Fast-forward to this morning, when Intel's board announced that President and Chief Operating Officer Paul Otellini would succeed Craig Barrett as CEO in May. Barrett will step into former CEO Andy Grove's role as chairman. Grove will become a senior adviser to the company.
The appointment comes a day after the board approved the repurchase of 500 million shares of stock. That would cost more than $11.5 billion as of this writing. The board also bumped Intel's quarterly dividend from $0.04 to $0.08, for a dividend yield of roughly 1.38%. With the Standard & Poor's 500 yielding 1.60%, this isn't a market beater, but it's a vast improvement from prior levels. It's also the second time Intel has raised its payout this year.
If all this leaves you wondering whether I've changed my position about shorting Intel, the answer is a resounding no. Yeah, I know I could be spectacularly wrong. Share buybacks could more than offset options dilution and give earnings a boost. But the buybacks and an improved dividend can't obscure the chip maker's execution problems and inventory woes. Plus, there's that little problem of an anemic market for chips, which is expected to see little if any growth next year.
Still, give Intel its due. The board is calling for buying back stock near 52-week lows, is turning to fresh blood at a time when it's needed most, and is using its cash hoard very, very effectively. That's smart management and deserves a polite golf clap if you must applaud. Just don't forget that Intel's extreme makeover is also a product of its own extreme blunders.
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After several months of internal reviews, new Coca-Cola(NYSE: KO) CEO Neville Isdell came out with projections for growth in earnings and case volume at the venerable soft drink company that were sharply lower than those previously anticipated. Isdell says that the company anticipates unit growth of 3% to 4% over the next few years, with earnings growth in the high single digits.
When I say "previously anticipated," it's probably more accurate to say "previously voiced," as almost no one who followed the company closely thought that it would stick with the 11%-to-12% earnings growth targets that previous management had put in place. Still, the extent of the degradation came as a bit of a shock.
With this move, I see eerie parallels between Coke's present position and that of two other stalwarts from two years ago: Home Depot(NYSE: HD), and more specifically, McDonald's(NYSE: MCD), which is Coke's largest customer. Both had gone through some severe missteps, then made management changes to refocus the company. Both McDonald's and Home Depot have enjoyed smashing rebounds from the point where many (but not all) observers were writing them off as has-beens.
In fact, one of Isdell's first priorities fits directly into this model. Just as Home Depot and McDonald's had suffered from tin-eared marketing campaigns, Coke's branding efforts have really suffered. Quick! What is the current Coca-Cola jingle? "Coke and a smile?" "Coke is it!" "I'd like to teach the world to sing?" Whatever it is, it's forgettable. To that end, Isdell has pledged that the company would increase its spending on product development and marketing by as much as $400 million annually, beginning next year. McDonald's went from its torpid "Smile" campaign (along with dozens of localized ones) to "I'm Lovin' It," which has reinvigorated its branding not only in the U.S., but worldwide.
Just so, Coca-Cola has trended away from global campaigning, leaving the company's most powerful products with weakened brand identities. Coca-Cola is a global company, and Coke is a global product. Isdell seems clear on the fact that a coordinated marketing message across borders -- similar to McDonald's "ich liebe es," "c'est tout ce que j'aime" and so on -- will be beneficial. And like McDonald's, Coke depends on a franchise network to distribute its products, in this case bottlers including Coca-Cola FEMSA(NYSE: KOF), Coca-Cola Hellenic(NYSE: CCH), and Coca-Cola Enterprises(NYSE: CCE). These relationships are strained in the same exact way that McDonald's were with their franchisers. Again, here, looking at what McDonald's and Home Depot did should be instructive: They didn't continue to speak of high-growth pie-in-the-sky projections, they slashed predictions, and they went about healing the little problems that had developed over time.
That Isdell seems to be going the same route at this point is very promising. If anything, Coke's network is more complicated than those of the other two companies, but the problems it faces are similar. By recognizing that its path to regaining its footing is not in top-line growth but in bottom-line excellence, Coke is starting the transition in self-identification from being a fast grower to being a cash machine. There's a long way to go, but Coke, more than nearly any other company in the world, has the core brand power that allows it to find its footing without putting the entire enterprise at risk.
Bill Mann owns none of the companies mentioned in this article. He notes wryly that Coca-Cola now has a dividend yield of 2.4%, the highest he ever remembers seeing for the company. Interested in dividends? Take afree trialof Mathew Emmert's excellent guide to income-paying stocks. It's called, get this,the Motley Fool Income Investor.
Quote of Note
"What is the use of a house if you haven't got a tolerable planet to put it on?" -- Henry David Thoreau
PeopleSoft Sort of Says No
After 18 months of playing hard to get, business software maker PeopleSoft(Nasdaq: PSFT) finally decided yesterday to glam itself up in the hope that suitor Oracle(Nasdaq: ORCL) might give it one more look.
