David Fuller and Eoin Treacy's Comment of the Day
Category - Autonomies

    Lululemon Or Puma Could Be Answer to VF's Deal Drought

    This article by Brooke Sutherland for Bloomberg may be of interest to subscribers. Here is a section: 

    VF hasn't publicly announced any deals for four years -- its longest drought ever, according to data compiled by Bloomberg.

    It's last big takeover was the $2 billion purchase of boot maker Timberland in 2011, and  it dropped a pursuit of surf brand Billabong in 2013 after the company wanted more than VF thought it was worth.

    The dearth of new deals is starting to make itself felt: Analysts are projecting VF's sales will rise just 2.8 percent this year, the smallest gain since 2009.

    Part of that slowdown is tied to a broader trend among retailers from which VF hasn't been immune. Cheap, fast-fashion brands such as H&M and Zara are drawing customers away from middle-of-the-road purveyors of basics like jeans and T-shirts, just as they get slapped by the strong dollar. Weaker demand and piled-up inventory forced VF to cut its profit forecast in October, sending the shares into a tailspin. 

    VF still has a lot going for it. The company's brand mix is diversified enough to help shield it from downturns in specific categories and a robust supply chain lets it better manage inventory levels in response to changes in demand, says Canaccord analyst Camilo Lyon. All of that should position VF to ride out the retail industry's current hardships. But taking advantage of opportunities to bargain shop for more brands as others struggle would put it in an even better position.

     

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    JAB Trio Creates Global Coffee Empire for Billionaire Backers

    This article by David de Jong for Bloomberg may be of interest to subscribers. Here is a section:

    The Luxembourg-based group, known as JAB, has spent more than $30 billion in the past four years acquiring coffee companies in the U.S. and Europe to challenge global leader Nestle SA. Run by a trio of well-connected executives with decades of experience in food and beverage, JAB has bought assets including D.E Master Blenders 1753 NV, Mondelez International Inc.’s coffee unit and high-end chain Peet’s Coffee & Tea.

    “This is part of a much, much bigger strategy. JAB wants to be the Budweiser of the coffee space,” Pablo Zuanic, a Susquehanna Financial Group analyst, said, referring to Anheuser-Busch InBev NV, the world’s biggest brewer. “Just as you’ve seen Bud consolidate beer, they want to consolidate coffee.”

     

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    Musings From The Oil Patch December 1st 2015

    Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB which may be of interest. Here is a section on oil shares:

    A final batch of questions focused on how important major oil company dividends were to holding up their share prices? We believe it is an important consideration, but the question of dividends and the major oil companies may actually foreshadow a discussion of their future business models. If a company is stuck in a low-growth industry, which oil certainly is, then spending inordinate sums of money to lift the growth rate may not be worth it. For oil companies, the cost for finding and developing new oil production to boost a company’s output growth rate from 2% to 3% to say 5% to 6%, without the company having any control over the price it receives for the product, should raise questions about their long-term business strategy. Maybe it is better to develop a steady, albeit low, production growth profile while using the surplus cash flow to maintain, and potentially increase, the dividend to shareholders. That might be a way to sustain a company’s stock market valuation and secure stable shareholder support. This strategy implies that capital spending would always be at risk in low commodity price environments, but the strategy could lead to stable employment, which is critical for securing and sustaining the technical talent required in the petroleum business. This strategy, however, wouldn’t work for smaller E&P companies needing capital to grow as their ability to tap the capital markets likely requires that they demonstrate rapid production growth. As we are learning, that strategy can be deadly in a period of low commodity prices. So if major oil companies were to adopt slow-growth production goals while defending and increasing their dividends, their share prices might not decline.

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    Volkswagen Closes In on Fixes for Dirty Diesel Motors in Europe

    This article by Birgit Jennen and Christoph Rauwald for Bloomberg may be of interest to subscribers. Here is a section:

    The most important next step will be as and when VW will conclude its internal investigations,” Arndt Ellinghorst, a London-based analyst for Evercore ISI, wrote in a note Monday. A program the company set up to encourage whistle-blowers expires Monday, and VW plans to present interim results of its internal inquiry in mid-December.

