Pitney Bowes: The Dividend Cut Was Just A Flesh Wound [View article]
No, you can see from the chart how much they covered with the recent issuance. In 2016 and 17 there is at least 800 million that still needs to be refinanced (can't be retired by FCF).
Cutting the dividend will make it much easier to refinance that remaining 800mm and I expect they'll be back in the debt market before the end of 2014.
Pitney Bowes: The Dividend Cut Was Just A Flesh Wound [View article]
This is a good summary of investor day, nicely done. One other important thing I came away with is that the revenue from production mail is "lumpy". Meaning that a large mailer doesn't get rid of their high capacity mailing machine just because mail volume went down 2%.
PBI, IMO, has a considerable amount of time to transition to different businesses. The main reason is that there are no new competitors clamoring to get into the production mail business. Pitney and a few others own that business from now until it is completely dead.
Good catch on the debt maturities. People who didn't understand the focus on ratings should understand it when they see a billion dollars in debt maturing in 2017. In that light it is is clear why it was absolutely crucial they maintain investment grade ratings. In a fairly short period of time they'll be making a very large offering to roll the debt in 2016 and 17. I think they will be able to do it and the dividend cut was crucial to ensuring that goes smoothly.
The shorts, who were really quite smart here, were betting that Murray was going to hit 2016 with a junk rating and the company was going to go bankrupt. I believe Marc just took that off the table and the shorts hoping for the goose egg lost a lot of their thesis. This is a CEO who understands long term strategic planning.
Pitney Bowes Lowers Dividend 50% To Pay Down Debt [View article]
I watched the whole 4 hours of the investor day meeting today.
First impressions are mixed. Marc L. looked tired and cranky (hard to believe he is 51, he looks like 71). If that is his normal demeanor then...oh well. But if that is something due to the stress of the first 100 days then I hope he takes a lengthy vacation to recharge and hopefully he can start to offload some responsibilities to the new hires Obviously it is a plus that he is going to put 1 million dollars worth of his own money into the company. That takes some serious commitment and a belief that things can improve. Though it would certainly be better if the whole management team made a serious commitment to buy shares.
Even after 4 hours I still don't quite understand why the software line became an almost overnight disaster. It was a bright spot for so long and then all the EBIT was just gone. My BS detectors are indicating to me that the prior management team may have been somewhat creative in the accounting for the software line. And rather than restate, they just decided to vaporize EBIT..obviously I have no proof of that but it just feels that way to me.
The only time Marc L. had some life in him is when he was talking about backend systems integration. And that was really the main takeaway that I had from investor day. There isn't anything big coming--they're simply going to leverage and integrate the acquisitions that were already made. That is fine but I was really hoping for something with some big vision. I thought that if I have to give back 1/2 of my dividend that I should get a pretty grand plan in the bargain. But what we really got was a promise to streamline the business and to develop SaaS lines.
I'm suspicious of SaaS because I've seen companies like SalesForce get huge revenues and no profit out of it. Obviously it can work as we see at IBM but when you look at software at IBM, where they get a lot of their profit, it is really huge end-to-end enterprise level systems. how this will play out at PB is a question mark.
Pitney Bowes Lowers Dividend 50% To Pay Down Debt [View article]
When you look at the amount of debt maturing in 2017 you can see they clearly NEEDED to cut the dividend because they MUST maintain investment grade ratings. Further, their FCF is reverting to its longer term mean of about 450 million (and that may fall more as the new businesses will not be the FCF machines that the old ones were). They were simply not going to be able to roll their debt if they let the dividend become nearly 70% of FCF. At 150 million a year the dividend is sustainable and they should be able to cover their need to refinance their debt.
In short a lot of their free cash flow is going to go away as the mailing business normalizes and businesses start to actually buy equipment again rather than just renew leases. And that "reset" is now occurring in the context of lower volumes of mail. Further, the new businesses they are getting into won't generate substantial FCF for a long time. So if you look ahead 5 years is pretty clear PB needs that 750 MM they're going to save not paying out that dividend.
Don't Expect Pitney Bowes To Slash Its Double-Digit Dividend Yield [View article]
The action isn't bad at all. If you had told me we'd get a 50% cut in the dividend and still be above 14 I wouldn't have believed it.
I have little doubt there is some relief that the cut everyone knew was coming is finally over. And i think the cut was big enough that they won't have to come back to shareholders for more any time soon (or employees for that matter).
