What a day Tuesday turned out to be, and I am not referring to the S&P 500's positive day, which put it back into modestly positive territory year-to-date. Tuesday was filled with dividend cuts, and deals/potential deals within the mainstream and the outskirts of deep value land, as earnings season kicked in to high gear.
General Electric (GE) finally did what some expected, cutting their dividend, as shares sank to 2009 levels, following a worse than expected third quarter earnings release on both the top and bottom lines. This was a massive 92% cut, from 12 cents to 1 cent, which would put the forward yield at .4%. The move will save the company about $3.9 billion, and had to happen. However, I'm still not interested in GE at these levels.
In smallville, Big 5 Sporting Goods (BGFV) also did what was expected based on its 14% indicated yield, cutting its dividend 67% from 15 to 5 cents per quarter. BGFV reported below consensus third quarter earnings per share (15 cents versus the 19 cent consensus) and revenue ($266.4 million versus $275.8 million) after market close on Tuesday. Shares have been halved since July, since a nice run-up from early February, when I initiated an initial position. Wednesday's action will likely not be pretty and BGFV is very close to net/net territory (trading below net current asset value). With the dividend cut, BGFV yields 4.7%. This is one specialty retailer that has not worked out as many others soared, following a major market overreaction.
Hibbett Sports (HIBB) , meanwhile, made a surprising announcement after market close on Monday, which it discussed in a call on Tuesday. HIBB is acquiring privately held, Tennessee-based specialty retailer City Gear, which has 135 stores in 15 states for $88 million in cash and up to another $25 million in additional consideration. HIBB certainly has the cash to make the deal, a horde that it had been using to repurchase shares. The company expects the deal to be accretive to earnings by 2020. I'll admit, that this one took me by surprise, but the market seemed to approve at least so far, as HIBB rose 5% yesterday, but I am still thinking it through. I'd closed my remaining position in HIBB back in August, but following a 30% post earnings hit on August 24th, bought back in.
Former double-net Electro Scientific Industries (ESIO) , a member of my 2017 Double Net Value Portfolio, soared 91% on Tuesday, on the news that the company will be acquired by MKS Instruments (MKSI) for$30/share. It's been a while since we saw a double-net (or former double-net) acquired, but it has been very fertile ground for bigger fish looking to take out small cash-rich names on the cheap.
Finally, Reuters reported late Tuesday that Newell Brands (NWL) may be on the verge of selling its Jostens unit to private equity firm Platinum Equity LLC for $1.3 billion. We'll see how this plays out as the beleaguered NWL continues to sell off assets to try and right the ship. Jostens, which is well known for providing class rings, was acquired by Jarden Corp for an estimated $1.5 billion in 2015. In a now ill-fated deal, NWL acquired Jarden the following year.
