The Mitchell Group is a portfolio management firm that invests specifically on the energy sector. When we spoke with the company’s President and CIO Rodney Mitchell, he told us about some of the problems that might be coming up down the road for this space:
Mr. Mitchell: The immediate challenge is natural gas supply in the US. I’ve already talked about that. Longer term, we are facing a worldwide problem where companies will not be able to maintain their production of crude oil. For a while, that will be covered up by natural gas liquids, but that only lasts a reasonably short period of time. After that it’s going to be a major problem for the world. The world is using a higher percentage of each barrel of oil each year for transportation fuels. That is the highest and best use of crude. Back in the late 1970s or early 1980s, the US and Western Europe dramatically reduced stationary use of crude oil, that is using crude oil for boiler fuel. The rest of the world will do that as we move along here, and more and more percentage will go toward transportation. Once we do that migration, where you cannibalize your stationary uses to put it into the transportation field, once we complete that, then we’re going to see much higher oil prices. Maybe Matt Simmons is going to be right then.
For the latest edition of our Investing Strategies report, including a full interview with Mr. Mitchell, and a variety of other portfolio managers, click here.
Joanne Lublin of the Wall Street Journal wrote a piece examining the growing acceptance of the need for splitting the corprate chairman and CEO positions. Lublin discusses a recent report,
… prepared by the Millstein Center for Corporate Governance and Performance at Yale University’s School of Management, the Chairmen’s Forum proposes that companies appoint a separate chairman after an incumbent CEO-chairman leaves — or explain why not to shareholders. The group is considering asking the New York Stock Exchange and Nasdaq to adopt listing rules that would require separate chairmen.
More U.S. companies are dividing the roles, but the trend is spreading slowly because many CEOs resist sharing power. About 37% of companies in the Standard & Poor’s 500-stock index have separate chairmen and CEOs, up from 22% in 2002, according to the Corporate Library, a research firm in Portland, Maine.
I would expect this trend will grow as the economy comes under increasing government regulation. Check out the story.
General Motors’ board and shareholders have for too long time failed to get Rick Wagoner to resign as its CEO and chairman but the Obama 
Administration appears to have had the final say. Just prior to the Obama Administration’s newest announcement on what it intends to do with the American Automobile Industry planned for Monday news has come out that Wagoner will resign. According to a story by Justin Hyde and Tim Higgins of the Detroit Free Press,
President Barack Obama’s rescue plan for Detroit automakers will be unveiled Monday, but one condition became clear today: the resignation of General Motors Corp. Chairman and Chief Executive Rick Wagoner.
As a condition for additional government aid to GM, the Obama administration asked Wagoner to step aside, which Wagoner agreed to do today, people familiar with the plan said. Wagoner’s move, effective immediately, ends a 31-year career with GM.
…. It was not clear who would replace Wagoner; chief operating officer Fritz Henderson would appear to be the most likely candidate. GM declined to comment.
We are certain many auto analysts will assert that the CEO change right now is a mistake. I fail to agree. While it is very late in the game for this change, it is about time. I have been calling for resignation for a long time. Wagoner has shown throughout his career a keen understanding of the overall auto industry but he has failed miserably over the last five years to turn GM in a proper direction and deserves to leave. Let’s all hope the White House has a handle on what they might be able to do to save the industry and its hundreds of thousands and even possibly millions of auto-related jobs.
Stay tuned as we continue to follow this story and the travails of the American auto industry.
For more:
Contrary to earlier comments by Ken Lewis in my blog below Lizzie O’leary and Christine Harper of Bloomberg this afternoon reported,
he (Lewis ) doesn’t advocate a legal division of commercial and investment banking and that his comments about separating the two referred to rhetoric and public perception.
Lewis continues to stumble even when he is trying to improve his image with the public. What’s next on his agenda?
