Wednesday, March 30, 2016

Berkshire Hathaway 2016 Shareholder Letter

FEBRUARY 27,2016 

So Sad to read this, but it's reality

"There is, however, one clear, present and enduring danger to Berkshire against which Charlie and I are powerless. That threat to Berkshire is also the major threat our citizenry faces: a “successful” (as defined by the aggressor) cyber, biological, nuclear or chemical attack on the United States. That is a risk Berkshire shares with all of American business.
The probability of such mass destruction in any given year is likely very small. It’s been more than 70 years since I delivered a Washington Post newspaper headlining the fact that the United States had dropped the first atomic bomb. Subsequently, we’ve had a few close calls but avoided catastrophic destruction. We can thank our government – and luck! – for this result.
Nevertheless, what’s a small probability in a short period approaches certainty in the longer run. (If there is only one chance in thirty of an event occurring in a given year, the likelihood of it occurring at least once in a century is 96.6%.) The added bad news is that there will forever be people and organizations and perhaps even nations that would like to inflict maximum damage on our country. Their means of doing so have increased exponentially during my lifetime. “Innovation” has its dark side.
There is no way for American corporations or their investors to shed this risk. If an event occurs in the U.S. that leads to mass devastation, the value of all equity investments will almost certainly be decimated.
No one knows what “the day after” will look like. I think, however, that Einstein’s 1949 appraisal remains apt: “I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones.” 

Berkshire Hathaway Profited On ENRON BONDS

FEBRUARY 28,2007 Berkshire Hathaway Shareholder Letter

"We continue, however, to need “elephants” in order for us to use Berkshire’s flood of incoming
cash. Charlie and I must therefore ignore the pursuit of mice and focus our acquisition efforts on much bigger game.
Our exemplar is the older man who crashed his grocery cart into that of a much younger fellow while both were shopping. The elderly man explained apologetically that he had lost track of his wife and was preoccupied searching for her. His new acquaintance said that by coincidence his wife had also wandered off and suggested that it might be more efficient if they jointly looked for the two women. Agreeing, the older man asked his new companion what his wife looked like. “She’s a gorgeous blonde,” the fellow answered, “with a body that would cause a bishop to go through a stained glass window, and she’s wearing tight white shorts. How about yours?” The senior citizen wasted no words: “Forget her, we’ll look for yours.” 

"in 2002-2003 we spent about $82 million buying – of all things – Enron bonds, some of which were denominated in Euros. Already we’ve received distributions of $179 million from these bonds, and our remaining stake is worth $173 million. That means our overall gain is $270 million, part of which came from the appreciation of the Euro that took place after our bond purchase. "

"Already the prediction I made last year about one fall-out from our spending binge has come true: The “investment income” account of our country – positive in every previous year since 1915 – turned negative in 2006. Foreigners now earn more on their U.S. investments than we do on our investments abroad. In effect, we’ve used up our bank account and turned to our credit card. And, like everyone who gets in hock, the U.S. will now experience “reverse compounding” as we pay ever-increasing amounts of interest on interest. "

"I want to emphasize that even though our course is unwise, Americans will live better ten or twenty years from now than they do today. Per-capita wealth will increase. But our citizens will also be forced every year to ship a significant portion of their current production abroad merely to service the cost of our huge debtor position. It won’t be pleasant to work part of each day to pay for the over-consumption of your ancestors. I believe that at some point in the future U.S. workers and voters will find this annual “tribute” so onerous that there will be a severe political backlash. How that will play out in markets is impossible to predict – but to expect a “soft landing” seems like wishful thinking."

"Over time, markets will do extraordinary, even bizarre, things. A single, big mistake could wipe out a long string of successes. We therefore need someone genetically programmed to recognize and avoid serious risks, including those never before encountered. Certain perils that lurk in investment strategies cannot be spotted by use of the models commonly employed today by financial institutions." 

FEBRUARY 28,2007 Berkshire Hathaway Shareholder Letter

Warren E. Buffett Chairman of the Board 
Berkshire Hathaway Shareholder letter 

Thursday, March 17, 2016

After Close: Titan Machinery Unexpectedly Pre Announces FY2016 Warning

  •  Expects FY2016 Sales Decline of $500 Million (-28%)
  • Expects Net Income  FY2016 Loss of ($37 Million) down from Fy2015 Loss of ($31 Million) 

Titan Machinery (NASDAQ: $12.50) is trading down significantly after hours after the company pre announced FY2016 Q4 and Year End Financials for the period ending January 31,2016. 
8K here

In March 2015 Titan Machinery Pre Announced FY2015 Financials and the stock was HALTED!

