Tuesday, March 9, 2010

3/9/10 Midafternoon Report: Happy birthday bear market low, now go fuck yourself

Today marks the one year anniversary of the bear market's devilish low of 666.  To celebrate the nearly 70% rise since then, unemployed workers throughout the country are taking a day off from job hunting to resole their well worn and tattered shoes while Wall Street bankers are wiping their delicate behinds with their beluga caviar scented toilet paper made from the eyelashes of the Dalai Lama as a symbol of their spoils.  That said, macro news is more non-existent today than John Edwards' ethics.  The only slight news comes from Federal Reserve Bank of Chicago President Charles Evans saying that weakness in the job market will cause the Fed to keep rates low for some time and they will continue to be more accommodative than Mr. Roarke was to Heather Locklear when she visited Fantasy Island (and one can only imagine the fantasies Tattoo had about her islands).  Mr. Evans also said that as a result of the deep recession, policy makers may need to shift their view of full employment to correspond to a 5.25% unemployment rate as opposed to the 4.75% they currently use as a base line.  So good on you Charles.  Way to lower the bar instead of trying to find proactive solutions.  It's like if Perfect 10 magazine(NSFW) all of a sudden started putting 9s in their photo spreads or if Einstein rejiggered his theory of general relativity by adding some fictitious comological constant (umm, ok, maybe scratch that last one).  At least we now know why Charles Evans is considered to be one of the Fed's fluff girls as he is a Federal Reserve Bank President and yet not a voting member of the FOMC.

In international news Greek Prime Minister George Papadopolis is supposed to meet with President Obama, though there is no word as to whether Mr. Papadopolis will be bringing Webster along with him.  In the meeting, the Greek Prime Minister will walk through his detailed plans of economic recovery with President Obama which will include vilifying hedge funds who bet against Greece and their faltering economy while placing the rest of the blame on a faulty johnson rod Greece had installed last year.

In stock news, Burger King had disappointing same store sales numbers for the first two months of the year posting 8% declines across the US and Canada.  They blamed 3% of the decline on bad weather and the other 5% on shitty food.  This comes a day after McDonalds posted slightly up US same store sales.  Burger King's CFO Ben Wells said "For us weather is a big deal because you don't stroll to a Burger King restaurant, you have to be in an automobile."  Now look, Money McBags is no Le Corbusier so he is not an authority on how cities are laid out, but if the weather is bad, wouldn't more people be getting in to their fucking cars and driving places than walking?  Yeah, I get that if you're snowed in you're not going anywhere, but that should have hit McDonalds too.  Consider Money McBags skeptical of that excuse.

In small cap news MLNK came out with their earnings last night and to call their earnings crappy would be an insult to crap everywhere.  Now Money McBags is an owner of MLNK and has been touting them on When Genius Prevailed from time to time, so this just shows that nobody is perfect (except for maybe Jayde Nicole).  This was Money McBags' break down of MLNK last Q, the key part being management said this Q (their fiscal Q2) would be flat with fiscal Q1 and the end of the year would see an uptick.  So they earned $18MM of EBITDA in fiscal Q1 and taking their guidance that put them at a $72MM run rate or an EV/EBITDA so ridonkuously cheap that even Matthew Lesko couldn't believe it.  That said, they fell short of their guidance this Q and earned only $13MM of EBITDA and then took down guidance for next Q (fiscal Q3) saying it will be flat to lower than fiscal Q2, with fiscal Q4 then being up sequentially from fiscal Q3 (though unclear if it will be up from this Q).  Oy, fucking vey.  So let's use $13MM as the new EBITDA run rate assuming it drops next Q but picks up to this level again in 2Qs, with anything after that being unknown (though it should be up).  So a $52MM annual EBITDA run rate with $163MM in cash on the balance sheet and no debt yields an EV/EBITDA of still only 5.5x after today's drop.  So it is still cheap and Money McBags has no intention of selling, but the fact that they were down when ther biggest customer HP had revenue up 8% this Q (and HP is 28% of revenue) is a bit head scratching (though if it were Money McBags' head and Destiny Dixon were doing the scratching, everything would be ok).  MLNK revenues in the Q were down 9% Y/Y and 4.5% sequentially, but those numbers include $4.8MM of revenue from their acquisition of Tech For Less, so comparable revenues were actually down about 2% more than that (though they said this is usually a sequentially down Q).  The good news is that gross margins were up 100bps and they generated about $30MM of FCF and guided to positive FCF for the year.  Europe was a main driver of weakness, down 16%, as were getting new engagements which were down 62% from last year's fiscal Q2 which probably isn't a great sign unless you hate making money.  They said this was "a direct result of our clients delayed decision-making due to the economic headwinds in the spring and summer of 2009" but then later they say that the six month lead times they get should put them at the front of the cycle.  Hmm, Money McBags is now more confused about their business cycle than Larry Craig is about his sexuality (or at least publicly about his sexuality, because he knows in private he loves burgling turds).  Luckily, Money McBags is not the only astute one out there as some guy from Harvest Capital Strategies spoke up on the conference call and asked: "you initially had expected Q2 to be flattish with Q1 and then a gradual uptick in Q3 and Q4 to now a down Q2 versus Q1 and the subsequent down Q3 versus Q2 before we see a resumption of sequential growth. Maybe if you can can just provide a little more color around what changed in the last three months?”   Management said there were three reasons for the change:  1. Volumes were simply less than they expected in their base business.  2.  Start-up activity is taking longer to get up and running so new business that was supposed to be in Q2 will now be in late Q3 and early Q4.  3.  A little something called "Shut the fuck up" (ok, maybe they didn't say this one).  Anyway, to sum this all up Money McBags can't be right all of the time.  With consumer technology spending bottoming out, he though MLNK would see the benefits (as did their management) and they didn't.  That said, the company remains cheap (thanks to the 10% drop today) but their growth may now take longer to come back than John Travolta's career after Staying Alive or Tiger Woods' dignity (ok, hopefully not that long).  Money McBags is not selling here, but he's not buying either.  This company simply should have done better.

Also, WILC is up almost 10% today on big volume after their Q last week.  Money McBags will break that Q down in the next couple of days, but he has let you know many times that this company isn't just chopped liver.

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