Behold a Dead Horse

 | Apr 17, 2013 | 3:15 PM EDT  | Comments
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yhoo

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There's always a dead horse. On every earnings conference call there's always a dead horse. Yesterday, three huge calls, Johnson & Johnson (JNJ), Yahoo! (YHOO) and Intel (INTC), all had dead horses called out, dead horses that were repeatedly beaten by analysts who simply couldn't resist doing some flogging.

What is a dead horse? It might as well be called the elephant in the room, to mix animal metaphors. It is something that all of the analysts are worried about that the company either doesn't want to talk about or thinks is being over-emphasized, incorrectly, by the bears on the call. When it comes up, it is always prefaced by, "I don't want to beat a dead horse, but" and then the elephant surfaces.

Take JNJ. The quarter itself was excellent, mostly because, with the exception of medical devices, the drug and consumer franchises were quite strong. Even while I was incredibly impressed by the growth of some of the franchises, particularly the oncology and neuroscience product sales, the flat-to-down nature of the medical device numbers -- hips, knees and the like -- totally freaked out those on the call. I don't know if this is because many analysts were trying to model all the other device companies using JNJ as a template and were concerned that surgical procedures were down (something that HCA (HCA) flagged the other day), or maybe they were trying to figure out if JNJ had lost share, perhaps because of all the lawsuits and negative publicity surrounding the company.

They weren't clear about their motives. But the takeaway was that this division could be the Achilles heel of JNJ. I think they were myopic and the growth of the other businesses, plus the strong balance sheet, prospects of a sacred dividend increase and the distancing of the recalls in the consumer product aisles of the drug store were more cogent. Judging by the direction of the stock, I am right.

Yahoo's dead horse? User engagement. If you clean up a junked-up site, will more users come, therefore your advertisers will be happy? Or will you be giving up revenue for no reason? Analysts kicked this conundrum around again and again. Suffice it to say, as a veteran of these wars from my other job as founder of TheStreet, organic growth of viewers is what matters and Yahoo CEO Marissa Mayer is making the right call. But the analyst community disagrees with me, and they are the victors in this debate right now and Mayer and I are the losers.

Oh, boy. Intel is tough one -- a real dead horse problem. Here's a company that is the best manufacturer in the industry. Andy Grove, the former CEO, might argue that Intel is the best manufacturer in any industry. Yet, the company is spending a fortune on capital goods and not getting the bang for the buck it used to. So the dead horse here is whether Intel is spending too much on its future without a payoff. I thought when the company decided to cut its capital equipment expenditure plan by a billion to $12 billion that it would eliminate the dead horse factor. But the opposite occurred, and the community was not appeased given that the company is spending three times what it used to for equipment, even as its sales dropped to rates last seen four years ago. It was a harsh part of the dialogue.

Dead horses are the bane of managements' existences. They simply destroy the narrative that management tries to deliver. In the case of Johnson & Johnson, it didn't matter. The company was so poorly managed under CEO Alex Gorsky's predecessor, the much lionized William Weldon, for heaven knows what reason, that there's nothing but net going forward. But Intel and Yahoo? Their managements didn't get the better of the analysts, hence, despite beating Wall Street's expectations in a big way, their stocks did not react as an owner would hope. For Yahoo and Intel, the dead horse got the better of them. At least for now.

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