Sometimes spring just isn't all it's cracked up to be. Today, we welcomed it with our big Foul Ball! baseball special to mark the opening day of Major League Baseball. And what happened? We saw continuing snow flurries here in the mid-Atlantic. Mom, send extra wool socks -- it looks like winter just won't go away.
The markets shivered from the cold, too. The major indexes all finished the day in the red.
In today's Motley Fool Take:
- Altria Up in Smoke
- Quote of Note
- The Profitability of Information
- Shameless Plug: Motley Fool Stock Advisor
- Flights for a Song
- Discussion Board of the Day: Cheap Air Fares
- Quick Takes: ImClone Systems, HealthSouth, Wachovia, more
- And Finally...
Shares of Altria Group
The problem isn't so much the recent Illinois decision that slapped Philip Morris USA with a $10.1 billion verdict for deceiving smokers of "light" ciggies into thinking they contained less tar than normal cigarettes. It's the appeals bond attached to the decision that's giving the market pause.
In order to appeal the decision, Philip Morris USA would need to come up with a bond of $12 billion. Moody's has already downgraded Altria's existing debt on liquidity concerns, and both Fitch and Standard & Poor's are reviewing their ratings. The company faces an April 21 deadline for appealing, and that short time frame, coupled with the fact that it could be a real challenge for Altria to raise that kind of cash right now, contributed to the agencies' actions.
However, here's the catch: The appeals bond of $12 billion is unlikely to stand. The Illinois state legislature is working on a bill to cap bonds like this at $25 million. Altria could also ask the judge to lower the amount, or it could try to get a higher court to step in.
Why might the parties involved agree to lower the bond? Well, should they leave it as is, they'll be in jeopardy of not receiving their payouts from Philip Morris USA's settlement with the states. The company's slated to pay Illinois $9.1 billion over the next 25 years, and has a payment of $2.5 billion to the states due on April 15. If the states want their money -- and you can bet your bottom dollar they do -- it'll be in everyone's best interest to reduce the bond.
Standard & Poor's said that Philip Morris USA might have to file for bankruptcy if the appeal bond isn't lowered. That's an absolute worst-case scenario and, though it does sound scary, it's very unlikely to come to that. This isn't to say that there aren't legal uncertainties outstanding for Philip Morris USA and Altria, but the sky's not falling just yet.
"My motto was always to keep swinging. Whether I was in a slump or feeling badly or having trouble off the field, the only thing to do was keep swinging." -- Hank Aaron
A complete dichotomy between the airline industry's performance and the companies providing information and services about that industry proves the futurists of yore correct: We truly are an information economy.
Where many goods can no longer be produced in the United States profitably, the companies providing information about them continue to thrive.
This past November, we lamented an ill stroke of timing with our Stocks 2003 product. One of the featured companies, online travel service Expedia
Whaddaya know -- Expedia continued to bull higher to its current level just shy of $55 per stub, on the strength of a buyout offer by USA Interactive
While Expedia rocketed to new heights, the airlines themselves are dropping like flies, with AMR Corp.
In the scheme of the total customer relationship, the component that Expedia provides is seemingly minor. But since the company deals in information, and not things like giant steel tubes filled with jet fuel, the cost to provide its component of the total transaction is also much smaller. Expedia generates substantial capital from operations. The airlines, on the whole, destroy capital.
In fact, Expedia's market cap of $6.4 billion equals that of all the publicly traded airlines in the U.S. combined, save Southwest Airlines
"Yes," you say, "but you ignored Southwest!" Indeed, at $11 billion in market cap and unequalled profitability, the low-cost airline is the exception.
We suggest that "ignoring Southwest" is what got the big carriers into trouble in the first place.
Since The Motley Fool Stock Advisor's launch a year ago, David and Tom Gardner's stock recommendations have returned more than 11% while the S&P 500 has lost 8%. Is your investment advisor performing for you? Subscribe to The Motley Fool Stock Advisor if you want to beat the market.
There's a new airline with JetBlue
The airline has the aura of a well-funded startup with hip intentions. From an MP3 audio library and ample legroom to premium add-ons such as pay-per-view movies and gourmet foodstuffs, you might be surprised that Delta's the one singing this new Song.
Yes, this is the same air carrier we suggested as a short two years ago. It was a good call, too, as the stock has shed 80% of its value since then in a sector where turbulent descents have become all too common.
Between bankruptcy filings from United
Song aims straight at JetBlue, offering the same original destinations in Florida and the Northeast. In an aggressive move for Delta, it opted for three-dozen modified 757s that will fly 144 daily flights beginning in two weeks.
Good for Delta. The carrier lost $1.3 billion last year. While the company closed out the year with $2.6 billion in cash and short-term liquidity, its debt balance of $10.7 billion dwarfs that sum. So, even if Song proves a melodic marvel, it will take years of growth for it to make a dent in the company's bloated financials.
From self-service kiosks in the airport to automated bookings by phone or online, Delta's embracing the low-cost strategy in earnest. Couple that with open auditions at departure gates and interactive games for passengers, and this may become the most fun way to fly.
JetBlue better not get too cozy in its leather seats. Old, lethargic dogs are learning new tricks.
What do you think of the low-cost short-haul carriers? Will the stocky airlines keep up? Want to know who has the cheapest flights to where you're heading? All this and more -- in the Cheap Air Fares discussion board. Only on Fool.com.
Troubled drug maker ImClone Systems
From the What-Took-You-So-Long Dept., HealthSouth fired Chairman and CEO Richard Scrushy today. Scrushy is accused by the Feds of committing massive accounting fraud by overstating earnings by some $1.4 billion over the past few years. The health-care provider also dumped auditor Ernst & Young.
There may be trouble brewing for Wachovia
In local news, UHF television station WHIK said it received a job application from a "P. Arnett." Channel 63 News Director Seth Charles said he was impressed with the man's qualifications, which included "the ability to appear on various state-controlled television programs."
Today on Fool.com:
- For updated stories throughout the day, bookmark our ever-changing News section.
- For all its problems on Opening Day, baseball is still America's pastime. Bob Bobala takes a look inside the numbers.
- Baseball guru Mike Veeck plays the Gardners' stock game.
- The SEC says AOL Time Warner improperly booked another $400 million.
- Johnson & Johnson should be first to market a blockbuster drug-coated stent.
- Shock and awe: Defense stocks trade lower than at the outset of war. Why?
- eBay subsidiary PayPal is under pressure from misguided politicians.
- American Airlines lives to fly another day.
- The Fortune 500: A Tease! It has plenty of calories, but it's unfulfilling.
- Selena Maranjian presents the second installment of some promising mutual funds.
- Most goals involve money. Here's how to make those dreams a reality.
- While some doubt electronic medical records, Matt Richey says Quality Systems is racking up record sales.
- In Fool's School, learn how to get financial information from a potential investment.
Bob Bobala, Robert Brokamp, Mathew Emmert, Jeff Fischer, Tom Jacobs, LouAnn Lofton, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Matt Richey, Jackie Ross, Reggie Santiago, Dayana Yochim