Advice for Gencor: Don't Complain, Don't Explain

| About: Gencor Industries (GENC)

I think Gencor (NASDAQ:GENC) needs my dad. He was Director of Investor Relations for a Fortune 500 company and taught me a lot about how companies manage their stock and communicate with the investment community, whether it's an analyst for Goldman Sachs or an everyday investor like you and me. I once heard him say "never complain, never explain." I was 15 at the time and didn't quite understand it, now as I peruse the press release from Gencor it all makes sense.

There are some things you don't say in a press release. You don't want to sound angry and you don't want to sound defensive. Let me take a line from the first paragraph of Tuesday's press release:

In view of the accelerated trading of the Company's stock, and for the benefit of those who persist on remaining uninformed in spite of all of Gencor's SEC filings, 10-K's, 8-K's, Proxy Statements, Annual Reports and Press Releases...

I had to reread that a few times. "[F]or the benefit of those who perist on remaining uninformed..." Who are they talking about? Is that a professional statement that one would expect from a publicly traded company?

It seems that my previous article generated a firestorm. The message boards were quite upset that someone short the stock would write an article about it. (The longs didn't seem bothered that an article advocating buying the drop in Gencor was written by a long.) That's what is so ironic about companies and shareholders who make shorts out to be bogeymen who steal shares right out from under their noses.

Apparently this paranoia extends beyond message boards. Gencor's own press release said "Disinformation and rumors only serve the purpose of the self-serving speculators preying on the uninformed investors." My last article was the only one I've seen that presents the short case for the stock so if that was directed at me then, hey, thanks for checking me out. Here I was afraid no one would read this. But there was no disinformation and no rumor, or if there was I hadn't heard it, and I should know - I spent a long time researching what was behind this stock.

If Gencor wanted its stock to be immune from any undue speculation then it should have been proactive in taming the speculative 300% runup in the last few months as exhorted investors to buy as the stock was projected to go to 50. Nor did it try to tamper expectations when the stock made it to the Investors Business Daily 100. Not that they had any obligation to do so. But if speculation causes panic buying, you cannot cry foul when disappointed momentum traders engage in panic selling.

I have a great deal of sympathy for the longs and feel they deserve better from Gencor. Actually I think the stock might get a bounce from it, but likely not much more. Gencor's shareholders might have been better served if the company chose actions rather then words. In its press release, the company pointed out that it has no debt, which was odd considering no one suggested there was anything wrong with their balance sheet.

Hey Gencor, you think the selloff was overdone? Put that money to work and buy back stock! If it's really a 30 dollar stock then that's a no-brainer. Or buy some of your own stock on the open market. A mere 10,000 share purchase at market price could have stopped the selling and made some shorts cover. Or maybe provide more guidance and communication when you release earnings.

While we're on the subject, why do you have no debt when we're in the middle of the largest infrastructure boom in history? Shouldn't you be more aggressive in growing your company? Just a thought.

Since I was never long Gencor, I have the luxury of finding its treatment of the subject of Lloyd Miller amusing. The CEO had this to say in the press release:

4. Mr. Lloyd Miller only attended the Board meeting immediately after being elected to the Board on March 6, 2008. At that Board meeting he was elected to the Audit Committee but never attended one of it's meetings and then resigned from the Board on May 7, 2008, and based on recent conversations with management, he did so purely for personal reasons and convenience and maintains a professed high esteem for the company, its management,
and its future.

5. The resignation of Mr. Miller from the Board left a vacancy in the Audit Committee, which the Board will be moving forward to fill with a qualified independent director well within the period allowed by NASDAQ. Therefore, there is no issue. [emphasis added by the author]

Thanks Gencor! That's good stuff! The tried and true "it's not an issue because I said so" strategy. The stock started its almost 300% run when Lloyd Miller began accumulating shares. His attendance at the board meeting is hardly relevant. It was hoped he would create shareholder value. That could have been a merger, a private equity deal, a takeover of Gencor, it could have been anything. It was the idea that something big could happen, not whether or not he showed up on time for meetings, contributed to the suggestion box, remembered to refill the ice tray after he emptied it...

When Miller resigned the message was clear. I posted his resignation letter in my last article to make the point that Miller didn't even bother to mince words. Often times in situations that are sensitive for shareholders an outgoing board member or officer might include a few sweet nothings in the letter (the Wall Street equivalent of saying I'll call you tomorrow). Instead it was a simple resignation. Gencor's assuring investors that he still thinks we're a swell bunch of guys doesn't really comfort anyone who lost almost half their investment in two days. Miller may feel that way or he may not, maybe he and Elliot will go antiquing this weekend in Orlando, but if the shareholders didn't hear it, it doesn't matter.

In the interest of disclosure I covered my short Tuesday morning. When you're short a stock and it's down 48% in two days and the company's long-term health isn't in danger then there's no reason to be a pig about it. Therefore I can now say I have no financial interest in Gencor (though I reserve the right to short it if it ever gets another bounce, and I might even go long GENC for my CNBC contest portfolio). I still maintain my price target of 14 but if you short this now you might get caught on a bounce before you see that. Don't look for a short squeeze except for a few day traders out there. Before this debacle the stock only had .4% of the float short.

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