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Five Things You Need to Know: Ambac, MBIA: Prognosis Negative; Sallie Mae CEO Just Wants to "Get the F*ck Outta Here!"; The CEO Guide to Successfully Concluding Investor Calls; General Mills' Sneak Attack; General Mills Stock Downgraded to Mean


What you need to know (and what it means)!


Kevin Depew's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Ambac, MBIA: Prognosis Negative

S&P this morning lowered the credit rating outlook for MBIA (MBI) and Ambac (ABK) to negative from stable, according to Bloomberg.

  • S&P also reduced its outlook for Financial Guaranty Insurance Co. and XL Capital Assurance Inc. to negative, Bloomberg said.
  • Why the change?
  • According to S&P the changes were due to "worsening expectations'' for insured nonprime residential mortgage bonds and collateralized debt obligations of asset-backed securities.
  • The ratings outlook downgrade is significant because these are major players in the bond insurance arena.
  • Ambac, the second-largest bond insurer, guarantees $546 billion of securities, according to Bloomberg.
  • MBIA backs about $652 billion of municipal and structured finance bonds, and FGIC Corp., parent of Financial Guaranty Insurance Co., insured $314 billion.
  • As a side note, municipal bonds are headed for their worst year since 1999, according to Merril Lynch (MER) indexes that track muni bonds.

2. Sallie Mae CEO Just Wants to "Get the F*ck Outta Here!"

Seriously. He does. But we'll get to that in a moment.

  • First, Sallie Mae (SLM) CEO Albert Lord told investors in a pretty defensive conference call that an increase in borrowing costs would hurt the company's profit growth.
  • Lord said that as a result of the failure of the $25.3 billion J.C. Flowers deal to go through, the company will need to raise capital despite the higher cost.
  • That's about all he said.
  • The call was otherwise an exercise in futility.
  • In one particularly hostile exchange, Lord said he "didn't know" the answer to the question what SLM stock is worth.
    "We're trying to put together projections together here, Al," one questioner said. "We're trying to figure out what your stock is going to be worth and you've got to give us some guidance."
    "You should give Steve [McGarry, Managing Director of Investor Relations] a call," Lord said.
    "But you're the CEO," the questioner objected.
    "That's right. I'm the CEO," Lord replied. "Next question."
  • Let's cut to the chase. We're no public relations expert, but here's a tip:
    It's probably not a good idea to close out a particularly testy investor call by saying, "Steve, let's go, there's no questions, let's get the f*ck outta here."
  • But hey, that's just us.
  • Check it out at the 26:40 mark via the mp3 file here.

3. The CEO Guide to Successfully Concluding Investor Calls

Let's face it. The job of a CEO today is fraught with exasperating demands from shareholders, among them those pesky conference calls. Extricating yourself gracefully from an unpleasant investor conference call is no easy task. Some CEOs opt for the tough approach, "Let's get the f*ck outta here!" That's one way to do it. But Minyanville has compiled a handy CEO Guide with less combative ways to conclude investor meetings.

Minyanville Presents: The CEO Guide to Sucessfully Concluding Investor Calls

Wrong: "Steve, let's go, there's no questions, let's get the f*ck outta here!"
Right: "Steve, if there are no questions, let's go back to back to doing our best to run a successful, long-term business."

Wrong: "Steve, there's no questions, let's skedaddle!"
Right: "Steve, if there are no further questions, we'll let everyone get back to their day."

Wrong: "Zoinks, Steve! There's no questions, let's scram!"
Right: "If there are no additional questions, Steve, we'll conclude the call with the reminder that folks can always call us up with concerns that arise later."

Wrong: "So long, see ya, wouldn't want to be ya!"
Right: "Let's say "Aloha," Steve. It means both goodbye and hello!"

4. General Mills' Sneak Attack

General Mills (GIS), the second-largest cereal maker in the U.S., reported second-quarter profit rose 1.3% thanks to a successful (albeit sneaky) pass-through of higher wheat costs.

