Dow Jones (DJ) reported better than expected 2Q06 earnings. EPS rose 15% to 39 cents, ahead of the consensus estimate of 35 cents. Revenues actually came in a little light of expectations, growing just 6%, but margins expanded and operating income rose over 16%. This quarter showed evidence of the operating leverage that investors expect from DJ. I think this is the main reason why the shares are responding so well to the quarter, especially in light of 3Q EPS guidance that was several cents below the current consensus.
DJ shares still look too expensive to me, but with evidence of operating leverage finally emerging, I feel that 2007 estimates now look more realistic. This makes the premium valuation more palatable. I don’t think the stock will visit my buy point in the $20s. Downside should now be limited to recent lows assuming the market doesn’t get further clobbered. If you want exposure to newspapers, DJ is the stock to own….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2006-07-20 11:36:572006-07-20 11:36:57Dow Jones Shows Signs of Life
Beat and raise. That is what investors have demanded from MOT to reward the stock. Last night’s earnings report did the trick. EPS of 34 cents were better than 31 cents expected. Revenues of $10.9 billion were $600 million ahead of estimates. Handset shipments of 51.9 million easily beat the 48 million target and the 50 million whisper. ASPs for phones held togther and just fell slightly, as expected. Maybe most importantly, 3Q revenue guidance, the only guidance figure MOT provides was $10.9 billion to $11.1 billion, the midpoint being $500 million ahead of consensus.
In terms of the impact on MOT shares, I could stop this summary right now. The quarter is a win. MOT can rally back to the mid $20s, adding a couple of dollars on to the after hours advance. Now, let’s just hope that Nokia keeps the wind at MOT’s back when they report tomorrow.
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2006-07-20 11:34:482006-07-20 11:34:48Motorola Comes Through and the Stock Climbs
My pals at Ned Davis Research (NDR) provided a reminder about how the markets respond well to crisis events. I’m not sure the latest phase of the decline that began in mid-May was necessarily triggered by the Mideast crisis but I think the blow-up in Lebanon does qualify as a crisis event.
NDR has identified 41 crisis beginning with the closing of the Exchange during WWI. The crisis events range in length from days to months but most have been anywhere form one day to a few weeks. On average, during the crisis phase, the DJIUA fell 5.7% with a media decline of 2.9%. A large percentage of the crisis events were related to wars and other foreign incidents. About 1/3rd of the crisis events directly involve either the Mideast or terrorism. The most severe declines among those crisis events were the 1973 Oil Embargo (-18.5%), Iraq Invading Kuwait (-13.3%) and 9/11 (-14.3%). Several events inthis group led to little or no negative reaction including the 1983 Beirut bombing, the 1956 Suez Canal Crisis preceding the 1956 Arab-Israeli War, the U.S. bombing of Libya in 1986, the start of the Gulf War in 1991 and several of the “lesser” recent terror attacks like the USS Cole, the Bali nightclub, and the London Train bombings.
Of equal interest to the generally negative reaction to crisis events as they happen is that the associated market decline has historically put in a near-term bottom for stock prices…..
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2006-07-20 11:32:112006-07-20 11:32:11Crisis Events Can Be Bullish Once They End
New York Times (NYT) reported adjusted EPS of 46 cents in line with guidance. Most key financial measures closely matched analyst estimates including revenues, costs, and margins. As with Gannett (GCI) and Tribune (TRB), advertising and circulation trends were weak and there is no sign of an upturn. NYT and its peers continue to effectively reduce costs but these efforts are only to limit the damage from the weal top line environment. I see little reasont o be interested in shares of NYT or other newspaper companies which could still suffer significant multiple contraction as despite the secular growth challenges, multiples remain at the low end of historical valuations. I see no reason why multiples should not be reset lower….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2006-07-18 13:48:412006-07-18 13:48:41New York Times: Still Struggling
2Q06 earnings and commentary from Gannett (GCI) can best be described as more of the same. Neither the numbers nor the Q&A provided significant new insights. GCI remains stuck in a no-growth environment with no prospects for a pickup. The only bull case is that the stock is getting cheap on a historical basis and investors have begun to ignore the company. However, given that the lack of growth is due to secular issues, the stock should be cheap.