Henry Blodget wrote a piece for Clusterstock today that questions (as I have been doing for quite some time) why Ken Lewis continues to remain as the CEO of Bank of America. Blodget stated,
Ken Lewis may be an excellent banker. He may be the pillar of his community. He may be a kind, considerate,
and fair boss who is admired by his troops. He may, generally, be a real asset to his company.
But Ken Lewis just screwed up. Massively.
Ken Lewis screwed up so massively that he single-handedly demolished at least half of the value his shareholders’ spent decades accumulating–through a knee-jerk decision to buy the sinking super-tanker known as Merrill Lynch. Six months ago, in one tense weekend, Ken Lewis let himself get duped into thinking that if he didn’t bid now and bid high for an imploding Merrill Lynch, he’d lose the prize he’d had his eyes on for years.
Lewis continues to have the “confidence” of his board which seems to defy reality. He continues to try and redeem himself in the eyes of the public. Today, before meeting with President Obama, he was quoted by Bloomberg making what appears to be a valuable suggestion. Lewis stated,
… the U.S. should consider separating commercial lenders from investment banking activities.
While he is probably correct his suggestion is not enough to give him a pass on the damaged he overseen to BofA. Stay tuned.
In a recent interview with Thomas A. Filandro of Susquehanna Financial he discussed how Buckle has bucked the trends in Speciality Retail:
Mr. Filandro: Buckle is an excellent example of not being under-merchandised. BKE has successfully expanded its market penetration, delivering 18 consecutive months of positive same-store sales, as well as higher pricing, lower markdowns and improved full-priced selling. Buckle’s offerings, which are both branded and private label, are highly differentiated from the majority of specialty retailers, which have become somewhat homogenous. In this environment, outside of necessities, consumers are only willing to pay up for product that they are emotionally connected to. Since apparel differs from electronics that may provide greater functionality, it’s all about emotional connectivity in this sector.
The complete 39-page Wall Street Transcript Specialty Retail report contains 6 analysts and 2 sector firms and can be read here.
While casual dining may be on the decline, according to Steven West of Stifel, Nicolaus & Co., “we continue to eat out; we are just eating out at cheaper options…” As a result of this, West’s top pick in this space is Burger King (BKC). Here’s why:
Mr. West: They are where McDonald’s was a few years ago. They’ve done most of the McDonald’s playbook, if you will, such as the rationalization, although they didn’t have to re-franchise because they were so heavily franchised already. Now they’re going to the remodeling phase. Pushing forward, I think the focus would be on remodeling their US stores. Burger King’s average store age is over 20 years. One of the big drivers of McDonald’s sales over the last few years has been because their stores are in good shape again. Healthy looking stores attract consumers. That’s where Burger King needs to get. So you will see them really focus on remodeling, which should continue to drive incremental sales. They are seeing about a 15% to 20% boost to sales on their remodeled stores.
For the complete restaurants report, including a roundtable discussion of the sector and more stock picks, click here.
Sinclair Stewart wrote an irreverent piece for Toronto’s Globe and Mail entitled, Let us Prey, Wall Street’s recklessness has toppled the most exalted occupation in the land. Get Ready CEOs for a new job description. According to Stewart the celebrity CEO may be a dying breed. Judge for yourself, read the piece.
Sir Howard Stringer, Sony’s CEO (and a current CEO on Liberum’s CEO Watch list), has in dramatic fashion exerted his power. In a management shakeup, Sir Howard ousted Ryoji Chubachi as president. Chubachi, a well known Japanese executive who has been in charge of the company’s Playstation 3 and Bravia televisions, will be reassigned to a new position as part of Stringer’s ongoing reorganization. According to a story by Hiroshi Suzuki and Masaki Kondo for Bloomb
erg,
(Stringer) took control of the main electronics business as the maker of the PlayStation 3 and Bravia televisions faces a record loss.
… Chubachi, 61, will become vice chairman in charge of product safety, quality and environmental issues.
