BlackBerry and Darden Are on the Wrong Path
Posted at 6:42 a.m. EDT on Wednesday, June 24, 2015
Sometimes, it would seem, the best thing to do is to say nothing and let the numbers speak for themselves. That's how many people felt yesterday, I believe, when they saw the initial positive reactions to the quarters of two very high profile companies, BlackBerry (BBRY) and Darden (DRI), and then the sickening slide down as the rest of the day progressed.
That's right; when Blackberry first reported, the stock, in pre-opening, jumped about 10% from its $9.20 close the day before. But by the time regular trading started, it had given up that whole gain and opened pretty much unchanged and then closed the day at $8.81 -- pretty much near the $8.78 low, a huge swing from top to bottom.
However, in some ways it was a lot less painful than the Darden trajectory, as that stock opened at its high of $73.40, up four bucks from the close the night before, and ended up finishing three cents below that day-before price, a round-trip that gaffed myriad buyers from the get-go.
So what happened? Would it have been better if both John Chen, CEO of BlackBerry and Gene Lee, CEO of Darden, had just kept their mouths shut?
No, not at all. Not that they could, as no one other than, perhaps, Warren Buffett can just put numbers out there anymore and not give further explanation -- although Buffett deluges you with data at appropriate yearly and annual meeting intervals.
First, let's tackle BlackBerry. Ever since John Chen came in almost two years ago, there have been three narratives at work:
- Don't worry about declining hardware sales, we will either fix that or sell it.
- We will boost software and licensing sales so you realize we are an asset-lite company a la market fave QUALCOMM (QCOM).
- We will sell ourselves if we want to.
All three narratives were trashed yesterday. First, the hardware sales were horrendous: 1.1 million smart phones vs. 2.6 million last year. Awful. Chen's plan? "I don' t want to give up the hardware business. I think there's a shot at sill making money in it." So much for fix or sell it.
Second, the software business looked, on paper, like it was having steady growth. However, when analysts asked about the linearity and consistency of the growth, Chen and his team were totally evasive, or clueless, or both, refusing to disclose exactly what was one-time and what was ongoing in revenue. And sell the company? Chen put together a string of five "no's" in one sentence to say the company's not for sale.
How about Darden? Here's one where Gene Lee, the CEO, who is from the restaurant industry, had to deal with a whole new board put on by the financial guys from Starboard, a hedge fund activist. The new board members are all about monetizing real estate and they sure got Lee to switch gears.
Citing his "strong working relations" with this board, Lee turned the company asunder creating this cumbersome real estate investment trust company right under the restaurant analysts' noses. Or rather he thumbed his nose at them, basically stating that his company's worth more as a real estate entity than a restaurant chain.
Now, you could argue that he might be right because, when you looked at the linearity of the numbers of the big kahuna in the chain, Olive Garden, you didn't like what you saw as they got progressively weaker in the quarter. More important, though, the whole REIT plan was impenetrable as it was, and to ask restaurant analysts to buy into it is like saying "guys, can you please study up on triple net leases and get back to us, we don't care about Italian food anymore."
The whole exercise, including the incredibly sketchy outline of the two new companies, made me want to go home and make my own pasta.
So, while both companies looked good on paper, both seem, at least to me, as if they are confused, incoherent jumbles with story lines that end badly, not well. Give me Apple (AAPL) -- I hold it in the Action Alerts Plus charity portfolio -- and give me Denny's (DENN). I like simple stories with easy arcs, not opaque, inconclusive dramas that are better left on those cable stations no one watches.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long AAPL.
Posted at 3:11 p.m. EDT on Tuesday, June 23, 2015
Maybe it's those pesky transports.
Every time I see one of those airlines catch a bid -- today it's Spirit's (SAVE) turn -- I am reminded that this group can be a force of good, not evil, for the bulls, if we could just get all the estimate cuts and downgrades out of the way. This group's so important because, without the transports confirming, we are always going to feel like we are on quicksand, and you aren't going to get the all-clear signal from the rails or the freight forwarders, not after FedEx (FDX) just reported that disappointing quarter.
I think that's one of the reasons why they couldn't crush this market. The other is the redoubtable way the growth has of hanging in. I don't have a story on the strength of Netflix (NFLX) and Amazon (AMZN) other than "they've been resting." I do hear Tesla's (TSLA) going to get a super-de-duper financing package that will truly goose the stock. And Facebook (FB)? What can I say? It's a bull face plant! (Facebook is part of TheStreet's Action Alerts PLUS portfolio. Amazon is part of the Growth Seekers portfolio.)
Given the give-up in the euro, the tanking in durables and the peace-out by Goldman Sachs (GS) about a tepid June for retail and we should have given up the ghost today.
Nope. Just one frustrating session for both bulls and bears, even as the bears had that boost of negativity from Fed Governor Jerome Powell about how the time is nigh for rate hikes, to which I say, Stretch -- his nickname in college -- could you at least hold off the rhetoric until the Greek deal gets blessed by the leaders of Mount Olympus?
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long FB.