March 2015 FY2015 Pre Announcement:
GAAP net loss attributable to common stockholders for fiscal 2015 is expected to be in the range of $30.9 million to $32.0 million, or $1.48 to $1.53 per diluted share.  vs 
Adjusted net income attributable to common stockholders forfiscal 2014 was $16.5 million, or $0.78 per diluted share"

March 17,2016 FY2016

  • For the fourth quarter of fiscal 2016, revenue is expected to be approximately $335 million compared to revenue of $490.7 million in the fourth quarter last year.
  • Q4 the Company recorded an inventory impairment charge of approximately $27 million, or $0.77 per diluted share, related to the expanded equipment inventory reduction plan

  • Pre-tax loss for the fourth quarter of fiscal 2016 is expected to be approximately $53 million, compared to loss of $37.2 million in the fourth quarter last year.
  •  Pre-tax loss for the fourth quarter of fiscal 2016 included the $27 million impact from the equipment inventory impairment charges as well as a $6.7 million impairment charge related to long-lived assets. 
  • Pre-tax loss for the fourth quarter of fiscal 2015 included non-cash impairment charges of $31.0 million primarily related to goodwill and other intangible assets within the Agriculture segment. 
Total Company: Loss of $45 million, which includes equipment inventory impairment charges of approximately $27 million, compared to loss of $5.0 million for the fourth quarter last year. 

Net loss attributable to common stockholders for the fourth quarter of fiscal 2016 is expected to be approximately $34 million, or $1.62 per diluted share, compared to net loss of $27.0 million or $1.28 per diluted share for the fourth quarter last year. Excluding all non-GAAP adjustments, adjusted net loss attributable to common stockholders for the fourth quarter of fiscal 2016 is expected to be approximately $28 million, or $1.31 per diluted share, compared to adjusted net loss of $4.1 million or $0.20 per diluted share for the fourth quarter last year.

Preliminary Fiscal 2016 Full Year Results

For the full year ended January 31, 2016, revenue is expected to be approximately $1.37 billion compared to $1.90 billion last year. GAAP net loss attributable to common stockholders for fiscal 2016 is expected to be approximately $37 million, or $1.76 per diluted share, compared to net loss of $31.6 million or $1.51 per diluted share last year. Adjusted net loss attributable to common stockholders for fiscal 2016 is expected to be approximately $26.5 million, or $1.25 to per diluted share, compared to adjusted net loss of $1.9 million, or $0.09 per diluted share, last year.

No Mention of the Cash raised from the sale of this Titan property to Sterling Real Estate Trust on January 29,2016. (2 days prior to the ending)
Executive Manager of Sterling is former assistant to Titan's president

Equities Research Warned @ $30 

Sunday, December 13, 2015

Sunday, March 13, 2016

Under Armour Spin Leads League Schooling Wall Street's Finest

When: Monday to Friday
Time: 9:30 to 4pm
Its A Technology Company
3-D Printing
 CHINA Hyper Growth Story
Exaggerated Earnings Beat
*Note classes on each day may vary depending on the Wall Street flavor of the day.
** filings on Friday Night after the close are intentional and are not recommended reading. 
***ALL Morgan Stanley Research regarding A Downside Risk of $42 (-50%) should be ignored.

Equities Research Warning: SELL Under Armour
Equities Research is speculating that Under Armour (NYSE: UA) will announce in the next 4 weeks an equity or debt underwriting before the company announces results for the first quarter in late April 2016. Under Armour 1st quarter ends March 31,2016.
Equities Research believes Under Armour will raise capital before the Q1 report because of expections the company will miss Wall Street analyst Q1 EPS estimates of $0.05 per share. Equities Research believes Under Armour Will Report a LOSS for FY2016 Q1.  

Under Armour Needs cash and can not afford to take a risk of a poor Q1 earnings report's effect on its stock, a significantly weaker market capitalization would make any underwriting done after a poor report to adversely effect pricing.  Under Armour disclosed on their FY2015 Conference call that they would "look for Opportunities to refinance their debt".  The company's total debt increased to $669 million for the period ending December 31,2015 up from $284 million for the period ending December 31,2014.  The company also noted that FY 2016 interest on debt would increase to $35 million (approximately $0.16 per share). 

To keep the stock higher, Under Armour has put on a "FULL COURT PRESS" , literally. A day doesn't go by without a major news wire reporting Spin after Spin, from Barron's to TheStreet to every message board on the planet, the company has touted their scouting expertise at finding high school athletes in AAU  to Silicon Valley technology ventures with IBM's Watson.

