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- 2012 - October - 22nd -

Intrepid Capital tosses hat in the ring with big stake in pro wrestling

by Mark Basch, Contributing Writer

Jordan Slingo says he’s not a fan of professional wrestling. But he and his firm, Jacksonville Beach-based Intrepid Capital Management Inc., recognize a good investment opportunity when they see one.

“It seems like they’re doing a good job of capitalizing on the popularity of the wrestling business,” said Slingo, an analyst at Intrepid.

So when World Wrestling Entertainment Inc.’s stock started to dip last year, Intrepid began buying up shares and it’s now one of the largest stockholders of the Connecticut-based pro wrestling empire.

Intrepid first filed a Securities and Exchange Commission document in January indicating it had acquired 5.9 percent of WWE’s Class A shares and earlier this month, it said in a new filing that it increased its stake to 10.1 percent.

That makes Intrepid the second largest institutional shareholder in WWE behind Royce & Associates, which owns 10.8 percent of the Class A stock.

The investment doesn’t give Intrepid much of a say in WWE’s affairs. Under the company’s stock structure, founder and CEO Vince McMahon maintains voting control by owning nearly all of its Class B stock.

Slingo said WWE’s stock price became attractive after the company in April 2011 announced a cut in its quarterly dividend from 36 cents a share on the Class A stock to 12 cents.

“The market took that news pretty harshly,” said Slingo.

The stock also has been affected by uncertainty over WWE’s plans to launch its own cable television network. Slingo said the company hasn’t said much about its plans for the network, but he expects it to be a positive.

WWE’s stock, which traded at about $18 two years ago, has been trading below $10 for most of this year. That decline caught Intrepid’s attention.

“As we started digging deeper, what attracted us is that it’s actually a very stable business,” Slingo said. “They have a very loyal fan base.”

WWE had revenue of $483.9 million last year, about equal to its revenue level over the past few years. Earnings per share dropped from 71 cents to 33 cents, mainly because of a write-off related to its wrestling film-producing business.

In the first six months this year, revenue was $264.7 million with earnings back up to 36 cents a share.

“It’s still going strong and the core business is doing well,” Slingo said.

Vistakon sales up, but analyst sees problems for JNJ

Vistakon, the Jacksonville-based contact lens subsidiary of Johnson & Johnson, last week reported a 1.6 percent rise in third-quarter sales to $764 million.

The sales were hurt by currency fluctuations that affected foreign sales. Excluding the currency impact, sales would have been up 4.4 percent, Johnson & Johnson said.

Overall, the New Jersey-based health care giant reported sales rose 6.5 percent to $17.1 billion, and adjusted earnings of $1.25 a share were 4 cents higher than the average forecast of analysts surveyed by Thomson Financial. That sent Johnson & Johnson’s stock last week to its highest level in four years.

However, one analyst sees limited potential for the stock in the near future. Before last week’s earnings report, Jami Rubin of Goldman Sachs downgraded Johnson & Johnson from “neutral” to “sell.”

“We see JNJ as lacking transformational pipeline opportunities and less inclined to do shareholder-friendly capital allocation,” Rubin said in her report.

Rubin has been advocating a breakup of Johnson & Johnson’s three divisions into three separate companies: consumer, pharmaceutical and medical devices and diagnostics, which includes Vistakon.

“We see a breakup offering the most potential for upside. As a standalone company, each business could be a leader (based on sales and market share) in its respective industry and, we believe, generate higher returns than JNJ does as a conglomerate,” Rubin said in a report in May outlining her reasoning for a breakup.

She acknowledged that new Johnson & Johnson CEO Alex Gorsky doesn’t seem interested in that strategy.

“Interviews with Mr. Gorsky indicate his preference for getting bigger, not smaller. However, in our view, evidence is building across health care that smaller, more focused companies can perform better than their diversified peers,” she said.

Vistakon has continued to increase sales, but Rubin said the entire medical device division “has been under pressure for several years driven by slowing end-markets, the failure of pipeline investments, product quality issues and increased competition.”

“However, if it were separated as a standalone company, we believe that a focused management team could dedicate more resources to help catch up to peers, and close the portfolio and sales growth gap,” she said.

Gannett profits from political, Olympic ad spending

As expected, Gannett Co. Inc.’s third-quarter results were helped by strong levels of political advertising at its 23 television stations, including WTLV TV-12 and WJXX TV-25 in Jacksonville.

The company also profited from Olympic-related advertising at its NBC-affiliated stations, including WTLV.

