At first glance, it looked like a fantastic quarter for the company, as profit rose by a remarkable 82%, but things start to look less than rosy once we take a closer look. Analysts had been expecting to see the company show earnings during the quarter of 24 cents a share, and were disappointed to see the company come in below this, with only 22 cents a share.
This is the second quarter in a row in which the company posted weaker than expected earnings, and is quickly erasing the progress that the stock has been making since the beginning of March.
Financial Stocks to Love The subprime mortgage meltdown and resulting credit crisis have slammed financial stocks recently. But there are still some diamonds in the rough. They include Berkshire Hathaway, RBS, AFLAC, Raymond James and BOK. Financial stocks we love - CNNMoney.com
Big Mac's Local Flavor Once vilified for pushing America on the world, McDonald's lets countries invent their own buns, bags, and business practices. Now some ideas are making their way back home. Big Mac's local flavor - FORTUNE
MOST NOTEWORTHY: Priceline.com, Monster and Internap were today's noteworthy downgrades:
Susquehanna downgraded Priceline.com (NASDAQ: PCLN) to Neutral from Positive as they believe upside may be difficult given the macro environment, competition, and currency headwinds.
JP Morgan lowered Monster (NASDAQ: MNST) to Neutral from Overweight following the company's expectations for higher 1Q08 operating expenses.
Internap (NASDAQ: INAP) was downgraded by Merriman to Neutral from Buy as they believe upside will be limited until the company can complete its integration of the VitalStream CDN acquisition.
First oil. Then copper, then lumber, and coal. And now grain.
The solid economic growth in the world's emerging markets that's caused oil / coal and commodities prices to surge is now fully hitting the grain market.
So much so, that some food producers are calling on the U.S. government to restrict exports due to soaring prices for grains they use to make cereal and other foods. Meanwhile, some farmers are asking the U.S. Government to ease restrictions to enable farmers to plant more acres, The Wall Street Journal reported Thursday [Subscription required].
For food producers, the issue involves limiting a major operating cost. During the past year, spring wheat has risen to an astounding $17.63 per bushel, up from about $4.90 a year ago. Flour, which used to cost about $15 per 100 pounds, now sells for about $45-48 per 100 pounds. Food producers say prices are increasing so fast, they can't pass along price increases quick enough to keep up.
MOST NOTEWORTHY: Athenahealth, Marvell Technology, Broadcom and Nvidia were today's noteworthy initiations:
Athenahealth (NASDAQ: ATHN) was initiated with a Neutral rating at Goldman Sachs. Jefferies started shares of the stock with a Buy rating and $46 target, as they believe their estimates could prove conservative given potential upside from new and existing physicians adopting athenaClinicals.
Kaufman Bros initiated Marvell Technology (NASDAQ: MRVL) with a Hold rating and $18 target, as they believe near-term growth prospects remain uncertain and recommends waiting for more favorable entry points.
The firm also initiated Broadcom Corporation (NASDAQ: BRCM) with a Hold rating and $35 target, and believes the company's growth prospects are priced into shares following the recent rally, and started shares of Nvidia Corporation (NASDAQ: NVDA) with a Buy rating and $42 target, as they believe the company's growth opportunity and competitive strength remain intact and would be buyers at current levels.
OTHER INITIATIONS:
Goldman started shares of Sara Lee (NYSE: SLE) with a Neutral rating and $16 target.
UBS initiated US BioEnergy (NASDAQ: USBE) with a Neutral rating.
Bear Stearns inititated CarMax (NYSE: KMX) with an Underperform rating.
Update: Yesterday's (10-17-07) Wall Street Journal (subscription) article about this investigation began "Prominent American food companies are under scrutiny in a federal probe of possible fraud and corruption in the military's food-supply operations for the Iraq war", and went on to read "The inquiry is focused on whether the food companies set excessively high prices when they sold their goods to the Army's primary food contractor for the war zone." Today's (8-18-07) WSJ article about the investigation reported a very different slant to the story, suggesting that, rather than pursuing American producers, the government was investigating the wholesaler and companies involved in the Kuwait end. Given this change, I find the story I have written below no longer substantiated, and caution readers to wait along with me for more reliable information.
In accordance with our policy of owning up to what we have written, the post will remain.
A number of American food companies including Sara Lee (NYSE:SLE), ConAgra (NYSE: CAG) and Perdue Farms Inc. have come under suspicion of conspiring with Kuwait-based Agility Corp., a logistics supplier for the U.S. troops in Iraq, to inflate food supply costs. In June, Agility received a new, one-year, $2.8 billion contract to provide life support (billeting, motor pool, dining and medical support services) to troops in Iraq. Agility, until recently known as Public Warehousing, has enjoyed a series of support contracts throughout much of the Iraq conflict.
According to Reuters, the Defense and Justice Departments are investigating allegations that Agility may have taken kickbacks from its suppliers, as well as charging the U.S. military unreasonably high prices for provender.
