High prices fill up cash flow
Showing posts with label earnings. Show all posts
Showing posts with label earnings. Show all posts
Monday, August 12, 2024
Monday, March 23, 2015
The Haiku of Finance for 03/23/15
Read income statement
Always on the bottom line
Look for the earnings
Always on the bottom line
Look for the earnings
Sunday, February 01, 2015
Foreign Profits Under Fire In US
Corporate cash looks like a big pile of potential energy to rational business leaders. It also looks like a big prize to politicians. The Obama Administration wants a special tax on the profits that American corporations hold in their foreign subsidiaries. The opening gambit of Washington's latest joust over tax reform is a play for more complex administrative burdens on corporations. The political appeal of reinvesting in America obscures the chaos awaiting in the details.
The smart way to bring foreign profits home is to apply any new tax to future earnings only. Grandfathering all prior earnings means corporations can keep whatever capital spending commitments they have made based on sequestering non-US earnings. The Administration does not seem inclined to move that way. The tax proposal reads as a grab for earnings held up to today.
US corporations already pay foreign taxes on their earnings from foreign operations, and these payments are addressed in the tax codes of both the US and foreign jurisdictions. Many US corporations also have transfer pricing agreements with foreign governments' revenue ministries. A new tax will force them to revise these agreements. The US would be in the unenviable position of taxing its most successful companies twice for the same operations if the Administration's opening proposal succeeds.
High-profile tax inversion mergers have become the bogeyman driving a political quest to do something superficially patriotic. Someone needs to send a memo to the White House's economic advisers that tax inversions are rarely the sole or even primary criterion for international mergers and acquisitions. Corporate development officers execute checklists numbering hundreds of deal criteria. Tax considerations may be one or two questions on a pre-merger checklist.
Corporations sequester cash in their non-US affiliates to fund enterprise growth, hedge currency volatility, and pay local employees. Unleashing a bull into a china shop leads to lots of broken crockery. The Administration's intended tax bull will upset many carefully emplaced corporate plans.
The smart way to bring foreign profits home is to apply any new tax to future earnings only. Grandfathering all prior earnings means corporations can keep whatever capital spending commitments they have made based on sequestering non-US earnings. The Administration does not seem inclined to move that way. The tax proposal reads as a grab for earnings held up to today.
US corporations already pay foreign taxes on their earnings from foreign operations, and these payments are addressed in the tax codes of both the US and foreign jurisdictions. Many US corporations also have transfer pricing agreements with foreign governments' revenue ministries. A new tax will force them to revise these agreements. The US would be in the unenviable position of taxing its most successful companies twice for the same operations if the Administration's opening proposal succeeds.
High-profile tax inversion mergers have become the bogeyman driving a political quest to do something superficially patriotic. Someone needs to send a memo to the White House's economic advisers that tax inversions are rarely the sole or even primary criterion for international mergers and acquisitions. Corporate development officers execute checklists numbering hundreds of deal criteria. Tax considerations may be one or two questions on a pre-merger checklist.
Corporations sequester cash in their non-US affiliates to fund enterprise growth, hedge currency volatility, and pay local employees. Unleashing a bull into a china shop leads to lots of broken crockery. The Administration's intended tax bull will upset many carefully emplaced corporate plans.
Wednesday, October 15, 2014
The Haiku of Finance for 10/15/14
Use statistics well
Forget technical charting
Earnings matter more
Forget technical charting
Earnings matter more
Friday, May 23, 2014
Tuesday, May 20, 2014
The Haiku of Finance for 05/20/14
Stock screening metrics
Earnings count for everything
Nothing else is close
Earnings count for everything
Nothing else is close
Saturday, May 03, 2014
The Haiku of Finance for 05/03/14
Forecasting earnings
Just add historic growth trend
Subtracting nothing
Just add historic growth trend
Subtracting nothing
Wednesday, April 09, 2014
Monday, July 29, 2013
Financial Sarcasm Roundup for 07/29/13
July went by pretty fast but not fast enough to avoid my sarcasm. Nothing on the calendar escapes my bitter rants.