The only Scoreboard that matters to Equities Research is not in the headlines, but in the BOX SCORE, also known as audited financial statements filed with the Securities & Exchange Commission.
  • December 31,2015 Cash & Cash equivalents were $129 Million down from $593 Million from December 31,2014.   (78% Decline)
  • FY2015 Cash Flow from Operations was Negative $44 Million down vs Positive $219 Million in FY2014. A Decline of $263 Million year over year. 
  • $48 million of the $129 total cash is held in foreign subsidiaries, while only $81million is available in the US. Foreign Subsidiary held cash is not expected to be used in US due to tax consequences.

Friday Night Dump
Under Armour (NYSE: 82.45) filed a DEF 14 filing with the Securities & Exchange Commission late Friday after the close, also known as a #FridayNightDump.

  • (SPIN) Kevin Plank CEO Compensation Drops 31.5% 
At first glance it looks like CEO "took less" compensation in the best interest of the Shareholders, but  after digging into the DEF14A we learn otherwise.  It turns out that in addition to the CEO, Maurath the Chief Revenue Officer also earned less compensation  This was not a shareholder friendly decision, but instead as disclosed in the filing, these two officers compensations declined by an aggregate of $1.8 million as a direct result of financial performance (or lack their of).
A small $1.8 million compensation number may sound insignificant, but as I will get to later I will show how this "little" number made a $4 Billion Increase to the Company's market capitalization within a 48 hour period. What really is even more alarming is that this disclosure is only being surfaced 6 weeks after an opaque FY2015 earnings report was hyped.

Down 17% in 3 Weeks
On Wednesday January 27th Under Armour traded at a low of $66.93 and was down $14 Year to date from its $80.61 December 31,2015 close. (-17% in 4 weeks).
Under Armour traded on October 12,2015 at an all time high above $104.74 and the following day the CFO resigned and the shares would eventual fall to a 52 week low of $66.93. (Down $38 in 3 months, a  -37% drop in 90 days)

Up 28% in 2 Days
On Thursday January 28th pre market, Under Armour announced FY2015 earnings and by the close on Friday the shares had Sky rocketed to close the week @ $85.43, UP $19 in two days or 28%.

Friday night March 11th we learned a "little more" about how Under Armour "BLEW AWAY THE WALL STREET ANALYST ESTIMATES" back January 28th.  A $0.02 Beat for a company with 220 million shares outstanding would be a beat of $4.4million. But the company beat the net income estimate by only $3.2 million based on the release. Now after finding out Friday night , 6 weeks later, that the CEO and CRO earned less than an aggregate of $1.8 million vs. FY2014 due to not meeting financial performance targets. We now need to subtract the $1.8 million from the $3.2 million beat and we end up with a beat of only $1.4 million, which is an ACTUAL BEAT of $0.006 (less than a penny and NOT $0.02 that WALL STREET FINEST USED TO PUMP MARKET CAP UP BY $4 BILLION within 2 days!

Using the Actual Math, and not the Spin Number, Under Armour DID NOT Grow Earnings by 20% in FY2015 Q4 vs. FY2014 Q4. Earnings only grew by 18%.

Stephen Curry was mentioned 27 times on the morning Conference Call and the word "CASH" was mentioned once.  

Positive EFFECT OF TAX LOSS Carry Forwards on NET INCOME (NOL)

February 22,2016 the company discloses in SEC 10K filing that Accounting Errors have been discovered in the cash flow statements for FY2015 Q1 and Q2.

Down 18% in 6 Days
Sunday, January 31st Equities Research downgrades Under Armour to a Sell, shares fell $15 over next 6 trading sessions from $85.43 to a low of $70.33, down 18%. (humble note: BOJ announcing NIRP on the 29th brought the entire Global Market to its knees, until (SPIN) Jamie Dimon and Warren Buffet   touted how the USA  market was a great buying opportunity and all is well).

Up 17% in 4 Weeks

Friday, March 11th Under Armour closed @ $82.45 up $1.45 on the day.

