Roeder: Motorola ‘contributes’ to Google’s earnings snafu
BY DAVID ROEDER email@example.com October 26, 2012 8:22PM
NEW YORK, NY - SEPTEMBER 05: Google Executive Chairman Eric Schmidt introduces three new smartphones under Motorola's Razr brand that will become available for Verizon customers on September 5, 2012 in New York City. The new phones, the Droid Razr HD, the Razr M and the Razr Maxx HD, will all use Google's Android operating system. Motorola Mobility was acquired by google in August of 2011. (Photo by Spencer Platt/Getty Images)
David Roeder reports on real estate at 6:22 p.m. every Thursday on WBBM-AM (780) and WBBM-FM (105.9). The reports are repeated at 10:22 p.m. Thursday and 7:22 a.m. Sunday
Updated: October 28, 2012 11:40AM
‘Google reported disappointing third-quarter results, which included the first full-quarter contribution from Motorola Mobility.” So said the first line of an analyst report from William Blair & Co., one of oodles issued after the Google (GOOG) announcement of Oct. 18 that rattled the market’s faith in tech stocks.
Under the circumstances, the word “contribution” in that first sentence reads like satire.
There was so much about the Google news that raised alarms — the earnings were released prematurely and when the market was open, the earnings and revenue were well below consensus, the growth in ad revenue is slowing — that it was easy to overlook the glaring issue: Google’s $12.4 billion acquisition of Libertyville-based Motorola Mobility has become a millstone.
Motorola Mobility’s “contribution” was a $527 million operating loss, more than triple its amount from the same quarter last year. To turn around the cellphone maker, Google is cutting 20 percent of its work force, or about 4,000 employees, and closing facilities. Short-term costs for doing that are high, but the problems might not stop there.
Google paid steeply for Motorola Mobility’s patents whose value is eroding in the fast-moving cellphone business. And Google’s chief financial officer said the turnaround of Motorola Mobility might take years.
It’s already a drain on a company that, in a short time, has evolved from high-growth juggernaut to slow-growth multinational.
Sometimes the bigger the company, the bigger the case of buyer’s remorse.
DISSECTING KRAFT: Morningstar analyst Erin Lash dug into the spinoff of the Kraft businesses, which are now U.S. grocery staples provider Kraft Foods Group (KRFT) and global snack provider Mondelez International (MDLZ). “We think investors looking for sweeter growth prospects from a packaged food firm might want to consider the Mondelez global snack business, while income investors are likely to find Kraft Foods appetizing because paying a top-tier dividend is to be the firm’s main use of cash,” she wrote.
I think her analysis discounts how much work Mondelez must do to educate investors just what it is, home to Cadbury, Oreos, Chips Ahoy, Halls and other assorted brands. That name has to go. Kraft still has its cheeses, Philadelphia cream cheese, Maxwell House, Oscar Mayer and other familiar products.
ELECTION IDEA: Looking for that perfect, under-the-radar stock play for the election outcome, whatever you think it will be? Wondering how to play the “fiscal cliff,” and how this real but eminently solvable crisis gets exaggerated in Washington before both parties figure out how to save face?
Consider shares of First Potomac Realty Trust (FPO), a real-estate investment trust whose business depends on the office needs of the federal government. The aforementioned factors have been a drag on this stock, which is down more than 8 percent this year. The shares closed Friday at $11.98.
David Toti, analyst at Cantor Fitzgerald, believes that come the day after the election, investors will take a new look at the stock. He also believes tenant demand from the feds and others who feed off them will pick up going into next year.
In the meantime, the shares sport a decent dividend yield of more than 6.6 percent.
WHERE’S MINE? Do Americans want tax simplification? Yes! Do they want an end to loopholes? Yes! Do they want an end to the mortgage interest deduction on their homes? No, according to a survey by the American Institute of Architects.
The survey said about 70 percent of voters, and a clear majority of both Democratic and Republican respondents, believe the deduction should not be repealed as a way to cut the massive federal debt.
Tax incentives are the deductions you like. Those you don’t like are the loopholes.
LAWYERS IN CHARGE: Shareholders of CME Group (CME), which reported a 31 percent decline in third-quarter profit, might ask how much the exchange operator is spending for hyperactive lawyers. News photographers always have been granted quick access to the trading floors for breaking news. Arranging such a visit last week, I was informed CME now requires one form filled out by the employee, another form attesting that the employee has insurance, and that both require corporate approval before access is granted.
Sheesh. Those old days when the traders ran the place are looking better.
CLOSING QUOTE: “[S]ince 2008, the actual number of workers has fallen from 138 million to 133 million. Moreover, this decline has happened as the total working-age population in the U.S. has grown by more than 6 million.” —Stephen Mack, Glenview-based Mack Investment Securities