It's really cute that China will audit debt at all levels of its government. I take this promise about as seriously as I took the bank stress tests in the US and Europe. There's no way Chinese regulators will ever announce anything other than a clean bill of health to the public. They liberalized bank loan requirements precisely because they plan to layer more debt on top of existing debt.
China isn't the only kid on the block that wants to continue their leverage binge. Germany has assured Greece that it will not face further debt haircuts. I can only guess at how ginormous the Fed's dollar swap lines with the ECB have now grown to make this promise possible. Even Frau Merkel's iron rhetoric has softened. Elite fear of asset destruction and revolution must be palpable in the halls of Brussels, London, and Washington.
Corporate earnings have declined, and I think they've probably peaked. No way could profits at twice their historic percentage of GDP ever be sustained indefinitely. I'm pretty sure I've said that on this blog more than once. Mean reversion to 6% of GDP means an overshoot to the downside is likely before another upturn can take place. People who work for a company listed in the S&P 500 need to update their resumes.
The IMF doesn't have to worry about whether the Fed will improve its transparency. There is no way that is going to happen. The Fed is not going to end QE until after hyperinflation destroys the dollar. I could have told the IMF that but they never asked me, so instead they have to go wondering out loud in public.
Now it's Brazil's turn to make me LOL. Brazil wants the IMF to exclude the debt owned by its central bank from formal government debt calculations. That is about as irresponsible as a homeowner asking their credit agency to exclude their delinquent mortgage from their credit report because it can't be securitized. Try running that argument past your home loan officer and see how fast they have security escort you out of the bank. Brazil's pleading makes it clear that their currency isn't ready to serve as part of a central bank reserve portfolio no matter how robust their natural resource inventory looks. At least they still have the next Summer Olympics going for them.
I'm not going to count on any of the above parties to tell the truth until real economic results are obvious even to the dullards running mutual funds and wealth management firms. The irony of evolution is that folks with the most attractive pedigrees have become the least able to adapt to environmental changes. Stupid losers deserve what they get for not reading my blog.
It's really cute that China will audit debt at all levels of its government. I take this promise about as seriously as I took the bank stress tests in the US and Europe. There's no way Chinese regulators will ever announce anything other than a clean bill of health to the public. They liberalized bank loan requirements precisely because they plan to layer more debt on top of existing debt.
China isn't the only kid on the block that wants to continue their leverage binge. Germany has assured Greece that it will not face further debt haircuts. I can only guess at how ginormous the Fed's dollar swap lines with the ECB have now grown to make this promise possible. Even Frau Merkel's iron rhetoric has softened. Elite fear of asset destruction and revolution must be palpable in the halls of Brussels, London, and Washington.
Corporate earnings have declined, and I think they've probably peaked. No way could profits at twice their historic percentage of GDP ever be sustained indefinitely. I'm pretty sure I've said that on this blog more than once. Mean reversion to 6% of GDP means an overshoot to the downside is likely before another upturn can take place. People who work for a company listed in the S&P 500 need to update their resumes.
The IMF doesn't have to worry about whether the Fed will improve its transparency. There is no way that is going to happen. The Fed is not going to end QE until after hyperinflation destroys the dollar. I could have told the IMF that but they never asked me, so instead they have to go wondering out loud in public.
Now it's Brazil's turn to make me LOL. Brazil wants the IMF to exclude the debt owned by its central bank from formal government debt calculations. That is about as irresponsible as a homeowner asking their credit agency to exclude their delinquent mortgage from their credit report because it can't be securitized. Try running that argument past your home loan officer and see how fast they have security escort you out of the bank. Brazil's pleading makes it clear that their currency isn't ready to serve as part of a central bank reserve portfolio no matter how robust their natural resource inventory looks. At least they still have the next Summer Olympics going for them.
I'm not going to count on any of the above parties to tell the truth until real economic results are obvious even to the dullards running mutual funds and wealth management firms. The irony of evolution is that folks with the most attractive pedigrees have become the least able to adapt to environmental changes. Stupid losers deserve what they get for not reading my blog.
