Good Results, Bad Trading at CETV

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I am working a longer comment on CETV, probably to be posted on Monday, but given the crazy trading following yesterday’s earnings report and conference call I wanted to offer some brief insights.
The quarter was good, better than consensus and matching the very highest estimates which included my own. Romania and Croatia were across the board stars. The Czech Republic has incredible margin performance. Slovenia was good. Slovakia was fine after considering purposeful revenue shifts between 1Q and 2Q. Ukraine was weak as I had expected but several analysts were disappointed. The company provided detailed five year guidance for Ukraine now that is fully controls the station which makes current year results less important. The guidance was more than twice what I expected in 2011-2013. Overall guidance was maintained even as Ukraine’s 2008 forecast came down and losses from the newly acquired Bulgarian stations were incorporated. I still think guidance remains low and will be raised at the October analyst meeting in NY.
Given this news and heavy selling in the stock since mid-June, it is not surprising that the shares opened up more than $4 and still had a $3 gain when the conference call ended at 11:30 ET. From that point on however, it s was straight downhill with acceleration into the close ending with a $4 loss. The shares are deservedly rebounding by a couple of bucks today in early trading….

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Dreamworks Thesis Falls Apart

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My thesis on Dreamworks Animation fell apart when the company reported 2Q results after the close on Tuesday. While I understand the 10% decline in the stock, I think it is overdone and actually leaves value in the shares ahead of catalysts that are coming but not until October and November. The problem is there are fewer catalysts and they won’t help at all in the near term.
DWA reported better than expected 2Q revenue and EPS but all of the upside came from a one-time event. Excluding that the results were in line, maybe even slightly light. A good 2Q report was my first catalyst.
My second catalyst was more important: a big second half as revenues from Kung Fu Panda flowed through the income statement. Unfortunately, during the conference call, management guided international marketing expenses upward due to dollar weakness. I had been assuming that these expenses might be higher but the new guidance went up to 10% above the top end of the old guidance. Importantly to the story beyond the next few days is that despite the guidance change on expenses (which actually impacts DWA on the revenue line due to their distribution agreement with Paramount), most all analysts maintained their e2008 and 2009 estimates. It is the upside that was lost and upside is what was supposed to drive this stock.
As I mentioned, other catalysts remain but….

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Headwinds Increase For Rogers

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I began to sell Northlake’s position in Rogers Communications last week ahead of its earnings report. I thought the report would be OK but given growing signs of slowing growth in wireless worldwide, I thought there might be some downside to RCI’s numbers. I also thought that it would take a really good report to overcome this sentiment and the Rogers specific worries about recent Canadian spectrum auctions that will lead to increased competition in 2009 and beyond.
As it turned out, my concerns were validated by the quarter and investor reaction. I should have been more aggressive with my selling. I did sell more RCI very near the open but some of my position remains. I think the stock is modestly oversold off the quarter and will look to exit the balance on a rebound to $35-36….

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NII Comes Through and the Sentiment Turns

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What a difference a day makes! After Tuesday brought nothing but bad news for wireless investors, NII Holdings (NIHD) reminded us that there can still be winners in the group.
NIHD jumped almost 8% at the open and built on the gains to close 11% higher. The company reported great 2Q08 results with pretty much ever key metric coming I ahead of analyst estimates. This marks the second consecutive quarter where the company reported upside. This time it is enough to rebuild confidence and put an end to lingering negative sentiment form the stocks crash form $90 last summer to a low $30 as worries mounted over its iDEN technology and competition in Mexico, its largest market. The whole tone of the conference call was improved. I think it marks a turning point and with a little help form the market the stock can get back to the $60s before year end.
NIHD is a dynamic growth company. ..

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Apple Guidance Is The Problem

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Listed below is my live commentary which was posted on RealMoney.com from last night on Apple from before and during the conference call. Without reviewing analyst commentary from the morning after I’d add a couple of things.
On September quarter guidance, the gross margin would be the lowest since December Q 2006. The operating margin would be the lowest since September Q 2006. We’ll see but that seems awfully conservative to me even accounting for a historical sequential downturn in gross margins in the September quarter.
Lots of questions on the 2009 gross margin guidance of 30% all of which surrounded Apple’s pricing strategy. Seems to me quite clear that some major new products and maybe new price points are coming in that time frame. We already know that in the September quarter a “future product transition” will hurt gross margins (I’ll bet that one is a big price cut on the touch). I’ll repeat what I said last night: EPS estimates for next year are too high even if the new gross margin guidance is a 100-200 basis points too low unless new products ramp revenues materially beyond current estimates. Management is hinting this is the case driven by a new go to market strategy. We’ll see.
On the stock, I have t admit that I am less optimistic than I have been in some time. These transitional issues on profitability seem to limit upside surprise potential. Then again, as I type this the stock is under $149. But if 2009 EPS are at consensus of $6.28, these issue make the premium multiple a little tougher to swallow. A big beat in the September quarter and/or the excitement surrounding these hints on new products are required now to get the stock turned back up.
Last night’s comments…

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Batman Saves Gotham and Hollywood

