Wednesday, March 10, 2010

3/10/10 Midafternoon Report: Is that a bank rally in your pants or are you just happy to see me?

The market is higher today on the strength of a banking sector rally, positive economic news from China, and a likely date tonight with Izabel Goulart (because why else would it be this excited?).  The macro news today has been slightly positive with wholesale inventories down only .2% sequentially in January after being down 1% in December.  While this is the 13th consecutive month of wholesale inventory declines, the second derivative continues to sink like John Meriwether's hedge fund career and a continued decline in the rate of inventory cuts is certinaly a positive sign.  The Commerce Department, led by esteemed Secretary Gary Faye "Reagan" Locke also said that sales were up 1.3% and that dropped the ratio of inventories to sales to a record low of 1.10.  This is an interesting metric as company inventories are now leaner than James Polk's credentials in 1844 or Adam Sandler's Oscar trophy shelf.  If the economy can somehow forget about the 10% unemployment rate, the mounds of money printed by the US government, and Hillary Swank's Academy Awards dress (and really, where did those come from?), and just start to gradually build back some inventories there could be some real recovery, despite what the great Roubini is out saying today about the increasing odds of a double dip recession (ugh).  New unemployment data is also out at the state level with the unemployment rate increasing in 30 states (though more if one includes the states of panic, fear, and pants shitting) and decreasing in 9.  One of the states to see declining unemployment was Michigan where the rate dropped from a national high of 14.5% to a still "you're fucked" rate of 14.3%.  But those three extra people who got hired to man the Burger King drive-through line in Kalamazoo could be a signal (unfortunately that signal is "we need some fucking jobs").

In international news, Greece's economic crisis is more over than Corey Haim (what, too soon?) according to Romano Prodi who is a former Italian Prime Minister, now teaching at a college in Shanghai.  Money McBags has always said if you can't trust an Italian Prime Minister, especially one who has been out of office for years and has had absolutley no real role in anything having to do with the Greek crisis, then you can't trust anyone.  Prodi will continue his "speaking out of my ass" tour by taking part in a roundtable on how global warming has finally ended before chairing a conference on the demise of the internet.  Also fueling the market today is that China's exports rose 46%.  This likely signals increased consumer demand for products that cause nervous system and kidney damage to infants, or as they are more commonly known as: toys.  Infant nephrologists across the nation are excited by this uptick in China and are anxiously awaiting orders of their new CT scan machines to be delivered.

In market news, the always delightful Dick "Don't call me Richard" Bove (with the last syllable of Bove pronounced like the last syllable of oy-vey), was on CNBC talking up the financial sector.  Mr. Bove (Money McBags refuses to call anyone Dick), said he thinks bank dividends will go back up to their previous levels in the next two years and he gave a vote of confidence to Citi.  And let Money McBags tell you, getting a vote of confidence from an analyst who missed the symptoms of the ride down is as valuable as being dong-less in Vietnam (though to be fair, they all missed the ride down except perhaps the lovely Meredith Whitney whom Money McBags has such a crush on that he would body slam Mr. Whitney and put him in the Camel Clutch were he ever to meet him).

In small cap news, WILC had their quarter last week and Money McBags promised he would break it down for all of you this week.  Unfortunately, Money McBags needed a fucking talmudic scholar to decipher WILC's press release as it was more confusing than a plague of frogs (no really, you're doling out 10 plagues and frogs is the best you can do for one of them?  Really?  You ever hear of small pox, syphilis, or grizzly bears?).  Money McBags wonders if he should have read the release from right to left to better understand exactly which numbers were real numbers and what went in to them.  Unsurprisingly, WILC's conference call contained enough jibberish and was hard enough to hear that it made the press release look like a fucking Dr. Seuss book.  Between COO Zwi Williger's accent and the fact that they refused to take questions, WILC's conference call was as helpful as giving a band aid to a hemophiliac or an all expense paid trip to the Mustang Ranch to a eunuch.  Seriously guys, you're running a fucking public company, can you at least, you know, present the information in a user friendly manner to your shareholders (and Money McBags is a shareholder).  Anyway, on the surface, their Q was pretty good.  They grew sales 12% in NIS (New Israel Shekels) and increased their gross margins which they said was the result of continuing to introduce new higher margin products.  They said they earned $.20 per share in US which puts them at $.80 for the year.  They have $26MM of cash on the balance sheet which is roughly 1/3 of their market cap.  That said, their selling expense was up as a % of sales from 11% to 15% which they attribute to promotions, and their G&A was up as a % of sales as a result of management bonuses.  On the call they also talked about product launches to a big box US/Canadian retailer but ZWI's accent was thicker than the always lovely Carmella Bing so Money McBags could not make out to whom or to what he was referring.  Now look, Money McBags is also a Jew and while his hebrew language skills are more non-existent than Satyrs, weapons of mass destruction in Iraq, or money shots in lesbian porn, he honestly feels he would have got more out of the call had ZWI just spoken in his native language.  The most confounding part was that he did not take any questions, citing their pending share offering of $20MM.  Come on Zwi let's sit down and talk about this yid to yid.  We can kibbitz a bit about the old days and all of the shiksas we'd like to have boned, but just be fucking honest with me so we can avoid any Jew on Jew crime.  If you're not going to take questions on the call, then perhaps you'll answer them here for your shareholders.  Below are things investors need to know:

1.  Why is there no quarterly income statement or cash flow statement?  Why only give the annual summary?  For fucksake, even in your share registration statement you filed with the SEC the day of the earnings release, you only include Q3 numbers.  WTF?  Can you give your shareholders a break and just give us the information without making us break out excel and remember how to run a fucking vlookup table?

2.  Along those lines, you quote a $.20 eps and a net income of $2.12MM.  Yet in the same paragraph you say income before taxes was $1.84MM.  Now look, I'm no Harry Markopolos, but how the fuck is your net income higher than income before taxes seeing as how you are a tax payer?  Honestly, this is more confusing than a Thomas Pynchon novel or trying to figure out exactly of what Captain Crunch is the captain (and don't say crunch).  Money McBags broke out his proverbial magnifying glass and it looks like $.04 of your $.20 eps this Q was from discontinued operations.  And that extra $.04 is almost enough to meet the discrepancy.  Even if that is not the discrepancy, why the fuck are you quoting earnings of $.20 when only $.16 of it was from continuing operations??  As of 9/30/09 you had earned $.59 per share with $0 from discontinued operations and for the year you earned $.79 with $.04 coming from discontinued operations.  So that sounds like a $.16 Q4 to me.  So why would you quote the $.20 number?  Work with me here.

3.  How much of your increased gross margin was due to currency effects?   It's great that margins are rising but you have talked about the advantage you get through currency differences between your costs and revenues, so would it kill you to break that out for us?  You said some of the margin increase was due to selling higher margin products, but how much?  Could you do shareholders a mitzvah here and let us know how the actual business is tracking ex. currency effects?

4.  Why did your cash balance go down in the quarter if you were profitable?  Since there was no cash flow statement, Money McBags had to copy/paste the last two balance sheets into his outdated excel and use the delicious text-to-columns feature just to figure out what was going on and let me tell you, when Money McBags has to start breaking out old school excel functions, he is less happy than Mark Sanford's wife on a family trip to Argentina.  You earned $2.1MM from continued and discontinued operations and yet your cash balance was down by about $2MM.  With your PP&E remaining about the same (and in Money McBags younger club days, he would often see people pee-peeing some E) it looks like the cash outflow was from a $4.5MM increase in inventory and $2.5MM increase in trade receivables.  Hmmmmmmmm.  Care to answer WTF caused this cash decline?

5.  As related to what we found in question 4, why did inventories go up by more than 50%?  Seriously, can you help me on this one?  Is this a normal seasonal inventory tick-up of matzo, gefilte fish, and grape juice for the upcoming Passover seders or is something else going on here? You said you are launching more products so is this the ramp up of that?

6.  Why are you raising $20MM?  Is this really related to expansion or does this have to do with the declining cash balance in the quarter?  You have $26MM of cash on your balance sheet and are a $75MM market cap company, why do you need to dilute share holders by 20%ish to bring in $20MM?  You have stated that you are looking to buy a distribution center in the US or form a JV, but do you really need to an additional $20MM for that kind of acquisition?

So ZWI, if you're reading this, and I know you are, can you help a fellow semite out a bit?  I mean it's not like I am asking you where the afikoman is (don't tell me, it's in the bookcase?), just help me analyze your actual business.  Money McBags wants to be a longterm shareholder but he is thinking about selling despite the ridiculously cheap valuation because he is not clear what the actual earnings power is.  You said you will answer questions after the share offering which will likely include or be followed shortly thereafter by some "important announcement" (hopefully that announcement isn't that you have run off with the cash), but can you tickle Money McBags' balls just a bit here and give some real information?  And let Money McBags be brutally honest with you, if you ever quote your eps/net income number again and include discontinued operations, Money McBags will go to the Wailing Wall and pray for someone else to take over the company.  The whole press release/call/equity raise is just so fucking meshugganah that shareholders need to know you are not boozing on Manischewitz and can actually run a public company.

The dreidle is in your court Zwi.  You know where to reach me. or  I'll be here all day.

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