Wednesday, February 27, 2013
Saturday, January 26, 2013
Alfidi Capital Theory on Apple's Fall
My theory on a falling apple has little to do with Sir Isaac Newton's musings on gravity. In case you haven't heard, Apple is no longer the world's most valuable public company as of this week. Plenty of hedge funds sold off their AAPL shares on the disappointing earnings news. The Wall Street rah-rah bullish cheerleader chorus is still fond of this darling stock. They want sucker retail investors to buy in to AAPL and save the bacon of their hedge fund manager friends. I have no intention of playing the role of greater fool.
Apple is IMHO likely to lose its preeminent market position in mobile devices simply because it has always been a premium product maker for early adopters. It has never been able to translate the enthusiasm of its boutique products' first buyers into staying power for cheaper products. Apple has never been able to lower the price points of its products to compete with later arrivals. Samsung's Droid phones will gain traction as their price points come down.
The future market for mobile devices will belong to the low-cost products competing in emerging markets that have either not reached their saturation point (North America and Western Europe are saturated) or are served with poor telecommunications infrastructure. Your average African tribal shaman doesn't have the local equivalent of US$700 to drop on an iPhone and Apple isn't going to lower its prices. Some other competitor - probably Samsung - will take that market with a cheap device that accommodates low bandwidth and intermittent service.
Something also needs to be said about walled gardens. Apple's music store is nice but Google will probably win the app war. Google has more back-end services that make apps useful, specifically Google Earth. I'd like to see a head-to-head comparison of apps that manipulate embedded imagery or geographic data to prove my point, but I suspect Google would be the winner.
Full disclosure: No position in AAPL or other companies mentioned at this time.
Apple is IMHO likely to lose its preeminent market position in mobile devices simply because it has always been a premium product maker for early adopters. It has never been able to translate the enthusiasm of its boutique products' first buyers into staying power for cheaper products. Apple has never been able to lower the price points of its products to compete with later arrivals. Samsung's Droid phones will gain traction as their price points come down.
The future market for mobile devices will belong to the low-cost products competing in emerging markets that have either not reached their saturation point (North America and Western Europe are saturated) or are served with poor telecommunications infrastructure. Your average African tribal shaman doesn't have the local equivalent of US$700 to drop on an iPhone and Apple isn't going to lower its prices. Some other competitor - probably Samsung - will take that market with a cheap device that accommodates low bandwidth and intermittent service.
Something also needs to be said about walled gardens. Apple's music store is nice but Google will probably win the app war. Google has more back-end services that make apps useful, specifically Google Earth. I'd like to see a head-to-head comparison of apps that manipulate embedded imagery or geographic data to prove my point, but I suspect Google would be the winner.
Full disclosure: No position in AAPL or other companies mentioned at this time.
Saturday, October 20, 2012
Revenues Lead The Way . . . Down
The verdicts coming in on the economy's health are not good, at least from the perspective of corporate financial results. A string of S+P 500 revenue misses can't all be chalked up to poor execution. UNP is having a banner time but I suspect railroads are riding the peak of a bow wave of imports, driven by retailers accumulating inventory for the Christmas season. That will collapse when consumer spending is exhausted.
Earnings misses are next but we won't see them until corporations are done trimming expenses. That means more layoffs are coming. Forget about the falsified employment numbers from BLS. The line out the door of your city's unemployment office is a better indicator.
Oh yeah, here's an unrelated tidbit. The home price recovery is driven by the lack of supply of existing homes, and banks are still withholding foreclosures from the market. Mortgage rates are at all-time lows and won't stay there forever. The accelerants are lighting this fire without any kindling to sustain it, and it will be gone in a puff of smoke.
Wall Street's sell-side preppies and wealth management flim-flam salespeople love people who buy into this market. So do realtors desperate for the commissions of five years ago. Forget it.
Earnings misses are next but we won't see them until corporations are done trimming expenses. That means more layoffs are coming. Forget about the falsified employment numbers from BLS. The line out the door of your city's unemployment office is a better indicator.
Oh yeah, here's an unrelated tidbit. The home price recovery is driven by the lack of supply of existing homes, and banks are still withholding foreclosures from the market. Mortgage rates are at all-time lows and won't stay there forever. The accelerants are lighting this fire without any kindling to sustain it, and it will be gone in a puff of smoke.
