Wednesday, November 12, 2008

Dialing For Dollars At Office Depot

Every quarter, public companies are required to hold conference calls to discuss their most recent results. You can usually access a recording of a company's last conference call on the investor relations section of its website. While the written filings of management do give facts and some discussion of results, on the conference calls investors can get a little bit more colour on management's thoughts, especially during the Q&A period.

Although it's rare, sometimes management will even comment directly on the company's stock price. For example, here's an assertion from Office Depot CEO Steve Odland on the quarterly conference call which took place about two weeks ago:

“The stock price doesn’t make any sense. We could monetize any part of our business. We could sell the North American Retail business. We could sell the North American Business Solutions. We could sell country by country. We could package the whole thing. All of these things clearly have been discussed at least on our level and have not gone unnoticed. What we are setting out to try to do is to assure and inform everybody of our liquidity situation. You would have to believe that in order to justify the stock price that we have today, you would have to believe that we were at the end of our liquidity, which is simply untrue.”

Office Depot (ODP) has been profitable throughout the last several years (including through the last recession), but is having a tough year this year (although still positive so far). As a result, it's stock has dropped from over $30 to $2 in the last year. To put some perspective on that stock price, Office Depot's EPS over the last four years has averaged over $1.35 per year!

Of course, listening to management's thoughts cannot replace your own analysis. Many managements simply discuss the glass half full scenario without publicizing the risks. As an example, here's what management of Lehman Brothers had to say on their last conference call:

"We believe that the Lehman of early 2009 will be a significantly de-risked financial institution. I will now provide an update on our liquidity position, which remains very strong. We maintained our cash capital surplus at $15 billion at the end of the third quarter. Our liquidity pool also remains strong at $42 billion, versus a record $45 billion at May 31st."

We all know how that turned out!

Disclosure: None

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