Gannett said television revenue jumped 38 percent to $233 million in the quarter, including $37 million related to the Summer Olympics and $41.7 million from political ads.

“We have a strong political footprint with large and strong stations serving the presidential swing states of Ohio, Florida, Virginia and Colorado. Spending has been very strong, as you all know, and we are taking very good shares of that business,” said Dave Lougee, president of Gannett’s broadcasting division, according to a transcript of the company’s quarterly conference call.

The earnings report came a week after Gannett settled a dispute with Dish Network Corp. to continue carrying Gannett’s stations on the satellite service. Lougee said he couldn’t discuss the details of that agreement because of “strict confidentiality terms,” according to the transcript posted on Gannett’s website.

Citigroup CEO shake-up helps stock

Citigroup’s stock hadn’t done well since Vikram Pandit took over as CEO during the banking crisis of 2007, but Pandit found one way to lift the stock last week. He resigned.

His resignation was unexpected and the company did not say why he was leaving, but several published reports said Pandit was forced out after clashing with the board of directors.

Pandit was succeeded by Michael Corbat, Citigroup’s CEO of Europe, Middle East and Africa.

According to Bloomberg News, Citigroup’s stock was down 89 percent since Pandit began as CEO.

Investors reacted positively to the news of his resignation. The stock, which began the week at $34.75, reached a 52-week high of $38.72 last week. But it wasn’t all due to the management shake-up.

Before Pandit resigned Tuesday, Citigroup reported strong third-quarter earnings on Monday. Its adjusted earnings of $1.06 a share were 10 cents higher than the average Thomson forecast.

After the earnings report and before Pandit’s resignation, Raymond James & Associates analyst Anthony Polini raised his rating on Citigroup from “outperform” to “strong buy,” citing “its attractive valuation, improved balance sheet and favorable fundamental outlook.”

“Results were highlighted by higher market-related revenue and net interest income, and strong loan growth,” Polini said in his research note.

Citigroup doesn’t have a banking presence in Jacksonville, but it is one of the area’s biggest employers with its large credit-card operation on the Southside.

Shoe Carnival CEO retires

In a much quieter CEO change, Shoe Carnival Inc. announced last week that Mark Lemond is retiring after 16 years as chief executive, due to health reasons. He will be succeeded by current Executive Vice President Clifton Sifford.

Former Jacksonville Jaguars owner Wayne Weaver, Shoe Carnival’s largest shareholder, remains chairman of the Indiana-based footwear chain.

LPS settles foreclosure charges in Delaware

Jacksonville-based Lender Processing Services Inc. last week announced it has reached a settlement with the Delaware attorney general in a foreclosure-related investigation.

The state of Delaware was investigating allegations that LPS subsidiary DocX falsified documents used in foreclosure proceedings.

LPS said it agreed to pay the state $150,000 in lieu of penalties and reimburse the attorney general’s office $100,000 for fees and costs of the investigation.

The Delaware settlement is a small fraction of the estimated costs to LPS to settle investigations by various federal and state authorities related to DocX, which LPS closed in 2010. The company set aside $78.5 million in reserves in the fourth quarter of 2011 to settle possible legal claims, and reserved another $144.5 million in the second quarter this year.

Dick’s Wings parent improves earnings

American Restaurant Concepts Inc. last week reported its second straight profitable quarter and improved on its results since the second quarter.

The Jacksonville-based company, which franchises the Dick’s Wings restaurant chain, reported net income of $42,375 for the third quarter, up from $5,426 in the second quarter.

Revenue rose 51 percent from the second quarter to $160,527.

“We were able to generate strong sequential revenue growth through a combination of increased franchise fees associated with the new Dick’s Wings restaurant under construction in Nocatee, Fla., and increased royalties associated with greater foot traffic from customers at our existing restaurants and the opening of our second restaurant in St. Augustine, Fla., earlier this year,” CEO Michael Rosenberger said in a news release.

The Dick’s Wings franchise had 16 restaurants in operation at the end of the third quarter.

Atlantic Coast Financial faces delisting, again

For the second time in a year, Jacksonville-based Atlantic Coast Financial Corp. said it could face a delisting from the Nasdaq Global Market because of its low stock price.

In a Securities and Exchange Commission filing, Atlantic Coast Financial said it received a letter from Nasdaq that it is not in compliance with the listing requirement that it maintain a minimum market value of $5 million.

The company can regain compliance if the market value of its publicly traded shares returns to $5 million for 10 consecutive business days during the next six months.

Atlantic Coast Financial received a similar warning from Nasdaq last November, but was able to regain compliance in January.

mbasch@baileypub.com

356-2466

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