Marc sounds like a very savvy CEO and i think the analysts like what they hear. It is always nice to hear that the company will look at internal rate of return and let the product lines fight it out without favoritism or bias.
In short, they're saying all the right things and it is pretty easy to see how this could throw a scare into the enormous short interest in the stock. I think the shorts we're hoping Murray would ride this one down to a goose egg but it is starting to look like that isn't going to happen.
They obviously don't have a long time to turn the ship. Every quarter a little bit of their revenue, profitability and FCF goes away. But again, this is a CEO saying the right things. if that is followed up by even mild growth on the topline that could throw the fear of god into the short interest.
Don't Expect Pitney Bowes To Slash Its Double-Digit Dividend Yield [View article]
Well, we'll know more on (I believe) May 3.
i was right about the dividend cut, obviously. But wrong about several other things. For starters, I thought this quarter would be relatively strong given how the USPS did. but none of that flowed through to PBI. NA mailing actually got hammered down 7% so that really threw me. Earnings evaporated in every line...it was pretty bad. The EBIT in software, which was a bright spot, has turned into a disaster.
I was looking for about a 30% cut on investor day but we got a 50% cut today.
As to Volly we now know what they're spending on it pretty precisely. "Production mail margins would have been about 400 basis points higher this year if the net investment in Volly was excluded." I calculate that at about 4.6 million (net) per quarter (more than I thought it was). That is a net number so the actual investment in Volly is likely running closer to 5 million or roughly 20 million per year. Again, a lot more than I thought and I expect we'll see that number ramp significantly.
Today was an interesting day because we got to see how much of the share price was purely there for the dividend. I thought the drop today was going to be MUCH larger than it was. Down 16% looks pretty gentle to me so I think the market is still giving the new CEO the benefit of the doubt. The run up over the last couple of months gave me the opportunity to exit most of my position. What I have left I'm going to hang on to for now. Their guidance actually was pretty good given how bad the quarter was. So they may have some good things going on even in the current quarter.
Don't Expect Pitney Bowes To Slash Its Double-Digit Dividend Yield [View article]
I think you're looking at it the right way. PBI was asked on a conference call a long time ago how they were able to maintain cash flow even as both top line and GAAP profitability were sinking. The answer was that leases are "cheap" to maintain. And PBI is maintaining a lot of leased mail equipment.
After the great recession a lot of companies that were leasing PBI equipment quit getting the latest and greatest hardware. They just renewed the leases they already had. This hit the topline because new equipment purchases are what really drove revenue. It hit the GAAP bottom line (for reasons too lengthy to get into). But it left cash flow mostly untouched because the revenue stream from existing leasing arrangements costs very little in terms of SGA.
Pitney did a great job managing this decline and making sure SGA fell as it needed to in order to keep FCF roughly level. It has been impressive work by both the prior management and the Board. They deserve kudos for the work they did protecting the business and protecting shareholders. On top of the work they did protecting the cash flow they also built entirely new business lines. The software line has been fairly successful even if it isn't enough to replace what is going away on the paper side.
At some point the decision was made to "go big or go home". I feel fairly certain that the clear failure of Volly to launch on time was a big factor in this. I don't think the prior management had it in them to face investors and say "we need 200 million a year to do Volly right". One of the reasons I bought PBI was that I really thought they might pull off some kind of miracle and make Volly work with announced amount of capex/R&D (which if i recall correctly was around 20 million, total). Obviously that wasn't enough.
So clearly they didn't hire on three IBM guys to sell the company. I feel almost certain that a huge Volly investment is coming up. And i think to give themselves some space they're going to cut into the dividend. longer term this may be a great idea but shorter term a dividend cut virtually always means a beating for the stock.
Don't Expect Pitney Bowes To Slash Its Double-Digit Dividend Yield [View article]
That is the right question. If memory serves Murray had committed about 20 million, total, to Volly. That clearly was not enough as the launch has now been delayed 3 times.
How much does Volly really need to get up and running? i don't know. Salesforce.com spends about 200 million a year on capex to run that network. Is Volly going to need that kind of capex to scale? It might. If you think about replacing the paper infrastructre of mailboxes and replace it with an online system that is an expensive proposition.
