, I have sold a lot of stocks recently with the proceeds adding to my collection of funds generating no income, so go figure. I am concerned about a correction, possibly precipitated by the jobs report tomorrow. Quick parabolic moves in any asset class make me nervous, and my knee jerk response is to sell into such moves.


  1. Before I read these comments I found a link that says the study results have been misinterpreted and actually show vertebroplasty does reduce back pain.

    I hope that mainstream media eager to jump on the Obama policy bandwagon are not poisoning public opinion before checking the real facts. If this one story negates 20 years of clinical research than the most vulnerable among us (pain ridden elderly osteo suffers) are going to continue to suffer is silence.

    For those of us not aided by the procedure as evident on CBS's comment board, we should be checking facts before rushing to judgment.

  2. I read the story that you cited and come away with a different impression of it than you. In that story, the persons claiming that the media misrepresented the studies published in the New England Journal of Medicine appear to me to be those who have some financial interest in performing vertebroplasty or have a career wrapped up in promoting its effectiveness. My understanding is that there was no statistically significant difference in the pain relief based on patients receiving a placebo and the vertebroplasty. I have not seen any story from disinterested parties that contradicts that statement. One of the experts in the CNBC story appears to me to be making a placebo procedure, which did not involve a cement injection, into some form of an alternative treatment. Most of my sources on these kind of subjects are professional type publications, though I cite in the post a story my the medical doctor who appears on CBS news. See also: This last article from points out that, while no additional benefits were realized from the vertebroplasty compared to the placebo, there were risks associated with vertebroplasty including "infection, leakage of the bone cement outside of the broken vertebrae and the procedure might increase the already high risk of having more fractures in the spine". I also think that there will be patients participating in a clinical trial, who are absolutely convinced that a placebo treatment or taking a sugar pill, improves their symptoms.