Did you get a load of the hubbub between new-media mogul Barry Diller and old-media institution The New York Times? What a debacle!
To make a long story short, Diller took issue with a few things the Times had to say about his InterActiveCorp -- and Diller shot back. If you ask us, this is a win-win. It demonstrates not only that the media is keeping an eye on how major corporations are being run, but also how sensitive industry barons are becoming to public (i.e., investor) perceptions. Quite a difference from the go-go '90s, no?
In today's Motley Fool Take:
- Martha Sees Red
- Quote of Note
- The Price of Bonds
- Need Financial Advice?
- The "What If?" Berkshire Call
- Quick Takes: AOL, DuPont, eBay, Wal-Mart
- And Finally
Martha Sees Red
Not even the homemaking specialist herself can dress up this earnings report. Martha Stewart Living Omnimedia
First, a look at the ugly numbers. Earnings per share fell 86% from $0.14 in the year-ago period to $0.02 this quarter, while revenue dropped off 16%. The company lowered its outlook for the months ahead, saying it will likely lose about $0.15 per share in the third quarter and $0.18 to $0.20 for the full year.
We need look no further than the company's core publishing business to get to the root of the problem. Revenue was down 16% in that division, primarily because of lower advertising and circulation sales in Martha Stewart Living magazine. It was inevitable that advertising would be affected by Ms. Stewart's legal woes; the only question was by how much. The 16% drop follows a 21% plunge in the previous quarter.
"We believe that the Martha Stewart Living core brand will continue to be under pressure until resolution of Martha Stewart's personal legal situation," said Sharon Patrick, the firm's CEO since Ms. Stewart resigned to focus on her defense in the ImClone
Apparently, investors have already figured as much and the stock price reflects that information. Despite the gloomy report today, shares were off only 3% in morning trading, and they're up 28% since David Gardner recommended the stock in Motley Fool Stock Advisor.
What lies ahead? It's not unreasonable to think the advertising decline may be near a bottom. However, with the company now losing money on both a GAAP and a free-cash-flow basis, suddenly Patrick is reminding investors of the $172 million in cash and short-term investments in the coffers. While comforting in a way, that's not the kind of message you want to hear your CEO deliver during an earnings report.
Quote of Note
"If you really want something in this life, you have to work for it - Now quiet, they're about to announce the lottery numbers!" -- Homer Simpson:
The Price of Bonds
Buying bonds is tricky. With a stock, you can pull up a quote on your computer, and -- presto! -- you have a good idea of the going price.
Generally, you're going to get the same price for a share of Coca-Cola
Most bonds don't trade on a centralized exchange. And instead of charging a commission, most brokerages (discount and full-service) imbed a "markup" in the price of the bond. This makes it difficult -- if not impossible -- to know what fees you paid.
BusinessWeek highlighted the problem last year. The magazine test-drove the bond sites of five online brokerages -- Schwab
While these outfits call themselves "discount brokers," the "discount" applies only to stock transactions. Buying bonds, especially smaller amounts, can be expensive. BusinessWeek found, for example, that a single General Electric
Additionally, the markup on a bond may not be disclosed. Last time we checked, Schwab and TD Waterhouse charged a minimum markup of around $50 per purchase, and would reveal the actual markup to customers who ask. E*Trade and Fidelity wouldn't reveal their markups and charged transaction fees of $40 and $50, respectively, on smaller orders. Harrisdirect, on the other hand, told investors up front that it charged a flat $45 fee on purchases of 15 corporate bonds or less.
What's a fixed-income investor to do? Here are some ideas:
- Avoid buying bonds in small quantities.
- Bond mutual funds can be cost-effective, but they have their own problems. Look for short to intermediate maturity bond funds. The shorter the maturity, the less the value of the funds will react to the whims of interest rates.
- There is no need to buy Treasury securities from a broker or through a mutual fund. You can buy them from Uncle Sam, commission-free, at TreasuryDirect.
Need Financial Advice?
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The "What If?" Berkshire Call
On Friday, Warren Buffett-backed Berkshire Hathaway
"Maybe now the Street will acknowledge the power of Berkshire Hathaway and give us some coverage," said the effusive Buffett. "Our pro forma inter alia ex post facto results were even better, particularly since GAAP clearly constrains our ability to properly value our derivatives portfolio," explained Buffett. Given the adjustments for bad stuff, including stock-based compensation, we made more than $5.6 million per share."
Buffett surprised shareholders by proposing a 7,200-for-1 stock split, explaining that Berkshire needs "liquidity in our stock to fuel our expansion," and the lower stock price "so that our new option plan makes sense. What good is giving options to everyone if you can only do it in $70,000 chunks? If we're going to align the interest of shareholders and company insiders, we've got to do this right."
Buffett expects the adoption of stock-option based compensation to improve earnings by 8%-10% per year. When asked about dilution from options approaching 6% per year, Buffett was unapologetic, saying "Why not, they're free!"
Buffett is mystified as to why Berkshire shares have foundered while the broad stock market has rallied since March. "The Street just doesn't get us. I've said it a million times, but I guess I'll have to say it again. We're a growth company. We grow earnings more than 15% per year. We're past the magic number, and on an EBITDA basis, we have really cheap multiples. G-R-O-T-H, growth."
Buffett also took the opportunity to introduce several new executives, including new VPs for Investor Relations, Corporate Communications, and Mergers & Acquisitions, along with EVPs for Finance, Human Resources, and Compensation. New regional managers will oversee Berkshire's wide-ranging subsidiaries.
Finally, Buffett announced that Berkshire Hathaway has elected to move its Omaha, Nebraska headquarters to a $650 million state-of-the art corporate campus in Sunnyvale, California. Because all expenses and debt from the relocation will be assigned to a special purpose entity, Herkshire Bathaway, shareholders should expect reported earnings to be affected not at all.
For the upcoming quarter, Berkshire Hathaway announced that its new pension accounting assumptions will be increased to 11% growth per year. "Hey, I'm Warren Buffett. 11% per year? No problem."
According to an online report in The Wall Street Journal,AOL Time Warner
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