But, that is exactly the kind of effort you'd want to hire on a bunch of IBM guys to pull it off. Could they afford 200 million a year without cutting the dividend? Yeah maybe but they'd very quickly get into trouble with the ratings agencies as well as potential cash flow problems as the paper biz continues to decline.
It would be prudent for them to "rightsize" the dividend. And I fully expect an announcement of a gigantic effort to move this company into the online mailbox/payment business in a huge way. if they just go along managing the decline then it was dumb to hire an IBM guy. They should have just promoted from the inside.
All the puzzle pieces are in place.
Also, the timing is brilliant. The quarterly report is on the 30th and it is going to be good (we know this based on the last report from the postal service). THEN 3 days later they have their announcement about the strategic review. So they will let the stock run for a few days before dropping the hammer with the dividend cut. It is good timing, it makes sense, it fits.
We'll see. I know for my part I'm planning to buy calls on May 1 if the stock runs ahead of the discussion of the strategic plan.
Apple: Complete Reset Of Expectations Could Mark The Bottom [View article]
That is a pretty level headed way to look at it.
Lots of people are having trouble adjusting to Apple moving from a moonshot upward to something more cyclical. For years analysts kept predicting cyclical performance and Apple blew them away. Now Apple actually IS in a cyclical mode and the analysts are overshooting. Everyone has to adjust expectations and decide why they invest in a company in the first place.
Personally, i would have preferred a larger dividend increase but i think they are leaving gas in the tank so they can sustain double digit increases to the dividend for several years to come. I think Intel provides a good model for your put/call strategy. Intel seems to hold around the 4.5% yield level and then gets heady around 26-28. But Intel is a safe trade because their div is rock solid. Same for Apple, you can trade around in it, like you're doing, pretty safely. When T was lower in price I used to write covered calls to supplement the already high dividend. It was like printing money for quite a long time.
I have not figured out how I'll trade apple but i like your strategy.
Don't Expect Pitney Bowes To Slash Its Double-Digit Dividend Yield [View article]
You have to understand organizational behavior and the concept of stakeholders.
First, Marc has brought on board two heavy hitters recently from IBM. Do you think he lured them by saying "we're going to guide this ship slowly and carefully into the ground". No, of course not. He sold them on a resurgent PBI that takes its place in the electronic commerce stream that is changing the world.
Second, Marc has already taken two whacks out of the employees. First when he ended the pension plan and second when he closed the plant. The stakeholder model would suggest strongly that they are going to take a piece out of shareholders too. probably not an extreme amount because unlike employees the shareholders can fire the board. But a 30% cut, IMO, is virtually guaranteed.
The required rate of return is not, IMO, 11%. I think investors have already priced in a dividend cut and the RROR is closer to 6 or 7%.
Finally, it makes no sense to conduct a 6 month review of the company, restructure the entire management, sell of businesses and then NOT touch the capital structure. That would be almost absurd.
This is all a lot of corporate mumbo jumbo that simply means expect a cut. In fact, expect the largest cut in the dividend that the Board thinks it can get away with.
Do Investors Care That Intel Wasted Over $8B On Acquisitions? [View article]
Go back and carefully review what certain people inside intel said about when we should expect to start seeing the fruit of the McAfee acquisition. Then take a look at where we are.
I think Intel made an 8 billion dollar mistake. They fell into the trap that a lot of companies with a lot of cash fall into. They bought something they didn't need, that didn't fit into their business, and is not generating cash flow.
The next shoe to drop will be a MASSIVE goodwill impairment (I expect they will time it to fall on the new CEO). On the plus side Intel has been aggressive on returning value to shareholders so they don't have as much money left to waste on ill-advised acquisitions.
Global PC shipments fell 13.9% Y/Y in Q1 to 76.9M units, per IDC. That surpasses Q4's 6.4% drop and Q3's 8.6% decline, and is steep even in light of IDC's recent commentary. IDC: "It seems clear that the Windows 8 (MSFT) launch not only didn’t provide a positive boost to the PC market, but appears to have slowed the market." H-P (HPQ) was the market's leader, but its share fell 200 bps Y/Y to 15.7%. #2 Lenovo (LNVGY.PK) saw its share rise 210 bps to 15.3%, and #3 Dell's rose 40 bps to 11.8%. Apple's (AAPL) U.S. share rose 60 bps to 10%, though U.S. Mac shipments fell 7.5% to 1.4M. [View news story]
There is a reason INTC has a decade long channel that runs from 18 to 26. We'll see 18 before we see 26 again...patience. Buy INTC below 20, sell above 24...retire early.