  • (SPIN) Under Armour, (the Technology) Company Makes Huge Splash at Consumer Electronics Show.
  • (SPIN) CEO Kevin Plank "spoke with" CEO of IBM about IBM's "HEALTH HUB"
  • (SPIN) IBM WATSON can let you know how you're feeling today on Scale of 1-10).
 •(SPIN) "Lewis: Yeah, I think when you hear IBM Watson you have that, whoa, this is some serious data analytics and serious AI-type work that they're going to be doing."
 •(SPIN) Under Armour deems it necessary to file 8K on March 4th to inform the public that The Sports Authority bankruptcy will not effect Under Armour.
On Wednesday March 2nd, a week after Under Armour filed their 10K , The Sports Authority filed bankruptcy and announced the closing of 140 of its 463 stores. Analysts estimate that The Sports Authority generated revenue of $3 billion in 2015. The bankruptcy filing lists Under Armour as one the largest creditors with $23 million in receivables. 
Under Armour immediately came out with an (8K) announcement DEFENDING its FY2016 guidance and stated The Sports Authority will not have an effect on FY2016 projections. 

Although Under Armour filed an 8K saying otherwise, Dick's CEO says company will see increase selling pressure in months to come due to liquidations at The Sorts Authority.

Thanks to the genuis of Ophir Gottlieb the founder of Capital Market Laboratories, I am able to share his TRADECARD graphs from his CMLVIZ website.

NEGATIVE $44 MILLION Cash Flow from Operations ttm
NET INCOME $232 Million ttm



OLSTEIN: Earnings vs. Cash Flow

New York Times  7/18/1999 

"EARNINGS VS. CASH FLOW -- Mr. Olstein first examines what a company generates in cash flow from its operations. A company with excess cash flow can raise dividends and survive tough times without being forced to borrow or sell assets.
To calculate a company's cash flow, start with net income. Add back what it has taken in depreciation expenses and accounts payable. Then subtract capital expenditures, inventories and accounts receivable.
Watch out, Mr. Olstein said, if net income is much higher than cash flow. The company may be speeding or slowing its booking of income or costs, perhaps to meet analysts' earnings forecasts."

 Fortune Magazine  6/26/2000

  Eight Warnings You Want to See by Herb Greenberg

"Positive free cash flow. Olstein looks at a company's financials, specifically the 10-Qs and 10-K, and makes a beeline for the statement of cash flows. We're not talking about the stated cash flow from operations, investing activities or financings. We're talking about cash flow from operations minus capital expenditures--the amount of usable cash the company actually generates, which can be used to buy back stock, pay dividends, make acquisitions, and grow the business." 6/25/01

Fund Junkie by Ian MacDonald
" Our main defense against risk is only buying companies that either are currently generating excess cash flow, or will in the next three years."

Financial Advisor Magazine August 2001
Staying Alert Pays Off by Maria Brill
"To Olstein, being right means finding companies with excess cash flow that are selling at inexpensive levels because investors are tuning them out. "Cash flow is the oil that lubricates the corporate engine," he observes."

 The Washington Post 2/17/2002
"By concentrating on cash, investors can learn enough about a company to eliminate it as a possible investment. FOr example, if you want to get a quick-and-dirty reading, look not at a firm's "income statement" but at a more obscure tables of numbers called its "statement of cash flows".

New York Times 11/14/2004 
Sometimes It Takes a Sherlock by Gretchen Morgenson
""Everyone looks at conventional price-earnings ratios but that doesn't tell you anything about the deviation between cash flow and reported earnings," Mr. Olstein said."

 Financial Advisor Magazine June 2006
Forensic Accounting by Jeff Schlegel
"Olstein believes that cash--particularly free cash flow--is king because he thinks it's a truer measure of a company's underlying performance. He and his staff analysts look for companies trading at a discount to free cash flow. Lack of free cash flow is one reason why he doesn't like (a sector) ..."

 CFA Institute 12/4/2007
Free Cash Flow & Quality of Earnings by Fred H. Speece, Jr. CFA

BloombergBusinessweek 8/17/2009 
Behind Bob Olstein's Comeback by Karyn McCormack
" quality companies that have "wide moats" (in other words, "hard to compete with out of the box"), have been generating free cash flow throughout the financial crisis, and have a great balance sheet to withstand any issues."

 New York Times 1/9/2010
Fair Game:Why All Earnings Are Not Equal by  Gretchen Morgenson
As the market goes higher, it becomes more important to measure the quality of corporate earnings, he said. You have to look behind the numbers.
Adjustments that investors need to make now, in Mr. Olstein's view, are a result of disparities between a company's reported earnings and its excess cash flow. Earnings are what investors focus on, but because these figures include noncash items, based on management estimates, the bottom line may not tell the whole story.
Cash flow, on the other hand, is actual money that a company generates and that its managers can use to invest in the business or pay out to shareholders.