The reassignment of Chubachi, a 32-year veteran at Sony, may help clear the way for Stringer to reorganize the company as the global recession erodes sales.
Stringer has finally begun to take forceful action to get Sony back on track as an innovative firm. He seems to understand that the firm needs to get itself out of areas in which it is no longer competitive, even when those areas at one time were considered the mainstay of the company’s business. Making these changes have been complicated by the cultural and business conventions that Japanese business particularly in Japan follow. Stringer has fin
ally broken through a bit. According to a story by Hiroko Tabuchi for the New York Times Stringer was quoted saying,
“We have two distinct challenges facing us,” Mr. Howard said at a news conference. “The first is the global slowdown, which force us to make significant adjustments. The second challenge is the evolution of our competitive environment. New competitors springing out everywhere.”
… “Have I broken down all the silo walls? No,” Mr. Stringer said. “Are they very strong and very thick? Yes. But we’ve broken down a lot of them. Our goal is to continue to do that.”
We will have to wait and see how the Japanese react to Stringer’s moves and what elese he has up his sleeve as he continues to try and reorganize the firm. Stringer’s challenges remain large and complicated. For more: BusinessWeek Reuters Silicon Alley Insider Globe and Mail (AP) Twice Register UK Gamasutra Variety Guardian UK Financial Times
The colorful plastic clog maker Crocs CROX (NASDAQ), whose shoes at one point were selling like hoola hoops back in the late 50′s and early 60′s, but are now selling more like a dying fad finally made a change at the top of the corporate ladder. The company which had been under the tutelage of Ron Snyder has seen its stock and products decli
ne even faster than the current stock market. Yesterday the firm announced that Snyder would be retiring and the company had selected John Duerden, a former president and COO of Reebok International back in the 90s. Duerden had also been a high level executive at Dictaphone. He has over twenty years experience managing at a senior level. According to a story in fibre2fashion.com,
Duerden began his career with Xerox Corp. and its UK joint venture, Rank Xerox, where he held line and staff management positions in Europe, the U.S., Latin America and the Asia-Pacific region. He later served as chairman and CEO of Dictaphone Corp., a maker of voice management hardware and software and subsequently as chief operating officer of the development division of Invensys plc, a British engineering conglomerate. He served as a non-executive director of Telewest plc, a British cable, TV, telephony and broadband company; and of Sunglass Hut International. He comes to Crocs from the Chrysallis Group, a consulting group he formed in 2006, focused on the development and renewal of brands.
Crocs appears to have waited far too long to make a change at the top. Snyder, who as the company’s CEO, was selected by Douglas McIntyre of Wall Street’s 24/7 back in November as the “Most Overpaid CEO of the Day“. The company for too long has been living off of their plastic clogs fad. Very little was done by the firm to find new products. The company has managed to find ways to expand internationally but that has not been sufficient for its long term survival. The newly appointed CEO Duerden at least has the requisite qualifications to attempt a real turnaround of the firm. It is difficult to say in today’s difficult marketplace what Duerden can come up with in terms of new products we will just have to wait and see. According to a story in the Boston Business Journal,
Crocs on Feb. 19 reported that it lost $33.2 million, or 40 cents a share, in the fourth quarter of 2008, versus a profit of $38.3 million, or 45 cents a share, in the same quarter of 2007, ahead of analysts’ expectations.
It said its revenue declined to $126.1 million in Q4 from $224.8 million a year earlier.
The company said that while sales revenue declined sharply in the Americas and Europe through all of 2008, it rose 22.4 percent in Asia.
Crocs said it expects a loss of 17 to 32 cents a share in the first quarter of 2009. It said it expected revenues of between $110 million and $135 million.
There are many out there that still feel there is hope for the Crocs brand (see Schaeffer Market blog), I am not nearly as positive. We will just have to wait and see what the new CEO can do to turn the company around. For more: Forbes Boulder County Business Report Womens Wear Daily
