It's earnings season, baby! Yes, to paraphrase Vince Vaughn from Wedding Crashers, it is the best time of the quarter for those of us who invest based on tangible things such as cash flows. Having fresh data is important. As always, I concentrate on what my clients and my firm, Excelsior Capital Partners, own.
We don't have a position in Nvidia (NVDA) , so I can't comment on their earnings, which have juiced NVDA shares Thursday. That said, as a former consumer products analyst, I can say that earnings reports earlier this week from both Walmart (WMT) and Home Depot (HD) were, frankly, depressing.
Both companies issued very disappointing guidance, and in both cases implied that FY24 (Jan 24) EPS would be lower than that FY23 earnings, which in Walmart's case, were also lower than FY22 EPS.
The US consumer is hurting right now due to the once-in-a-generation wave of inflation.
Don't sugarcoat it.
But there are intelligent ways to avoid exposure to the US consumer in your portfolio, and three names that I have mentioned in prior Real Money columns have reported earnings this week. They are not mega caps like WMT or NVDA, so I use this forum to give them the attention they deserve.
Large holdings for ExCap are the two preferred series issued by Gladstone Land (LAND) , (LANDO) and (LANDM) . Gladstone Land is quite simply the most bulletproof entity I have seen in 30 years of researching equities. LAND owns farms and generally leases them back to farmer operators, and is increasingly diverting some base rents in to participation rents, which give LAND access to their tenant farmers' cash flows.
While farming is subject to all sorts of variability owing to weather-related conditions and higher interest rates that hurt farmers as much as consumers, higher food pricing is the Holy Grail for America's farmers. In fact, Gladstone Land recently increased its dividend to $0.0459/month.
Higher food prices help farmers. Don't sugarcoat that, either. I see no letup in inflation, despite what the nitwits who populate FinTV might be shilling this week. David Gladstone, Chairman of Gladstone Land and Gladstone Commercial, is someone who I listen to regularly, and his commentary on LAND's core constituency was thrilling to me:
"The overall food segment, and more particularly, the food-at-home segment, both continue to outpace overall inflation. We expect demand for food and crop pricing to continue to stay strong, and we believe our current portfolio is poised to benefit from continued high inflation."
LAND, and LANDO and LANDM, fit today's zeitgeist perfectly.
Gladstone Commercial (GOOD) , another one of David Gladstone's family of companies, is in a much more challenging situation. In fact, GOOD recently reduced its common dividend (from $0.125/mth to $0.10/mth), something that David Gladstone sheepishly noted on the conference call that he had only been forced to do once in the past 30 years.
The challenge for GOOD is to manage the lackluster economic environment, higher rates, particularly in its office segment, which owns office space and leases it to commercial tenants. Gradually, and not unintentionally GOOD is jettisoning office properties and adding to commercial properties, which tend to be light industrial sites for basic manufacturing or distribution.
The backdrop to that challenging economic backdrop is GOOD's disclosure that only 3.15% of its debt - the amount drawn on its revolving credit facility - is currently floating-rate. Three-Point-One Percent. David and his team know how to manage the credit markets. Full stop.
In true ExCap fashion, as of 10 am ET this morning, neither of the Gladstone commercial preferred series - GOODN and GOODO - had traded a single share. That's what I like. Boring, and predictable. GOOD management also noted on the call that they have begun buying back the Series G preferred - GOODO - in small fashion ($180k out of a $20mm total authorization across GOODO and GOODN) but even that minor evidence of an incremental buyer is very reassuring to an existing holder. Like ExCap
Finally, this week, Tellurian (TELZ) reported earnings. As mentioned in several Real Money columns, ExCap owns Tellurian's 8.25% Senior Notes due 2028. TELZ is exchange-listed and currently trading at 72 cents on the dollar, which is slightly above where I bought them. In true Tellurian fashion, this earnings release was met not with a conference call or even a thorough earnings report. But, your faithful Portfolio Guru did manage to dig through TELL's 113-page 10-K filing.
The key number there was the $474 mm in cash Tellurian highlighted in its release. My analysis of the 10-K shows that the cash hoard was actually $508 million at 12/31/22, including some cash classified as restricted.
Tellurian is going to keep marketing its Driftwood LNG project to potential off-take buyers, and I would stay tuned for potential news there. The LNG area has been very active of late, and I expect that TELL's Chairman Charif Souki and CEO Octavio Simoes have been on a lot of first and second dates in the past few months.
In the meantime, TELL has that largest cash buffer plus the output (which increased fourfold year-on-year in 4Q22) from the natural gas well it owns in the Haynesville Shale, which straddles Texas, Arkansas and Louisiana.
Natgas prices are reacting well today to the EIA's report of a 71 bcf draw last week, and I believe we have thankfully seen the bottom in natgas pricing, especially with a nasty winter weather system working its way across the Continental US this week.