Pitney Bowes - Avoid This Dividend Siren [View article]
Marc has been conducting a bottom-up review of the entire business. He just hired on two of his former colleagues from IBM.
In the process he has already cut about 120 jobs and eliminated the pension plan. I think it is virtually guaranteed that he is coming for the dividend next. Anyone who can't see it coming is blind. Marc didn't jump ship from IBM and hire over two heavy hitters from IBM just to tend to PBI's steady decline.
In May when they announce the results of their review I'm certain it will include "rightsizing" the dividend. Which almost certainly means a big cut because they'll want to get it all out of the way in one shot--like ripping off a band-aid. Now, longer term an investor will hope that they use the diverted cash flow to "IBMize" the business. The hope would be that PBI can become a services and software powerhouse just like IBM did. But that is expensive and they can't do it while paying out 70% of the FCF in dividends.
In short, no one should ever expect a 10% dividend yield to last long term. They will probably reset it so that the yield will be about 6% on a share price of $14.50. I don't think they can get away with eliminating the dividend...I think shareholders would revolt. But if Marc can make a compelling case for the use of the FCF then the board can survive a 30% cut to the div.
A Quick Look At Intel's Financial Position [View article]
This is worth keeping an eye on. Intel could easily get carried away with their new love of debt. However, historically speaking, it is difficult to argue that now is not a good time to shift the capital structure toward debt financing.
As a capital intensive company I could see them doubling their debt even from these levels before I'd become somewhat concerned.
After A 44% Jump, This Turnaround Stock Could See Another Sharp Increase [View article]
I had buys all the way from 17 down to 10. I've been selling on the way up as each trade hits my minimum ROR.
Why? Well, I was a believer in PBI for a while. I wathed the market ignore the fact that the software line had gone from nothing to 400 million a year. Then the software line crashed to a screeching halt. Add to that three delays in the release of Volly in the US and I'm no longer a believer.
Given the recent report from the USPS it looks like Q1 may have actually been pretty good for PBI. But with Europe back in turmoil that isn't good for the software line. Also, still no word on Volly. Further, the new CEO is in the midst of a 6 month review that I am absolutely convinced will result in a cut to the dividend.
Why? Because they took a chop out of employees by gutting the pension. Then they laid of 135 people in, I think is was Ohio. It does not make sense for them to hit employees so hard unless the company is looking for a LOT of cash to do something really big. Next up? Shareholders.
Now, a cut in the dividend may be good longer term for PBI but let's be realistic...in the short term it means an evacuation from the stock. lastly, this run has been powered by hedge funds accumulating PBI. They're doing that because of the huge short interest, low market cap, high dividend, and depressed price. it is the perfect stock to pump and dump if you're a big boy with enough money to stand under the bid long enough to put some real fear into the shorts (not to mention the pain shorts have of paying out that beefy dividend).
All of that will reverse when the dividend cut is announced. The hedgies will dump the shares immediately leaving behind confused bagholders. if I can't exit my entire position prior to the announcement I'll be buying some puts sometime next month. but yeah, as a short term trade I think PBI (the stock) is going to have a good April.
Pitney Bowes: The Dividend Cut Was Just A Flesh Wound [View article]
Cutting the dividend will make it much easier to refinance that remaining 800mm and I expect they'll be back in the debt market before the end of 2014.
Pitney Bowes: The Dividend Cut Was Just A Flesh Wound [View article]
PBI, IMO, has a considerable amount of time to transition to different businesses. The main reason is that there are no new competitors clamoring to get into the production mail business. Pitney and a few others own that business from now until it is completely dead.
Good catch on the debt maturities. People who didn't understand the focus on ratings should understand it when they see a billion dollars in debt maturing in 2017. In that light it is is clear why it was absolutely crucial they maintain investment grade ratings. In a fairly short period of time they'll be making a very large offering to roll the debt in 2016 and 17. I think they will be able to do it and the dividend cut was crucial to ensuring that goes smoothly.
The shorts, who were really quite smart here, were betting that Murray was going to hit 2016 with a junk rating and the company was going to go bankrupt. I believe Marc just took that off the table and the shorts hoping for the goose egg lost a lot of their thesis. This is a CEO who understands long term strategic planning.