  • "Our original plan for fiscal 2008 included an estimated 5% inflation rate on input costs but committee prices have tracked above our estimates, and now with the majority of our coverage locked in for this year, we see our inflation rate coming in higher at roughly 7%," CEO Kendall Powell said.
  • "And we continue to expect consumer spending for the year to be up high single digits," he added.
  • General Mills countered higher wheat costs in June when it raised cereal prices by as much as 4%.
  • How did they manage to successfully pass through higher wheat costs? By reducing the box size for their cereals, but lowering the cost per box - lowering the cost less than the amount the box size was reduced, of course.
  • "You know, the cereal box changes... were pretty subtle. So consumers haven't really noticed but they have in aggregate noticed that our prices have come down a little bit. And you know, as we modeled and as we predicted that's resulting in, you know, some baseline strength, you know, on that core cereal line. And we are very encouraged by that," Powell said.

5. General Mills Stock Downgraded to Mean

The move by General Mills back in June to raise the price of its cereal while decreasing the box size so that customers would hopefully be fooled by the cost increase, prompted a mixed response from Wall Street analysts. Some applauded the move, upgrading the stock from "Earnest" to "Sneaky", while other Wall Street analysts found the whole thing confusing.

Minyanville obtained a transcript from a portion of that previous analyst call.

Analyst: So let me see if I understand this. The price of your cereal is going up?

General Mills Spokesperson: That's correct.

Analyst: But the price per box is actually going down?

General Mills Spokesperson: Correct.

Analyst: So then how is the price going up?

General Mills Spokesperson: Because we're making the box smaller.

Analyst: Ok, but you just said the price of each box is going to be less.

General Mills Spokesperson: Yes, that's true.

Analyst: So then you're actually lowering prices.

General Mills Spokesperson: No, we're raising prices.

Analyst: How?

General Mills Spokesperson: Look, you're an analyst, you work with numbers.

Analyst: Right. Ok. I got it.

General Mills Spokesperson: Next question.

Analyst: Uh, actually, I don't get it. How can you raise the price by lowering the price?

General Mills Spokesperson: Because we're decreasing the size of the box.

Analyst: Ok, but you're charging less for each box.

General Mills Spokesperson: Yes. Because we're decreasing the size.

Analyst: Ah, I get it. So then the price is really the same, you're just making the box smaller which makes the price look lower.

General Mills Spokesperson: No, no, no! Listen. We're raising the price of our cereal.

Analyst: But -

General Mills Spokesperson: Shut up! Now listen, we're raising the price of our cereal.

Analyst: (Silence).

General Mills Spokesperson: Say it.

Analyst: We're raising the price of our cereal.

General Mills Spokesperson: Good. We're raising the price of our cereal... while simultaneously making the box smaller. Go on, say it.

Analyst: While simultaneously making the box smaller...

General Mills Spokesperson: But... and this is the important part... but we're raising the price more than we're decreasing the size of the box... go on...

Analyst: But we're raising the price more than we're decreasing the size of the box.

General Mills Spokesperson: So...

Analyst: So...

General Mills Spokesperson: That...

Analyst: That...

General Mills Spokesperson: Come on...

Analyst: Come -

General Mills Spokesperson: No, I mean, come on and follow the thought. So that...

Analyst: Oh. So that...

General Mills Spokesperson: The...

Analyst: The... price is lower?

General Mills Spokesperson: No! So that the customer...

Analyst: So that the customer...

General Mills Spokesperson: Will.

Analyst: Will.

General Mills Spokesperson: Oh good Lord. So that the customer will think the price has gone down when it's really gone up!

Analyst: Oh.

General Mills Spokesperson: See? Price increase. Smaller box. Larger price increase than smaller box.

Analyst: Right. I still don't get it.

General Mills Spokesperson: You know what? Just forget it.

Analyst: I'm going to have to downgrade your stock, you know.

General Mills Spokesperson: Good. Good. You do that.

Analyst: I will.

General Mills Spokesperson: I don't even want you to rate our stock positive.

Analyst: Good, because I won't.

General Mills Spokesperson: It would be an insult to the company for you to rate it positive.

Analyst: I'm downgrading your stock to "Mean."

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