Agility, founded in 1979, was taken public in 1997 and is traded on the Kuwait exchange. It employs over 20,000 people in over 100 countries, with an annual revenue of $4.5 billion. In June, it was also awarded a $43.6 million contract for base operations and maintenance services at U.S. Air Force bases in Spain.
Update: ConAgra has put out a press release claiming that the DOD is looking to them as witnesses, rather than perpetrators.
Branded food companies like Kraft (NYSE: KFT) and Sara Lee (NYSE: SLE) are facing competition from a source that has been an after-thought for years: private label products.
According (subscription required) to The Wall Street Journal, "Food retailers are growing more sophisticated about developing and branding their own products. They're even building brands that bear no resemblance to their store names, such as Target's Archer Farms line of gourmet oils, appetizers and frozen foods, and Safeway Inc. (NYSE: SWY) Eating Right line of frozen dinners, cereal and salad dressings."
Of course, grocers make more money selling products they make (or buy cheaply from a third-party manufacturer without the pricing power of a strong brand) and market themselves, rather than ones the buy from a large brand.
With American consumers not feeling quite as rich as they did during the days of the housing bubble and easy credit, private label brands should continue to gain market-share. Wal-Mart (NYSE: WMT) has reported that that is already happening, as a result of the cash-strapped consumer.
That could spell trouble for companies like Kraft and Sara Lee, and it could be great for grocery stores -- higher margins. Investors may want to pick their food-related investments accordingly.
The most recent quarter seemed to be a good one for Sara Lee Corp. (NYSE: SLE), with profits up quite a bit. The company is in the middle of a substantial restructuring effort, which has involved selling off its less profitable divisions like Branded Apparel, and SLE is now focusing more on its food divisions -- which is of course what everyone thinks of when they hear the name Sara Lee. Beyond the well known bakery goods, SLE also owns Hillshire Farm and Jimmy Dean, and a number of other everyday brands. By focusing on these divisions, the company expects profits to grow in coming years.
It's good to see these efforts starting to pay off, but as a BMO Capital Markets report noted, however, volume was actually down in the most recent quarter, and SLE exceeded expectations primarily because of a lower tax rate than was expected. Operating margins were up, but only to 5.7%, which is quite a long way from the double-digit margins SLE hopes to attain. It's possible the company will get to that level of profitability over time, but it's probably going to take a while. Meanwhile, it's not clear that there's a great deal of room for SLE's brands to deliver substantial growth given the stiff competition in its industry. The company also experienced its own recall scare back in July, although this apparently didn't have much of a negative impact on the stock.
I'd keep an eye on this one, and watch to see where the restructuring takes the company over the next year. I'd hold off buying for now.
Type of Stock: A large and well-known food manufacturer in the process of remaking itself.
Price Target: SLE's stock has been in the teens for almost two years, and it's hard to see it gaining much ground in the near future. But it's one to watch; a few more good quarters and we could see some growth over the next two years or so.
Hilary Kramer is a financial editor and money coach for AOL and an authority on investing. Visit her at www.hilarykramer.com.
So far this week, the Dow has dropped 211 points despite advancing futures both Monday and Tuesday. Brace for today, as futures headed south on increasingly dire credit concerns.
Among the latest chapters in the subprime-mortgage fallout, cash manager Sentinel Management Group Inc. yesterday aired its fears of forced liquidation, telling clients that it's seeking to stop withdrawals, although regulators deny such a request has been made.
Loads of government data being released today, beginning with the Labor Department's Consumer Price Index for July at 8:30. CPI is expected to rise, though lower gas prices likely tapered any increase.
Later this morning, the Fed will release the July numbers on Industrial Production, measuring the output of factories, mines, and utilities. The DOE's weekly crude inventories report will be released at 10:30.
Food giant Nestle SA (NYSE: NSRGY) reported an 18% improvement in first-half profits, boosting its shares overseas as well as competitors, including Unilever (NYSE: UN).
Whole wheat flour, water, corn syrup, metal shards? Consumer products giant Sara Lee (NYSE: SLE) has announced a voluntary recall for whole wheat bread sold in the deep South that may contain metal pieces.
The suspect loaves were made at its bakery in Meridian, Miss., where Sara Lee workers this week discovered that a wheat flour sifter was damaged. Sara Lee issued the precautionary recall, concerned that metal from the sifter may have gotten into the loaves.
Sara Lee said the bread was sold throughout Mississippi and Alabama, and parts of Arkansas, Missouri, Georgia, Tennessee, Louisiana and the Florida panhandle.
In addition to its Sara Lee brands, affected brands included Earthgrains, Flavorite, Golden Bake, Grissom's, Shurfresh, and Wal-Mart (NYSE: WMT)'s Great Value brand, as well as store brands at regional groceries Foodland, Schnucks, IGA, Piggly-Wiggly and Publix (OTC: PUSH).