Pitney Bowes Lowers Dividend 50% To Pay Down Debt [View article]
First impressions are mixed. Marc L. looked tired and cranky (hard to believe he is 51, he looks like 71). If that is his normal demeanor then...oh well. But if that is something due to the stress of the first 100 days then I hope he takes a lengthy vacation to recharge and hopefully he can start to offload some responsibilities to the new hires Obviously it is a plus that he is going to put 1 million dollars worth of his own money into the company. That takes some serious commitment and a belief that things can improve. Though it would certainly be better if the whole management team made a serious commitment to buy shares.
Even after 4 hours I still don't quite understand why the software line became an almost overnight disaster. It was a bright spot for so long and then all the EBIT was just gone. My BS detectors are indicating to me that the prior management team may have been somewhat creative in the accounting for the software line. And rather than restate, they just decided to vaporize EBIT..obviously I have no proof of that but it just feels that way to me.
The only time Marc L. had some life in him is when he was talking about backend systems integration. And that was really the main takeaway that I had from investor day. There isn't anything big coming--they're simply going to leverage and integrate the acquisitions that were already made. That is fine but I was really hoping for something with some big vision. I thought that if I have to give back 1/2 of my dividend that I should get a pretty grand plan in the bargain. But what we really got was a promise to streamline the business and to develop SaaS lines.
I'm suspicious of SaaS because I've seen companies like SalesForce get huge revenues and no profit out of it. Obviously it can work as we see at IBM but when you look at software at IBM, where they get a lot of their profit, it is really huge end-to-end enterprise level systems. how this will play out at PB is a question mark.
Pitney Bowes Lowers Dividend 50% To Pay Down Debt [View article]
In short a lot of their free cash flow is going to go away as the mailing business normalizes and businesses start to actually buy equipment again rather than just renew leases. And that "reset" is now occurring in the context of lower volumes of mail. Further, the new businesses they are getting into won't generate substantial FCF for a long time. So if you look ahead 5 years is pretty clear PB needs that 750 MM they're going to save not paying out that dividend.
Don't Expect Pitney Bowes To Slash Its Double-Digit Dividend Yield [View article]
I have little doubt there is some relief that the cut everyone knew was coming is finally over. And i think the cut was big enough that they won't have to come back to shareholders for more any time soon (or employees for that matter).
Marc sounds like a very savvy CEO and i think the analysts like what they hear. It is always nice to hear that the company will look at internal rate of return and let the product lines fight it out without favoritism or bias.
In short, they're saying all the right things and it is pretty easy to see how this could throw a scare into the enormous short interest in the stock. I think the shorts we're hoping Murray would ride this one down to a goose egg but it is starting to look like that isn't going to happen.
They obviously don't have a long time to turn the ship. Every quarter a little bit of their revenue, profitability and FCF goes away. But again, this is a CEO saying the right things. if that is followed up by even mild growth on the topline that could throw the fear of god into the short interest.
Don't Expect Pitney Bowes To Slash Its Double-Digit Dividend Yield [View article]
i was right about the dividend cut, obviously. But wrong about several other things. For starters, I thought this quarter would be relatively strong given how the USPS did. but none of that flowed through to PBI. NA mailing actually got hammered down 7% so that really threw me. Earnings evaporated in every line...it was pretty bad. The EBIT in software, which was a bright spot, has turned into a disaster.
I was looking for about a 30% cut on investor day but we got a 50% cut today.
As to Volly we now know what they're spending on it pretty precisely. "Production mail margins would have been about 400 basis points higher this year if the net investment in Volly was excluded." I calculate that at about 4.6 million (net) per quarter (more than I thought it was). That is a net number so the actual investment in Volly is likely running closer to 5 million or roughly 20 million per year. Again, a lot more than I thought and I expect we'll see that number ramp significantly.
Today was an interesting day because we got to see how much of the share price was purely there for the dividend. I thought the drop today was going to be MUCH larger than it was. Down 16% looks pretty gentle to me so I think the market is still giving the new CEO the benefit of the doubt. The run up over the last couple of months gave me the opportunity to exit most of my position. What I have left I'm going to hang on to for now. Their guidance actually was pretty good given how bad the quarter was. So they may have some good things going on even in the current quarter.