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It’s been kind of hard to miss the news on the record breaking opening of The Dark Knight but I’ll try to put my usual Wall Street spin on the numbers.
The Dark Knight’s $155.4 million is the best ever three day opening, beating Spiderman 3’s $151.3. The Dark Knight also set a single day record on Friday and broke the midnight showings record. With Mamma Mia opening well at $27 million and several holdover films such as Hancock, Journey to the Center of the Earth, and Wall-E holding up very well in the face of the Batman onslaught, the weekend was also Hollywood’s best ever non-holiday three day haul besting the opening weekend for Pirates of the Caribbean: Dead Man’s Chest on July 7-9, 2006.
The weekend top 12 gross of $250 million was over $100 million of the same weekend a year ago. That is enough to bring the summer back from over a 3% deficit vs. year ago to just $16 million shy, or about one half of one percent. The quarter which was down 17% entering the weekend is no down around 5.4%.
I still expect a down summer and a down quarter but my prior prediction of a July/August dip of 10% looks steep with The Dark Knight likely to have good legs and maybe pull in $400 million….

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Apple Reports Tonight

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I expect less positive surprise than usual for Apple when they report June quarter earnings tonight. But barring a major blowout or an unexpected miss, it is the guidance for the next quarter that will determine the immediate action in the stock price. Apple has a history of guiding below street estimates and then beating guidance and those original estimates. Thus even guidance in line with current estimates ($8.3 billion revenue, $1.24 in EPS) should be enough to drive the stock up.
A complicating factor in how the stock reacts is last week’s bad reception to earnings from Microsoft and Google. Both reports had some issue but I don’t think they were large yet both stocks dropped close to 10%. Also, the sharp rebound in bank and financial stocks indicates at least for the short-term their is rotation underway into beaten down stocks and away form recent leaders which include the leading tech stocks like Apple.
With those comments as background, click “Continue Reading” to see abiref preview of Apple’s quarter as summarized by theflyonthewall.com.

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Time Warner Finally Discarding AOL?

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Time Warner shares have enjoyed an above average 9% rebound over the past two days since reports surfaced that the company appears to be more aggressively seeking a new ownership arrangement for AOL. While the NY Times threw water on the idea that a sale to Microsoft was likely, the mere fact that TWX management appears to be getting more aggressive about AOL is a positive for the stock. I believe that lack of confidence in management’s strategic thinking and willingness to act are major factors in the bad performance for TWX shares even by media stock standards….

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Rupert Selling. Is CETV Buying?

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Central European Media Enterprises shares continue to sink as investors fret about economic conditions in its markets, Romania and Ukraine in particular. Volume has picked up over the last few days after most of the decline since mid-June was on below average volume. Merrill Lynch likely contributed to yesterday’s downside and activity with a new report on emerging markets broadcasters in which price targets were lowered based on the crushing price declines for broadcast televisions stocks throughout the globe. Worth noting is that Merrill raised their estimates for CETV this year as 2Q business appears to be holding up just fine. Merrill did very slightly reduce estimates in 2009 on the basis of cost inflation related to rapid general inflation in many Central European countries. This may be a valid point although Merrill chose to brush off the ability of CETV to raise prices in the same inflationary environment to compensate.
Something else that may be impacting the stock is a report from theflyonthewall.com yesterday that News Corporation has hired Lehman to evaluate the value and potential transactions for its stations in Latvia, Bulgaria, and Serbia. NWS also owns stations in Poland and Turkey. CETV is a logical buyer for Bulgaria, Serbia, and Poland and has been rumored to be interested to be interested in Turkey. I suppose it is possible that yesterday’s NWS news led some investors to sell CETV in fears of a large, dilutive acquisition. I have more confidence in CETV management and do not expect them to complete any deal that does not make financial for shareholders. Their deal making track record is long and successful.
That said, if Rupert were willing to do a deal close to current public multiples, CETV and NWS are in a very good position to find a mutually beneficial transaction….

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Box Office From The Studio Perspective

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Last weekend, the #1 film came from NBC Universal (I wrote up NBCU and its impact on parent General Electric on Monday). Hellboy 2: The Golden Army had a strong opening, exceeding its predecessor. The film looks headed to a total domestic run of over $100 million. I did not realize this until reading it on FantasyMoguls.com but assuming that Hellboy 2 makes it to $100 million that will be three straight films form the studio crossing $100 million (The Incredible and Wanted, both released in June, already are over $100 million). The studio’s next film, Mamma Mia, is being released this coming weekend and observers also believe it can reach $100 million. The next NBCU film, The Mummy: Tomb of the Dragon Emperor, is a sure thing to make $100 million. That would make five consecutive releases crossing $100 million. According to Steve Mason of FantasyMoguls.com, this would be the first ever instance of that happening to any studio. For NBCU/GE, this is all good news which is helpful given a slowdown in advertising that is just beginning to bite national TV and NBC’s status as last place in primetime.
For other studios, the news is generally good. Disney is getting good mileage out of Wall-E, although the numbers are not tracking considerably ahead of Cars or Kung Fu Panda. I suspect that Wall-E will have better legs and look for it to go comfortably north of $250 million in North America. With the latest Narnia film severely underperforming its predecessor, this is good news for Disney which needs hit films to drive all its other businesses….

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