SOME of the widest gulfs between earnings and cash flows, Mr. Olstein said, are showing up the ways companies account for capital expenditures."

 New York Times 9/11/2010
Cash is king, he says. He spends a lot of time crunching numbers in a search for strong cash flow, and his winnowing process goes something like this:
First, he scrutinizes a company's financial reports in an effort to determine whether they paint an accurate picture. In this work, he has considerable expertise: he was an auditor with the old Arthur Andersen & Company, and then, in the 1970s, was co-author of The Quality of Earnings, a financial newsletter that, in its day, was perhaps the foremost authority on spotting the gray areas of corporate accounting.
If you're analyzing a company, he says, you first have to understand what they're really earning, as opposed to what they say they're earning.  

 American Association of Individual Investors  October 2010
"the forensic analysis we undertake
to analyze a company's results and the quality of its
earnings for valuation purposes.
1. Using the company's cash fl ow statements, we begin by
reconciling the difference between free cash fl ow and
reported earnings under accrual accounting. (Accrual
accounting records revenues, expenses and income
when the transaction occurs, as opposed to when
the cash is actually received or spent.) The smaller
the difference between free cash fl ow and reported
earnings, the higher the quality of earnings."

 Barron's 4/30/2011
Depreciation, An Appreciation by Lawrence C. Strauss
"He grows more concerned when a company's reported earnings significantly exceed its cash flow,..."

 Value Investor  4/30/2012
"Describe where you look first in researching
a company's financials.
RO: We begin by reconciling the difference
between free cash flow and reported
earnings under accrual accounting. The
smaller the difference, the higher the
quality of earnings. The bigger the difference,
the more work we have to do to
understand the makeup and sustainability
of free cash flow."

Thursday, March 10, 2016

Under Armour Cash Position is Evaporating

Under Armour (NYSE: UA $80.30)

Under Armour recently disclosed FY2015 10K  February 22,2016

  •  Cash and Cash Equivalents declined from $593 million to $129 million from FY2014 to FY2015, a 78% decline.
  • Cash Flow from Operations declined from $219 million in FY2014 to (Negative $44 Million) in FY2015. A decline of $263 Million
Under Armour is currently in their FY2016 1st quarter which ends March 31,2016.

How much Cash, if any, will Under Armour have at end of Q1 FY2016?

December 31,2013 Cash $347 million
March 31,2014 Cash $179 million
Q1 2014 Net Income $13.5 million
Q1 2014 Operational C/F -($147 million)

December 31,2014 Cash $593 million
March 31,2015 Cash $232 million
Q1 2015 Net Income $11.7 million
Q1 2015 Operational C/F -($176 million)

December 31,2015 Cash $129 million
March 31,2016 Cash _______________
Q1 2016 Net Income _______________
Q1 2016 Operational C/F ___________

On Wednesday March 2nd, a week after Under Armour filed their 10K , The Sports Authority filed bankruptcy and announced the closing of 140 of its 463 stores. Analysts estimate that The Sports Authority generated revenue of $3 billion in 2015. The bankruptcy filing lists Under Armour as one the largest creditors with $23 million in receivables. 
Under Armour immediately came out with an (8K) announcement DEFENDING its FY2016 guidance and stated The Sports Authority will not have an effect on FY2016 projections. 

ON March 3,2015 Morgan Stanley came out with a Bearish call on Under Armour with an Under Weight rating. Morgan Stanley noted concerns regarding :
  • Under Armour FWD PE 65X FY2016 est. compared to other high growth retailers averaging a PE multiple of only 23.
  • Base Case -25% downside. $64 PT
  • BEAR CASE -50% downside. $42 PT

CEO of Dick's Sporting Goods (NYSE: DKS $45.50) says his stores will see increase selling pressure in the months to come due to the liquidations at the The Sports Authority stores
Performance Sports Group (NYSE: PSGE $3.61) owner of Bauer and Easton and other brands saw its stock fall Tuesday down 65% on the day closing at $4.00. The stock is down from $21(-82%) in less than a year. City Sports and Team Express, two PSG customers both filed bankruptcy in 2015. 

Tuesday, March 8, 2016

4 Week Run NASDAQ +12% Stratasys +80%, CONN +68%, TITAN +65%, JCPenney +69%


TICKER  Feb 11 low Mar 7 close % Gain

APPLE CEO Tim Cook: We're Seeing 'Extreme Conditions Unlike Anything We've Experienced Before' in the Global Economy.

PepsiCo’s CEO Indra Nooyi says the economy looks as rocky as she has ever seen it.