Long or Short Capital

Scotts Miracle-Gro is a manufacturer/marketer of branded lawn and garden products. You would probably recognize some of their brands like Scotts, Miracle-Gro and Ortho as stuff you put on your lawn. Their CEO Jim Hagedorn (who owns a ton of the stock), is a retired Air Force pilot and is wont to ramble. In his closing remarks at last year’s Investor/Analyst Day, he created an epic meditation on fertilizer, the power of greed and war:

“I didn’t get out of flying fighters to be a fertilizer salesman. I got out of fighters because I think it’s a more pure form of conflict here.”

I don’t disagree.

“It’s like the purest form of conflict in that like nobody really dies, but think how many volunteers you’d have if you could go over to Iraq and you could take all the money you could find?”

Perhaps becoming President or at least Secretary of State would be an even purer form of conflict than the fertilizer business, because we need to get these ideas into policy ASAP.

“This is what it’s like! I really like this business. I may be scaring you, I’m sorry.”

No, not at all. We already said how much we agree, Jim.

“But think about it! We get encouraged to basically compete — it’s a good thing. It’s okay to win. It’s okay to take market share which is just real estate — it’s imperialistic.”

This is exactly the kind of CEO I want in charge of a $2bn revenue, $300mm EBITDA, $2.5bn market cap company. He should also own ~40% equity in the company. Thankfully, he does, that financial imperialist son-of-a-gun.

Recommendation: Long inappropriate analogies

-JD

ps. As an investor, this is a pretty stock chart.

Legalese always contains redundancies but the findings by IPG’s accountants in their recent restatment take this to a new level. The accountants listed 18 areas of weakness needing improvement including:

“1. The Company did not maintain an effective control environment.

18. The Company did not maintain effective controls over monitoring the performance of proper application of the Company’s internal controls over financial reporting and related policies and procedures.”

Keep in mind that these comments all appeared in the section devoted to the assessment and identification of weakness in controls.

In fairness to the flight attendants whom I maligned in my last post, accountants shouldn’t be considered professionals either. The section on controls is one big CYA move.

Executives and companies love to obfuscate. Since it’s hard to understand the real meaning of their statements, we have provided a handy translation. Here are the words of automakers Ford and GM run through our propietary translation algorithm.

Corporate Speak:

Employee Discount for Everyone

Translation:

-We give back to you the profits that we weren’t making anyway.
-Step 1 in our five year plan for bankruptcy and continued diminution.
-Step 2 will be new models of even bigger cars which nobody wants to buy.

—

Corporate Speak:

Ford Family Plan

Translation:

Selling today for much cheaper, that which would have been sold tomorrow.

—

Corporate Speak:

We will not do business with suppliers who are in bankruptcy.

-GM’s Purchasing Chief Bo Andersson

Translation:

Since most Tier 1 and Tier 2 auto suppliers are either in bankruptcy or on the brink thereof, and since we are a big reason for that situation, we plan to compromise our principles shortly.

• After seeing that clip, I wish I was in the virtual ammunition business.

• Guy with a button on the back of his collar. The dress shirt equivalent of the superfluous third nipple.

• I have been replaced by my wife’s scottish terrier.

• We looked at Meow Mix, but we passed because we didn’t think we had the platform for it. But then, neither does Cypress [private equity shop who bought MM], but what do financial guys know anyways. [pause] Don’t tell them I said that.

• You can have a cup of Starbucks, or you can clothe your child.

• Buy our bonds, short our stock, try some capital structure arbitrage!

• Everyone from Lord Abbett seemed to be over 70 and at least part troll. Picture the last scene in Rosemary’s Baby. Now picture everyone who wasn’t John Cassavetes or Mia Farrow or the antichrist. Those are the people managing money for Lord Abbett.

• Puppie adoptions were up 40% after 9/11.

• My hunch is that there were far more people from Bank of America at the Bank of America Equity Conference than people not from BofA; the ratio of suits to non-suits speaks to this. Who wears a suit to a business casual conference?

Points are awarded to who can attribute which thing to which session. Note that we only have 14 points. Also note that not all points are equal.

-JD

In May on their 1st quarter conference call, auto retail chain CSK Auto announced that they would be launching a secondary store initiative called Pay’N’Save. In the words of CEO Maynard Jenkins (via Streetevents):

Second, the Company has recently launched a new retail concept store named Pay N Save. Pay N Save, which targets a broader demographic than our CSK stores, represents one potential component of an important long-term growth strategy for CSK and is allowing us to develop new sourcing, particularly import sourcing for our merchandise.

Well, Maynard, that doesn’t sound so bad. What kind of goods will you sell at these Pay N Save stores?

Pay N Save stores plan to offer a consistent core of value merchandise, and I want to stress value, consisting primarily of tools, hardware, housewares and other household goods, seasonal goods such as tents, outdoor furniture, water toys, and a constantly changing array of unusual merchandise, such as industrial popcorn machines, garden windmills, full-size leather barber chairs, all at incredibly low prices.

Ahh the “Selling-Shit-from-China” business model. But, lest investors be concerned:

I want to assure everyone we understand what our main focus is and [we]will remain [focused on] automotive parts at CSK.

Because for an auto-retailer, nothing says focus like starting a whole new concept store to sell “an eclectic mix of items such as windmills, fishing gear, water fountains and bar stools.” CSK Auto, you win the Patrick Byrne Award for Operational Focus and Excellence. Congratulations, young padowan.

Check out this slide I found in a recent Visteon investor presentation:

That’s right, believe it or not the hard working employees at Visteon have had 100% year-over-year growth in “ideas”. Now that is something. You might ask, well just how many ideas did they have? And that’s impossible to answer, because there is no scale whatsoever on the graph. For all we know 2003 could have been an extremely easy comp for ideas: Visteon employees could’ve sat around all year long reading books they had already read and, as a result, had almost no new ideas in 2003.

What I’d like to know is who had the idea to make and show this slide? And perhaps more importantly, was the idea for this slide included in the ‘new ideas’ calculation? If not, it’s possible that this slide is actually understating the true new idea growth.

So I just told my 15-year-old brother about this, he said that he thinks for every new idea he has today, he’s likely to have 2 new ideas tomorrow. That’s 100% growth in new ideas PER DAY. Impressive.

So conclusion is Long: My Little Brother, Short: Visteon. The thesis is that my Little Brother’s new idea growth will outpace Visteon’s by roughly 1x(10^109)% per year, roughly.