Shares of Sara Lee traded narrowly between $16.04 and $16.22 today, sitting 3 cents under at $16.15 shortly after 3 p.m.
In a sign that the company recognizes the need for change, Wal-Mart (NYSE: WMT) has brought in former Kraft (NYSE: KFT) executive Linda Hefner to try to turnaround its home decor business, which has been sputtering for awhile now. According to Ms. Hefner's biography on the Kraft Foods website, she led "the development of Kraft's corporate business strategy including merger and acquisition activities around the world" and was CEO of Sara Lee's (NYSE: SLE) Underwear, Socks and Latin America Group.
While her track record looks impressive, I have to wonder if this hiring is more of the same that hasn't worked. Rather than bringing in an expert in the home decor business, Wal-Mart has brought in someone with an extensive background in retail but no experience, as far I can tell, in home decor.
Last week, I wondered whether Wal-Mart should try to team up with Pier 1 Imports. While that might not be realistic, the company's solution to its home decor woes probably doesn't involve an executive with experience selling underwear.
Yesterday Zac Bissonnette reported that Wells Fargo (NYSE:WFC) employs a historian to create genealogies for their wealthiest customers, and wealthy non-customers they wish to cultivate. This caused me to wonder if this stroke of genius might not be transferable to other markets. In this age when every business is identifying their best customers, might they not reward their customers with the services of a professional? For example:
Wal-Mart's (NYSE: WMT) Sam's Club customers would love their own stevedore.
For Anheuser-Busch's (NYSE: BUD) biggest spenders -- a chauffeur, or a bail bondsman. Either would be useful.
It's pretty rare that you see analysts or shareholders (or anyone other than management) calling for stronger anti-takeover provisions at a company, but that's exactly what is happening at Sara Lee Corp. (NYSE: SLE). Chairman and CEO Brenda Barnes told analysts on the call that the company has "nothing structurally built in [to the company] that would prevent someone from coming in and offering a good price for the company" after shareholders voted to terminate the company's poison pill last year.
The company's turnaround efforts have been going well, and it's nice to see that Ms. Barnes is focused on building the company (and buying back shares as appropriate) rather than concocting plans to ward off a potential buyout.
I've never understood the need for takeover defenses. Here's the only takeover defense a company needs: If shareholders don't like the deal, they can vote against it. Artificial barriers (poison pills, blank-check preferred stock, shark repellent, etc.) to takeovers can do little other than discourage a potential buyer who might provide shareholders with a compelling offer.
Shares of consumer goods giant Sara Lee (NYSE: SLE) have been taking a beating today after the company failed to meet analyst estimates for its fiscal third quarter.
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MOST NOTEWORTHY: Priceline.com, Monster and Internap were today's noteworthy downgrades:
First oil. Then copper, then lumber, and coal. And now grain. .gif){kind=logo}
MOST NOTEWORTHY: Athenahealth, Marvell Technology, Broadcom and Nvidia were today's noteworthy initiations:
Update: Yesterday's (10-17-07) Wall Street Journal (subscription) article about this investigation began "Prominent American food companies are under scrutiny in a federal probe of possible fraud and corruption in the military's food-supply operations for the Iraq war", and went on to read "The inquiry is focused on whether the food companies set excessively high prices when they sold their goods to the Army's primary food contractor for the war zone." Today's (8-18-07) WSJ article about the investigation reported a very different slant to the story, suggesting that, rather than pursuing American producers, the government was investigating the wholesaler and companies involved in the Kuwait end. Given this change, I find the story I have written below no longer substantiated, and caution readers to wait along with me for more reliable information.
Branded food companies like Kraft (NYSE: KFT) and Sara Lee (NYSE: SLE) are facing competition from a source that has been an after-thought for years: private label products.
The most recent quarter seemed to be a good one for Sara Lee Corp. (NYSE: SLE), with profits up quite a bit. The company is in the middle of a substantial restructuring effort, which has involved selling off its less profitable divisions like Branded Apparel, and SLE is now focusing more on its food divisions -- which is of course what everyone thinks of when they hear the name Sara Lee. Beyond the well known bakery goods, SLE also owns Hillshire Farm and Jimmy Dean, and a number of other everyday brands. By focusing on these divisions, the company expects profits to grow in coming years.
So far this week, the Dow has dropped 211 points despite advancing futures both Monday and Tuesday. Brace for today, as futures headed south on increasingly dire credit concerns.
Whole wheat flour, water, corn syrup, metal shards? Consumer products giant Sara Lee (NYSE: SLE) has announced a voluntary recall for whole wheat bread sold in the deep South that may contain metal pieces.
Apple shares rise on report Steve Jobs is free of cancer
Toyota whups GM in the first half of 2008
Bush: Wall Street got drunk!