    The carmaker is facing an emissions scandal on three fronts: cheating software it installed in about 11 million cars worldwide; irregular carbon dioxide ratings on about 800,000 vehicles in Europe; and additional questionable emissions software in about 85,000 VW, Audi and Porsche cars with 3.0-liter diesel engines in the U.S. Approval of repairs in Germany, and by extension the rest of Europe, doesn’t guarantee a thumbs-up in the U.S., where regulators first uncovered Volkswagen’s diesel deception.

    For the smaller diesels, the German manufacturer has submitted a plan to repair nearly half a million cars to U.S. regulators. A response is due in December. For the bigger diesels, the company plans to alter the questionable software, known as an auxiliary emissions control device, and resubmit it for approval.

     

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    Nordstrom, Macy's Suffer as Americans Skip Trip to the Mall

    This article by Lindsey Rupp for Bloomberg may be of interest to subscribers. Here is a section: 

    The problem? Department stores aren’t drawing the same foot traffic. Though the job market is improving and the U.S. economy is chugging along, Americans would rather spend their money elsewhere. Nordstrom’s results sent its shares down as much as 22 percent in early trading on Friday, following a similar swoon for Macy’s after it released weak earnings earlier this week.

    “It’s kind of bizarre,” said Dorothy Lakner, an analyst at Topeka Capital Markets in New York. “People have money. The economy isn’t bad, but they’re not spending on apparel.”

    Nordstrom’s stock tumbled as low as $49.75 in premarket trading in New York. The shares had already slid 20 percent this year through the close of regular trading Thursday.

    Cautious Outlook
    Even J.C. Penney Inc., which beat sales estimates in the third quarter, is approaching the holiday cautiously. The retailer didn’t raise its annual guidance despite posting a same-store sales gain of 6.4 percent last quarter. That exceeded the 4.5 percent increase analysts expected.

    J.C. Penney shares fell as much as 11 percent to $7.82 in early trading on Friday. The company, benefiting from a turnaround plan, had gained 36 percent this year through Thursday.

    Retailers and clothing suppliers have struggled to pare down excess inventories, forcing them to rely more on discounts.

    Nordstrom’s results reflected softer sales “across channels and merchandise categories,” the Seattle-based company said.

    “It’s just a traffic problem," James Nordstrom, president of stores, said on a conference call. “We’ve got less people buying clothes this quarter than we expected.”

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    Email of the day on General Electric

    The 10 year weekly chart of General Electric suggests an important break out from a long term range and a move towards the old highs.

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    Welcome to the future: Three things Back to the Future got right

    This article by Darrell M. West and Nick McClellan for the Brookings Institute may be of interest to subscribers. Here is a section: 

    Good morning and welcome to the "future." At approximately 4:29 p.m. Hill Valley time on Oct. 21, Doc Brown and Marty McFly arrive at the present day. For many millennials especially, the 1985 film series Back to the Future represented the far-flung fantastical future that many dreamed would come. But how does the Reagan-era vision of a future where we don't need roads compare to our daily lives today?

    Sadly, you probably came to work today on the same street you may have trodden as a child back in 1985 without a hover board. But our future is still pretty fantastic, and many of the outlandish futuristic devices you saw in the 1989 film Back to the Future II are closer than you think—or already here. Here are three predictions that the film made that today might actually turn the head of an ‘80s time traveller 

     

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    Yum! Brands to Split China Division Into Separate Company

    This article by Kevin Orland may be of interest to subscribers. Here it is in full:

    Yum! Brands Inc., whose restaurants have been selling crispy chicken in Beijing since 1987, plans to split its China business off into a separate publicly traded company following pressure from activist investor Keith Meister.

    The new company will be led by Micky Pant, who was named the China unit’s chief executive officer in August, the Louisville, Kentucky-based company said Tuesday in a statement. Greg Creed will continue to lead Yum.

    Yum is hiving off the China business after a prolonged sales slump caused by food-safety scandals and increasing competition from local fast-food chains. Meister, a protege of billionaire Carl Icahn, has said the company’s Asian market could be better served with a more focused business and that the move could boost Yum’s value by $7 billion. The company said Tuesday that it is committed to returning "substantial capital" to shareholders in connection with the split.

    Yum shares rose 4.2 percent to $74.75 at 7:09 a.m. in early trading in New York. The stock had slid 1.6 percent this year through Monday.

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