The shares have reacted poorly to the quarter even though the numbers were in line with expectations and commentary suggested that 2H06 results are likely to match consensus. I think the decline has to do with management’s commentary related to share repurchases and acquisitions. GCI has a strong balance sheet and generates of $1.2 billion in free cash flow. In the latest quarter especially, management slowed the share repurchase activity in favor of acquisitions. In the only testy exchange on the call, one analyst pressed management as to why they wouldn’t pick up the pace given that the stock was at the same price as it was in 1997. Management responded that they consider the return on acquisitions compared to share repurchase when deciding how to use their cash. Apparently, for now, management is willing to invest in hard assets in newspapers and TV rather than repurchase stock. Since investors view these assets as having weak long-term fundamentals, they are unhappy with the decision. Investors seem to want a Tribune (TRB) type recapitalization and GCI management isn’t giving any hints this might be in the cards…..
I wrote the following before my Barron’s showed up on Saturday with a bullish cover story on Apple Computer (AAPL). Barron’s has previously written negatively on AAPL so it shouldn’t come as a surprise that AAPL shares have firmed up this week. The story is consistent with what I have been writing about AAPL.
I’ll have more comments about AAPL after the company reports earnings Wednesday after the close. The comments below provide some perspective on what to expect and how the shares might react.
In a note from last Friday, UBS discussed whether the steady and large decline in AAPL shares discounts slower iPod growth, the options backdating controversy, and delays in shipments of new versions of the iPods. UBS and most other analysts acknowledge that Macs are selling very well, ahead of estimates entering the soon to be reported 3Q. The bullish theory would be that if the shares are discounting the known weaknesses then a relief rally could occur after AAPL reports next Wednesday afternoon…..
Pirates of the Caribbean: Dead Man’s Chest (POTC) continues to rule the box office. Nevertheless, Disney (DIS) shares have sold off since the movie was released. I wouldn’t chalk that up to any disappointment over the film, however.
In the early part of last week, before catching a downgrade on Thursday, DIS shares actually outperformed the market. I’d suggest that was the trading action related to the movie. Since then, I think the downgrade (built off the belief that street estimates for DIS EPS growth in 2007 are too high) and geopolitical tensions drove the shares lower. The quick strengthening in the dollar also probably contributed as DIS is sensitive to international travel at its Orlando theme park.
I maintain my view that 2007 results will not disappoint. Continued margin expansion at the theme parks, growth at ESPN, a solid upfront for ABC, and the flow through of profits from DIS very successful winter 2005 thru summer 2006 movie slate provide enough upside to meet consensus estimates. I think this fundamental strength will be evident when the company reports its June quarter. Recent sellers, shorts, and downgraders will regret their positions come the August 9th reporting date. One signal I could be right is that DIS shares finished up yesterday despite a second downgrade. I helped a tiny bit by adding DIS to a new client account.
Going back to the box office….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2006-07-18 13:38:362006-07-18 13:38:36Disney Pulls Back But Its Not Due To Pirates
Motorola (MOT) reports after the close on Wednesday, July 19th.
Despite weak stock price performance and negative datapoints from the supply chain, analysts expect MOT to post a good 2Q. In fact, recent analyst commentary has had an improving tone as it relates to the quarter. This is probably because other handset vendors have reported indicating that overall industry shipments were strong and MOT probably gained market share.
MOT shares have consistently traded down following its quarterly earnings since the company’s turnaround became evident after its explosive 1Q04 earnings report. This has been true despite the fact the company has not really missed estimates since 2003. The only times that MOT shares have rallied off earnings is when the company and beat the number and raised guidance. In this quarter, I think the bar is a little lower due to lousy action in the stock over the past few months. However, MOT bulls, which include me, really need a beat and raise scenario.
The beat side seems pretty plausible given the likely strength in the key handset division. The raise may be more difficult as concerns abound about a deceleration in the RAZR, sell-through on the Q, and the general health of the mobile devices business. Additionally, MOT is not expected to ship new models until the 4Q even though new model announcement have been coming steadily and more could be ahead at the company’s annual analyst meeting next week.
