Courtesy of Mr.Fun
Taken from the ASND thread.His take on NYTimes article.
This inept piece of research is not even Mr. Olstein's original
work. These accusations originally arose in a document written by
a hack outfit called the Center for Financial Research and Analysis
(CFRA) which purports to do detailed analysis of financial
statements.
These so called analyses, which I will debunk in a moment (with
the help of a very sharp piece of analysis from Sanford Bernstein),
were widely circulated amongst big hitter buy-side shops, and
were the main reason why the stock tanked so badly after the first
quarter. Most buy-side shops have come to terms with this
assasination attempt - hence the exceptional recovery of the past
two weeks.
1. "Lucent wrote off $2.5 billion over two years" - This is less
than 4% of revenues, less than a half a percent if amortized over
10 years. Find a high tech company worth its salt that hasn't written
off a similar amount. Successful communications companies must
make acquisitions - I'm sure OG will back me on this one - and
GAAP has allowed companies to write off the in process R&D.
Even if the rules change, it will only be for acquisitions made after
the rule change and will not be made retroactive. This complaint is
plain silly.
2. "Lucent revenues rose only 3% YoY in Q1" - The biggest
reason for this is shifting seasonality. In every year of Lucent's
existence December has been the slowest YoY growth quarter. In
1998, Lucent shifted all sales force incentives and employee
bonuses to the fiscal rather than calendar year. As a result, alot of
business was closed in September that might have otherwise
closed in October or November. It is little wonder that December
was light for revenues. Management has repeatedly promised 30%
YoY growth in Q2, which more than makes up for the supposed
shortfall in Q1. Furthermore, I notice that Olstein wants to subtract
the $200 revenue from LU's results, but doesn't also credit them for
the 2 to 3 cents per share loss realized by the business unit. LU
was required by GAAP to reconsolidate the business.
3. "19 cents of the 20 cent YoY EPS increase were from
non-operating credits" - Utter load of crap. 5 cents, as explicitly
stated by LU, came from pension benefits. 2 cents came from a
reversal of an allowance for doubtful accounts that was actually
paid by the customer. The rest of his "adjustments" come from
ridiculous assumptions such as - the allowance for doubtful
accounts should remain at a steady percentage of AR. This is just
wrong - allowances for doubtful accounts are made on a case by
case basis. LU makes a very conservative 3% allowance for
ordinary receivables with higher levels for more risky accounts
(vendor financing, risky geographies, etc.) If the allowance for
doubtful accounts declines, the expected value of the receivables
has increased. Finally, Olstein should have done the same analysis
about Q1FY1998, in which there were 3 cents of non-operating
earnings. So the ratio should have been 7 cents out of 23 cents EPS
growth came from non-operating items. So operating earnings rose
nearly 20% YoY, not bad in a quarter that is becoming a smaller
proportion of total annual earnings.
The CFRA report contains additional shoddy analyses which
suggest 27% FY1998 EPS growth came from pension benefits
(WRONG - CFRA "forgot" to balance out a $400 million charge
for post-retirement benefits). Most of the street is beginning to see
through these half-assed analyses. 2Q results will be exceptional
and the rest of the shorts will be forced to cover. |