Don't Expect Pitney Bowes To Slash Its Double-Digit Dividend Yield [View article]
After the great recession a lot of companies that were leasing PBI equipment quit getting the latest and greatest hardware. They just renewed the leases they already had. This hit the topline because new equipment purchases are what really drove revenue. It hit the GAAP bottom line (for reasons too lengthy to get into). But it left cash flow mostly untouched because the revenue stream from existing leasing arrangements costs very little in terms of SGA.
Pitney did a great job managing this decline and making sure SGA fell as it needed to in order to keep FCF roughly level. It has been impressive work by both the prior management and the Board. They deserve kudos for the work they did protecting the business and protecting shareholders. On top of the work they did protecting the cash flow they also built entirely new business lines. The software line has been fairly successful even if it isn't enough to replace what is going away on the paper side.
At some point the decision was made to "go big or go home". I feel fairly certain that the clear failure of Volly to launch on time was a big factor in this. I don't think the prior management had it in them to face investors and say "we need 200 million a year to do Volly right". One of the reasons I bought PBI was that I really thought they might pull off some kind of miracle and make Volly work with announced amount of capex/R&D (which if i recall correctly was around 20 million, total). Obviously that wasn't enough.
So clearly they didn't hire on three IBM guys to sell the company. I feel almost certain that a huge Volly investment is coming up. And i think to give themselves some space they're going to cut into the dividend. longer term this may be a great idea but shorter term a dividend cut virtually always means a beating for the stock.
Don't Expect Pitney Bowes To Slash Its Double-Digit Dividend Yield [View article]
How much does Volly really need to get up and running? i don't know. Salesforce.com spends about 200 million a year on capex to run that network. Is Volly going to need that kind of capex to scale? It might. If you think about replacing the paper infrastructre of mailboxes and replace it with an online system that is an expensive proposition.
But, that is exactly the kind of effort you'd want to hire on a bunch of IBM guys to pull it off. Could they afford 200 million a year without cutting the dividend? Yeah maybe but they'd very quickly get into trouble with the ratings agencies as well as potential cash flow problems as the paper biz continues to decline.
It would be prudent for them to "rightsize" the dividend. And I fully expect an announcement of a gigantic effort to move this company into the online mailbox/payment business in a huge way. if they just go along managing the decline then it was dumb to hire an IBM guy. They should have just promoted from the inside.
All the puzzle pieces are in place.
Also, the timing is brilliant. The quarterly report is on the 30th and it is going to be good (we know this based on the last report from the postal service). THEN 3 days later they have their announcement about the strategic review. So they will let the stock run for a few days before dropping the hammer with the dividend cut. It is good timing, it makes sense, it fits.
We'll see. I know for my part I'm planning to buy calls on May 1 if the stock runs ahead of the discussion of the strategic plan.
Apple: Complete Reset Of Expectations Could Mark The Bottom [View article]
Lots of people are having trouble adjusting to Apple moving from a moonshot upward to something more cyclical. For years analysts kept predicting cyclical performance and Apple blew them away. Now Apple actually IS in a cyclical mode and the analysts are overshooting. Everyone has to adjust expectations and decide why they invest in a company in the first place.
Personally, i would have preferred a larger dividend increase but i think they are leaving gas in the tank so they can sustain double digit increases to the dividend for several years to come. I think Intel provides a good model for your put/call strategy. Intel seems to hold around the 4.5% yield level and then gets heady around 26-28. But Intel is a safe trade because their div is rock solid. Same for Apple, you can trade around in it, like you're doing, pretty safely. When T was lower in price I used to write covered calls to supplement the already high dividend. It was like printing money for quite a long time.
I have not figured out how I'll trade apple but i like your strategy.
Don't Expect Pitney Bowes To Slash Its Double-Digit Dividend Yield [View article]
First, Marc has brought on board two heavy hitters recently from IBM. Do you think he lured them by saying "we're going to guide this ship slowly and carefully into the ground". No, of course not. He sold them on a resurgent PBI that takes its place in the electronic commerce stream that is changing the world.
Second, Marc has already taken two whacks out of the employees. First when he ended the pension plan and second when he closed the plant. The stakeholder model would suggest strongly that they are going to take a piece out of shareholders too. probably not an extreme amount because unlike employees the shareholders can fire the board. But a 30% cut, IMO, is virtually guaranteed.
The required rate of return is not, IMO, 11%. I think investors have already priced in a dividend cut and the RROR is closer to 6 or 7%.
