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business newsAttention, Walmart Shareholders: There's Trouble in Aisle Three
By
Justin Sharon
Feb 14, 2011 4:45 pm
The Dow component finished sharply lower after suffering downgrade number three this month alone.
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When Deutsche Bank began the process on February 2, little did the broker realize it was launching a Groundhog Day of recurring ratings reductions, for UBS followed last week and now even an American firm appears to be turning its back on Earth’s biggest private employer. This morning JPMorgan cut its recommendation to Neutral from Overweight, taking its 12-month price target down to $54 from $59 in the process. Ominously, researcher Charles Grom sounded the most bearish of the trio and clearly contends that the Bentonville behemoth is in for squishy same-store sales, which will likely last for the balance of 2011 as opposed to being simply a fourth-quarter phenomena. (The firm is out with earnings next week.)
Speaking on CNBC’s Fast Money this afternoon, Grom said Walmart has been going from “guardrail to guardrail” of late, lurching for solutions while its shares have barely budged in the past year. Concerns include competitive pressures from both the dollar stores and supermarket outfits including Kroger (KR). International expansion has also crimped free cash flow and store traffic issues need to be addressed. Morgan’s analyst feels the big-box category killer ought to fix what he calls “the mother ship,” US sales, which still represent 80% of overall business, before becoming distracted with foreign entanglements, where the margin mix is weaker. High inventories are an additional issue, and stock buybacks may ultimately be adversely impacted.
To be fair, several analysts still rate the stock a buy. Not least Bank of America-Merrill Lynch, which pays the Arkansas outfit an additional compliment of placing it on its Focus List of favored equities, which is officially Wall Street’s best performing portfolio over the past six months. And even JPMorgan’s Grom admits the US business “is fixable.”For now however, the company’s fortunes seem inversely correlated with those of Where the Heart Is alumna Natalie Portman, who subsequently survived playing such pitiful roles as Queen Padmé Amidala and is on track for an Oscar at the end of the month. Walmart on the wane? Such a proposition once seemed utterly unthinkable but as Portman can attest, beware the Black Swan.
Please see Religious CEOs: Walmart Founder, Sam Walton, Walmart in New York City: Company Says Poll Proves Small Businesses Want It There, and This Small Cap Could Be the Next Walmart.
Cash machine king Diebold, Incorporated (DBD) is itself spitting out plenty of money this afternoon. Shares are up more than 5% as I write and among the NYSE’s top 20 performers after the Ohio outfit announced its earnings. The firm actually lost $120 million, or $1.83 per share, for the fourth quarter, which was perhaps not surprising given the “free” loot dispensed by some Automated Teller Machines in beleaguered Ireland of all places during that time frame. However, excluding one-off charges for restructuring and the like, its adjusted profit of $0.73 handily beat Street estimates of only $0.53.
Diebold, which dates to 1859, also manufacturers assorted deposits, safes, and vaults. Shortly after the "hanging chad" election of 2000 it also entered the electronic voting machine business, one with great growth potential though certainly not free from controversy. It just reported a solid 4% gain in revenue, to $2.82 billion, led by Latin America and Asia and propelled by solid orders from regional banks. For the full year, the company now expects to earn between $2.00 and $2.20 per share on an adjusted basis, a range above the $2.07 that analysts were expecting.
Diebold remains far in front of competitor NCR Corp. (NCR) domestically and passage of the Check 21 Act, allowing for digital check processing, has been a boon to US ATM sales.
Company CEO Thomas W. Swidarski did caution that “Europe… remains challenging.” That market remains a relatively small slice of overall revenue however, and with the firm having raised its dividend for a remarkable 58th straight year only last week, investors are being well paid while they wait for an improvement across the pond.
Also check out ATMs as Dirty as Public Bathrooms, They Could Have Been Billionaires: John Sheppard-Barron, and Winners & Sinners: Diebold, Harmony, Thornburg, Advanced Micro Devices.
If only she hadn’t been so traumatized by the reaction to her Star Spangled Super Bowl singing, I would love to have heard Christina Aguilera belt out another of our anthems at last night’s Grammy Awards. If only to get her undoubtedly unique take on what exactly America’s ever more inflationary “amber waves of grain” mean for investors in Kellogg Company (K). The Corn Flakes maker, whose other offerings include Nutri-Grain, Mini-Wheats, Rice Krispies, All-Bran, and Eggo, is up today on news investor Nelson Peltz’s Trian Partners acquired a $150 million stake in the fourth quarter to take his holdings up to 2.78 million.
This after it was among a slew of food companies to recently warn of higher commodity pressures. In announcing earnings a couple weeks ago the cereal firm said it expects costs to be up some 7% for the full year, with increased grain prices a key culprit. The stock has basically been dead money over the past year while such issues intensified. Wells Fargo upgraded the stock after earnings, and North American frozen sales did rise an impressive 8% in the fourth quarter for their first increase since 2009. Company CFO Ronald L. Dissinger said Kellogg is about about 80% hedged on commodities for 2011 and Chief Executive John A. Bryant added he expects to see “significantly better topline performance in 2011 due to increased pricing and a very strong innovation pipeline.”
A 3% sequential decline in cereal sales in the region demonstrates however there is still work to be done. Whether consumers will be willing to pay up for its breakfast offerings amid increased private label competition remains open to debate.
How You Can Make Money Off Wheat, Cereal Mascot Mashup: A Horror of Your Complete Breakfast, and To End Obesity, Start by Dismantling Sugar Quotas have more.
Tough start to the year for health clubs. Last month saw the sad passing of an industry icon and now, just as those New Year's resolutions start to fade under so much snow, Life Time Fitness Inc. (LTM) ended about 4% lower this afternoon.
Shares in the Minnesota-based operator of recreational facilities were, much like its treadmill treaders after an arduous workout, due a breather after rising some 55% in 52 weeks even after today’s tumble. The firm has averaged topline growth and operating margins of 18% and 19% respectively over the past three years, especially impressive as it encompasses a recession during which some well-known competitors went belly up.Life Time’s average facility exceeds 100,000 square feet and has won followers with its spa-like feel and relatively reasonable individual monthly rates of between $50 and $80. Sentiment has soured somewhat lately however, with KeyBanc Capital having cut the stock to Buy from Hold late last week due to valuation at such lofty levels. The company is set to announce fourth-quarter and full-year earnings on Thursday. With competition intense from the likes of 24 Hour Fitness and LA Fitness, and Life Time laboring under a fairly hefty net debt/capital ratio, investors may not want to get back in the game just yet.
Read related content at Get Fit for Less, Madonna Opens Gym in Moscow Just as Russia’s Masculinity Takes Severe Hit, and Workouts Go Tech With Gadgets From Garmin, Nike.
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No positions in stocks mentioned.
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