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September 26, 2007

Key Questions Heading Into Earnings Season

With quarterly earnings reports set to pour in starting next week, I thought I'd provide a brief overview of what to look for in each of Northlake's individual stock holdings. Given recent volatility in stocks prices and growing concerns over the future of the US economy, 3Q earnings and guidance commentary may be the most important issued in several years.

Apple: With the stock surging to new highs, the bar has been set much higher for the quarter. Leaving aside the "beat and raise" mentality surrounding the shares, I'll be focused on overall margins and average selling prices for iPods. With NAND prices up, the massive beats in the last couple of quarters due to margin expansion are unlikely to repeat. This quarter could represent a normalized quarter, so I'd like to know whether margin levels are sustainable for FY08. One factor that will influence the answer is ASPs on iPods. The refresh of the iPod line announced earlier this month could boost ASPs which have trended sharply lower over the past year as the Shuffle and Nano have gained share relative to hard rive, high capacity iPods. Will the Touch and 160GB Classic shift ASPs upward?

Central European Media Enterprises: Will results in Ukraine bounce back such that the low end of 2007 guidance is increased? Will the surprising revenue gains in Croatia hold and lead to a quicker turn to profitability than expected? Are local currency revenue gains holding? Are estimates in Czech Republic, Romania, and especially Slovakia too low? Keep in mind that CETV is a big beneficiary of dollar weakness against the Euro.

For Comcast, Disney, Endeavor, NII Holdings, Regal Entertainment, and Rogers Communication, please follow the "Continue Reading" link immediately below....

Comcast: The quarter has been ugly with estimate cuts and sour sentiment pushing the stock to a 52 week low earlier this week. Has the bar been reset low enough? Was management being overly cautious in its commentary at conferences last week? How much is the housing slowdown contributing to slower subscriber growth? Is housing a greater factor than investors realize? If so, are investors overly worried about competitive pressures in a maturing broadband market and already mature multichannel TV market? Will margins surprise to the upside due the growing importance of phone susbscribers?

Disney: How much longer can Disney's industry leading, double digit operating income growth last? Does upside remain in the broadcast TV turnaround led by ABC? How much of a boost will ESPN get form its backend loaded revenue recognition? Are cost savings enough to offset incredibly difficult comparisons for the movie studio? Is performing across all windows (including merchandising) than assumed compared to the phenomenal merchandising success of Cars? Is theme park attendance holding in the US despite increasing signs of cutbacks in consumer spending? Is there still margin upside in theme parks?

Endeavor Acqusition/American Apparel: The deal is set to close in the next few months but faces a deadline. The company presented at a Wall Street conference on September 26th. I am looking for an update on timing of the closing? Will 3Q results mirror the great margins and same store sales enjoyed by AA in 2Q? 2Q results suggest guidance is too low. Is there upside to estimates? Does AA plan an equity offering after completion of the acquisition?

NII Holdings: Is there an update on the timing and level of investment to expand the network in Brazil and build the network in Chile? Has subscriber growth accelerated in Mexico will the completion of the geographic expansion of the network? Are margins starting to expand in Mexico now that investment levels are winding down and new subscribers are coming aboard? Is there any sign of slowing wireless growth throughout Latin America given the slowing economy in the US?

Regal Entertainment: What are the plans for excess cash on the balance sheet that was held back from the proceeds of the National Cinemedia (NCMI) IPO? Will margins hold, particularly on film costs, given the large number of massive hit movies in 3Q that burned out quickly (studios keep a much higher percentage of ticket revenue in the first week or two a movies is in theatres)? If upside occurs in 3Q, what will be done with the excess cash flow? Are acquisitions still the plan or does the possibility of another special dividend exist? Are apparently easy 4Q box office comps real? Does RGC have more upside from its ownership of NCMI than previously thought?

Rogers Communication: Is the slowdown in broadband and basic growth in US cable appearing in Canada? Can Rogers maintain the market share and margin expansion in wireless? Will the cracks that appeared in competing Canadian wireless company's 2Q results begin to impact Rogers? Is there an update on use of the rapidly growing and significant free cash flow? I'd like to see a much larger annual dividend or a special dividend? Are recent acquisitions of media properties likely to continue? How is the integration of recent acquisitions proceeding?

Posted by Steve Birenberg at September 26, 2007 01:02 PM in All Positions