Finally, it makes no sense to conduct a 6 month review of the company, restructure the entire management, sell of businesses and then NOT touch the capital structure. That would be almost absurd.
This is all a lot of corporate mumbo jumbo that simply means expect a cut. In fact, expect the largest cut in the dividend that the Board thinks it can get away with.
And don't say no one warned you.
Do Investors Care That Intel Wasted Over $8B On Acquisitions? [View article]
I think Intel made an 8 billion dollar mistake. They fell into the trap that a lot of companies with a lot of cash fall into. They bought something they didn't need, that didn't fit into their business, and is not generating cash flow.
The next shoe to drop will be a MASSIVE goodwill impairment (I expect they will time it to fall on the new CEO). On the plus side Intel has been aggressive on returning value to shareholders so they don't have as much money left to waste on ill-advised acquisitions.
Was it a mistake? Of course it was.
Global PC shipments fell 13.9% Y/Y in Q1 to 76.9M units, per IDC. That surpasses Q4's 6.4% drop and Q3's 8.6% decline, and is steep even in light of IDC's recent commentary. IDC: "It seems clear that the Windows 8 (MSFT) launch not only didn’t provide a positive boost to the PC market, but appears to have slowed the market." H-P (HPQ) was the market's leader, but its share fell 200 bps Y/Y to 15.7%. #2 Lenovo (LNVGY.PK) saw its share rise 210 bps to 15.3%, and #3 Dell's rose 40 bps to 11.8%. Apple's (AAPL) U.S. share rose 60 bps to 10%, though U.S. Mac shipments fell 7.5% to 1.4M. [View news story]
Pitney Bowes - Avoid This Dividend Siren [View article]
In the process he has already cut about 120 jobs and eliminated the pension plan. I think it is virtually guaranteed that he is coming for the dividend next. Anyone who can't see it coming is blind. Marc didn't jump ship from IBM and hire over two heavy hitters from IBM just to tend to PBI's steady decline.
In May when they announce the results of their review I'm certain it will include "rightsizing" the dividend. Which almost certainly means a big cut because they'll want to get it all out of the way in one shot--like ripping off a band-aid. Now, longer term an investor will hope that they use the diverted cash flow to "IBMize" the business. The hope would be that PBI can become a services and software powerhouse just like IBM did. But that is expensive and they can't do it while paying out 70% of the FCF in dividends.
In short, no one should ever expect a 10% dividend yield to last long term. They will probably reset it so that the yield will be about 6% on a share price of $14.50. I don't think they can get away with eliminating the dividend...I think shareholders would revolt. But if Marc can make a compelling case for the use of the FCF then the board can survive a 30% cut to the div.
A Quick Look At Intel's Financial Position [View article]
As a capital intensive company I could see them doubling their debt even from these levels before I'd become somewhat concerned.
After A 44% Jump, This Turnaround Stock Could See Another Sharp Increase [View article]
Why? Well, I was a believer in PBI for a while. I wathed the market ignore the fact that the software line had gone from nothing to 400 million a year. Then the software line crashed to a screeching halt. Add to that three delays in the release of Volly in the US and I'm no longer a believer.
Given the recent report from the USPS it looks like Q1 may have actually been pretty good for PBI. But with Europe back in turmoil that isn't good for the software line. Also, still no word on Volly. Further, the new CEO is in the midst of a 6 month review that I am absolutely convinced will result in a cut to the dividend.
Why? Because they took a chop out of employees by gutting the pension. Then they laid of 135 people in, I think is was Ohio. It does not make sense for them to hit employees so hard unless the company is looking for a LOT of cash to do something really big. Next up? Shareholders.
Now, a cut in the dividend may be good longer term for PBI but let's be realistic...in the short term it means an evacuation from the stock. lastly, this run has been powered by hedge funds accumulating PBI. They're doing that because of the huge short interest, low market cap, high dividend, and depressed price. it is the perfect stock to pump and dump if you're a big boy with enough money to stand under the bid long enough to put some real fear into the shorts (not to mention the pain shorts have of paying out that beefy dividend).
All of that will reverse when the dividend cut is announced. The hedgies will dump the shares immediately leaving behind confused bagholders. if I can't exit my entire position prior to the announcement I'll be buying some puts sometime next month. but yeah, as a short term trade I think PBI (the stock) is going to have a good April.