Wall Street's sell-side preppies and wealth management flim-flam salespeople love people who buy into this market. So do realtors desperate for the commissions of five years ago. Forget it.
Friday, October 19, 2012
Thursday, August 16, 2012
The Haiku of Finance for 08/16/12
Bring me some cash flow
Forget speculative bets
Only earnings count
Forget speculative bets
Only earnings count
Friday, August 03, 2012
YRC Worldwide's Q2 2012 Loss Is Still A Loss
YRC Worldwide managed to survive another quarter of losing money. Its most recent financial results show that the LTL trucker continues to post negative net income despite its first operating profit since its debt restructuring. There's a lesson here for CFOs. Losses per share can be dressed up as an improvement through the issuance of massively diluted new shares.
Meanwhile, the more ominous news for the company is the 0.5% decline in top-line revenue. This could imply that YRCW's much-ballyhooed market position may be eroding. The increase in revenue per hundredweight is odd, something normally associated with a firm that can maintain its pricing power. I'm not sure which customers still insist on paying a premium for a fat, smelly, Teamster driver to give them an attitude. Those customers are welcome to contact me to explain their reasoning.
Full disclosure: No position in YRCW, ever.
Meanwhile, the more ominous news for the company is the 0.5% decline in top-line revenue. This could imply that YRCW's much-ballyhooed market position may be eroding. The increase in revenue per hundredweight is odd, something normally associated with a firm that can maintain its pricing power. I'm not sure which customers still insist on paying a premium for a fat, smelly, Teamster driver to give them an attitude. Those customers are welcome to contact me to explain their reasoning.
Full disclosure: No position in YRCW, ever.
Thursday, July 26, 2012
Tuesday, July 17, 2012
Monday, July 09, 2012
Financial Sarcasm Roundup for 07/09/12
Prepare yourselves. I'm about to spew more bile on the business world. Here we go.
One Eurocrat wants to outlaw Libor manipulation in the wake of revelations from Barclays et alia that they were playing games with interest rates to avoid going bankrupt. Outlawing interest rate manipulation by bankers would be kind of like outlawing the breathing of air. It's what bankers do. It's such a natural state of affairs that central bankers give it a wink and a nod. Here's a better idea: Instead of restricting Libor's bidding process, make it transparent by putting in on the European Central Bank's website in real time. That way no one's in the dark.
Europe has more to worry about than fallout from this Libor debacle, like how to pay bondholders while sticking it to their taxpayers. A bunch of Continental ministers are going to meet one more time to pretend to solve their countries' insolvency woes. I think they just get together for the great food and champagne, and to reminisce about past World Economic Forum junkets where Bono hectored them on economic development. Germany knows that Spain and Italy can't afford to raise more debt but they don't want any net importing countries kicked out of the euro. That's Germany's problem in a nutshell, and that's why every German politician of note has been using double-talk to stall for time. The "Davos culture" of transcontinental elitism may survive in salon format but its inability to solve real world problems makes me wonder whether it's worth going that far just to eat steamed lobster.
Meanwhile, here in America, things are also going down the tubes. The Administration wants to extend tax cuts for the bottom 99%. That's okay but I wish it could be accompanied by serious tax code simplification. It's smart politics to get this out of the way now so raising the debt ceiling doesn't get hung up by Election Day. What's not okay is that corporate earnings are about to get a lot worse if pre-release guidance is accurate. This isn't just the usual CFO parlor game of lowering expectations just to beat Wall Street's estimates. There are real headwinds now from slowing European growth, Chinese inflation, and anemic job growth here in the U.S. I don't pay attention to Wall Street analysts anyway but they should pay attention to me.
Finally, Dr. Doom weighs in on the approaching perfect storm. This storm has been brewing through decades of debt-induced overspending, infrastructure malinvestment, and unsustainable middle-class entitlements. I say bring it on. My Alpha-D portfolio can navigate the mightiest of macroeconomic winds, unlike the asset allocations of many whiz-kid hedge funds that will probably be wiped out. Many fortunes were made in the first Great Depression by people who stayed solvent and bought at the bottom.
Have a nice day! :-)
Sunday, July 08, 2012
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