MOT shares look cheap at 14.6 times 2006 estimated EPS. When adjusting for over $4 in net cash on the balance sheet with more on the way, the stock looks even cheaper. However, MOT shares need momentum on handsets and margins and a better outlook for its network business. Overall, I see the bar as low enough to beat for the 2Q and the rest of 2006, so I remain long going into the quarter despite what feels like a higher risk profile.
For 2Q, consensus is calling for EPS of 31 cents on revenues of $10.27 billion….
The daily box office results for Pirates of the Caribbean: Dead Man’s Chest (POTC) continue to be astounding. After its record breaking opening weekend, POTC easily set mid-week daily records, and now has the 6, 7, 8, 9, and 10-day records. The film appears headed toward $400 million domestic and over $900 million worldwide, ahead of initial expectations to match the first film with $300 million domestic and $653 worldwide.
Since most of the stories about the film have focused on box office, I thought I’d take a stab at profits and see how the better than expected box office might impact EPS for Disney (DIS). Please understand that while I think the analysis is accurate and captures how POTC could be impacting DIS shares, it is overly simplistic and probably naive relative to how the film is financed, and the residuals and participations to the talent….
Regal Entertainment (RGC) was one of the only green stocks on my monitor yesterday and has held up extremely well against the losuy market envrionment over the past few months. Yesterday,the stock benefited from an upgrade by Bear Stearns, even if the upgrade was only from sell to neutral. Previously, a firming box office and a recommendation from Lehman Brothers boosted the shares.
Interestingly, the rationale behind the Bear Stearns upgrade was not due to recent box office strength. Rather, the analyst believes that a liquidity event for RGC’s joint venture company, National Cinemedia (NCM), could be in the near future. NCM is a privately held joint venture between RGC, Cinemark, and AMC Theatres. The company provides in theatre advertising on 11,000 screens controlled by its owners. Revenue is derived from the sale of the advertising you see before the trailers begin along with ads on flat screen monitors in theatre lobbies, on lobby signage, and on concession packaging. Most of the revenue is generated by the presentation shown on screen before the trailers that includes local and national advertising. Bear Stearns estimates that NCM will produce about $250 million in revenue and $150 million in EBITDA in 2006.
Investors in RGC have been excited about NCM for sometime. The company is growing rapidly and comparables like Lamar Advertising trade at hefty EBITDA multiples. Recently, NCM announced that it brought aboard a seasoned theatre industry veteran as CEO in conjunction with hiring JP Morgan to come up with a capital plan to raise the billions necessary to upgrade the nation’s movie theatres to digital cinema projectors. Studios spend hundreds of million annually to create and ship prints of films to theatres. Digital cinema would eliminate this expense and improve picture quality and the consumer experience. The studios and theatres have been hung up over how to pay for the transition. NCM appears to be angling to raise capital to fund it and charge a virtual print fee to the studios to recoup the investment and earn a return.
I have no opinion on whether it makes sense for NCM to be the financing vehicle for the digital transition. However, when I first saw the press releases about it a few weeks ago, my immediate thought was that this would be the event that triggered an IPO of NCM. And for RGC that is good news.
RGC owns 49.9% of NCM. Based on a 14.5 EBITDA multiple for the IPO, Bear Stearns calculates that RGC would receive $600 million in proceeds. That would be enough to pay RGC shareholders a special dividend of $4 per share or repurchase 17% of the outstanding shares at a 10% premium to the current stock price. RGC has a history of paying significant special dividends.
Additionally, isolating the value of NCM from RGC’s income statement would reveal that RGC shares are trading closer to 7 times EBITDA from the exhibition business. I think the stock probably reflects some of the NCM value already but this would still be an incremental positive for RGC shares.
RGC shares have performed relatively well as the market has pulled back…..
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2006-07-13 10:45:432006-07-13 10:45:43Taking A Look At Regal’s Ownership of National Cinemedia