Yeah, I know the board turned down Oracle's $24-per-share bid. But did you actually read the press release? In spurning the database king, PeopleSoft issued a statement that spends pages touting its accomplishments, as if to say, "We are indeed rejecting you... but are you sure you don't want some of this?"
Frankly, this shouldn't even be a story, except that PeopleSoft never issued such a lengthy rebuttal-cum-plea in response to Oracle's four prior tender offers. The closest thing was a February statement that denounced Oracle's $26 per share bid. Yet half that release discussed now-removed antitrust roadblocks.
It's actually pretty instructive to rewind to the beginning of the year, because, back then, PeopleSoft was rightfully riding high. The firm had come off a strong 2003 fourth quarter and confidently increased its full-year 2004 income expectations to $0.64 per share. License revenue expectations were upgraded to $700 million.
Now fast-forward to yesterday. In a conference call, executives said they expect $0.14 to $0.16 in fourth-quarter per-share earnings. Add that to its nine-month total of $0.16 per share, and you get no more than $0.32 per stub for the full year, or half what PeopleSoft expected in January. License revenue, too, is expected to be below earlier estimates by $100 million. No wonder Oracle lowered its bid.
But PeopleSoft promises things will be better in 2005. Executives predict $700 million in license revenue and a rise in overall income of at least 150% to between $0.82 and $0.87 per stub. The firm also thinks it can grow operating margins from 4% to more than 16%. Color me skeptical, but I'll believe it when I see it.
Of course, all this posturing may mean nothing. Oracle hasn't said it won't negotiate, but it has also promised to drop its bid unless 50% of stockholders tender their shares by midnight a week from tomorrow. It has also said $24 a share is its final offer.
For their part, PeopleSoft executives said they think shareholders will promise to sell their holdings to Oracle for any number of reasons, none of which have to do with an understanding of the fair value of the business, and that a proxy fight will ensue.
Indeed, that may very well be true. Or PeopleSoft may just be making one last attempt at getting a better deal. Either way, only one clear winner remains: Oracle and PeopleSoft rival and business software market leader SAP(NYSE: SAP).
For related Foolishness:
Fool contributor Tim Beyers owns shares of Oracle. You can view his Fool profile and other stock holdings here.
With a relatively pricey stock that is up more than 20% over the past three months and has almost doubled over the past year, it is vital that Starbucks(Nasdaq: SBUX) continues to fire on all cylinders to support its valuation. And that's pretty much how things went down.
With a little help from an extra week in this year's quarter, Starbucks' fourth-quarter profit rose 49% to $103 million, or $0.25 per share, as net revenues increased 34% to $1.5 billion. On a comparable 13-week basis, the company said that net revenues would have climbed 25%, with the extra week adding $0.03 per share to earnings.
The coffee retailer saw results improve as the introduction of automated espresso machines helped reduce customer wait times. In addition, the company is having increasing success with complementary non-coffee items such as sandwiches and desserts.
But is it time to sell?
Starbucks remains one of my favorite companies with a strong brand and a highly relevant business. And I'm not particularly worried about how much Starbucks the world can take. I was in Las Vegas last week for SEMA Show (the premier trade show of the year for aftermarket car parts manufacturers); just take a walk up the Strip, and it seems as though just about every mid-level casino has a Starbucks -- including MGM Mirage's(NYSE: MGG) MGM Grand and New York, New York, as well as Aladdin and Harrah's(NYSE: HET). There's one at the fashion mall too, and it never seems like too much -- I'm just glad Starbucks is there when I want it.
That said, the real question here is value.
For fiscal 2005, the company forecast revenue growth of approximately 20%, or about $6.24 billion, adjusted for the gain from the extra week in fiscal 2004. Starbucks also expects earnings to rise from $0.92 per share in fiscal 2004 (adjusted for the $0.03 per share gain from the extra week) to between $1.12 and $1.15 per share. At just under $55, that leaves the stock trading around a hefty 48 times fiscal 2005 earnings.
I think that Starbucks has a great business and that it should be able to absorb the price hikes the company announced in September (see Starbucks Goes to 11). But like eBay(Nasdaq: EBAY), another great company I own that always seems to carry a super-premium valuation, Starbucks' stock price offers zero margin of safety. So while Starbucks is a company that Fools should aspire to own, this might be the time to consider a sale.
For more Fool coverage on Starbucks, check out:
Fool contributor Jeff Hwang owns shares of Starbucks and eBay.
If AOL wants a future, it needs to remember its past, Rick Munarriz says in When AOL Was a Rule Breaker.... How can you separate the good advice from the greedy advice? Robert Brokamp shows you how in Wall Street's Big, Dirty Secret.... Big run-ups in a few fast-food favorites might suggest that the value is gone, but take a closer look, Seth Jayson says in Time to Buy a Value Meal?... An innocent financial background check can send ripples through your credit file, Dayana Yochim says in I Caught You Looking!
In other news:
For a list of all our stories from today, see our Today's Headlines page.