Elvis has Officially Left the Building
Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It was Dec. 15, 1956, and Elvis Presley was a star.
Ten thousand kids jam packed the fairgrounds in Shreveport and screamed at the top of their lungs for the entire length of the Elvis' 45-minute show. The thunderous uproar was so loud, according to disc jockey Frank Page, that it was almost impossible to tell if Elvis was singing, or even if the band was still playing. After Elvis had given his final encore and left the stage, many of his fans continued to scream for him, which interfered with the show – at which point, Horace Lee Logan (Hayride's producer) unwittingly coined a phrase so catchy that it has become part of the national lexicon:
“All right, uh, Elvis has left the building. I've told you absolutely straight up to this point, you know that, he has left the building. He left the stage and went out the back with the policemen and he is now gone from the building.”
– Louisiana Hayride, 1956
Just like the King, these four CFOs have left the building. Why is that so important? In the words of another Fool:
“While I'm sure there are some CFO's that wake up one morning and decide that they need to "spend more time with their family" immediately, I'd bet there are at least half that either have a boss like Scrushy pushing them to fudge numbers or simply know the company is in bad financial shape.”
Therefore, in the spirit of “If the CFO is out, I'm out!,” I present to you four companies who's CFOs have recently hit the door.
CFOs Departures by Company (November, 2012)
Industrial services company Harsco (NYSE: HSC) recently revealed that both its CFO and Treasurer have resigned.
What's going on with Harsco? Harsco's sales declined $99 million in the quarter to $757 million from $856 million in the third quarter of 2011. Foreign currency translation also negatively impacted sales by $41 million in the quarter. CEO Patrick K. Decker announced in the company's Q3 investor relations call that he is –
" –in the early stages of what I call my active listening period. I've been traveling around the world meeting with each of the business unit leadership teams. I visited a number of our customer sites and met directly with a number of our top customers to gain their perspectives on their markets and our performance. I've also visited a number of our operating facilities and manufacturing centers."
So what? In this Fool's admittedly unscientific, rule-of-thumb investing opinion, two-for-one Specials are a YIELD sign of Cecile B. DeMille-sized epic proportions. Caveat emptor.
PetSmart (NASDAQ: PETM) revealed that its CFO, Lawrence P. Molloy will step down from that role in June 2013 to spend more time with his family. He will then remain with the company as a consultant until March 2014. As part of Molly's separation agreement, he will continue to receive his monthly salary of $45,833 until he leaves the CFO post, and an additional $40,833 for the duration of his employment with the company. Molloy will also retain his bonus target of 85% of his base for both 2012 and 2013, and will receive a prorated portion of his performance shares for 2014.
What's going on with PetSmart? Nothing – so far as I can tell. For the third quarter, earnings per share were $0.75, up 50% when compared to $0.50 for the same period last year. Comparable store sales, or sales in stores open at least a year, grew 6.5%. Comp transactions, which PetSmart uses as a proxy for traffic, were up 2.3%.
Let's take a closer look at Mr. Molloy's compensation package.
The following table is taken from PETM's DEF 14A Proxy Statement filed on May 4. Mr. Molloy's share of performance-based Equity Awards increased significantly in 2011.
(Source: CFO Moves)
In addition, the size of Mr. Molloy's compensation package appears to indicate a Termination in Connection with a Change of Control. Is a changing of the guard under way at PetCo?
(Source: PetSmart 14A Proxy statement, Morningstar)
Zygna's (NASDAQ: ZNGA) CFO Dave Wehner jumped ship in November for the company who's policies were instrumental in Zygna's decline, i.e. Facebook (NASDAQ: FB). Wehner was there from the beginning, guiding Zygna from startup to IPO. The fact that Mark Zuckerberg readily took Wehner on without bias speaks volumes for Zygna's bleak prospects. Wehner will be replaced by Mark Vranesh as Zygna's CFO.
What's wrong with Zygna? Zygna's core gaming business is imploding, thanks to Facebook policy actions separating Gamers from Facebook's non-gaming pool, which has severely hampered Zygna's viral marketing efforts. Zygna's user base is also rapidly eroding due to App-based game play. While Zygna favorites such as Texas Hold'Em and Zygna Poker are weathering the race to mobile well, there simply aren't enough Zygna games in the App Store Top 25 to warrant the company's $2.7 billion market cap.
On Oct. 9, Best Buy (NYSE: BBY) announced that it was conducting a search for a new Chief Financial Officer. Jim Muehlbauer, executive vice president and current chief financial officer, will continue to support the company through the end of the 2013 fiscal year.
What's wrong with Best Buy? Best Buy is suffering from being a retail electronics brick-and-mortar in an Online discount world. Q3 EPS saw a 94% decline YoY. The company has also burned through a lot of cash, lately. The company reported cash on hand of $309 million. Last year's cash-on-hand? $2 billion.
Caveat: Just because the CFO is resigning, retiring or moving on doesn't mean that the company he or she is resigning, retiring or moving on from is a ticking time bomb. Sometimes power simply changes hands, as is the likely case with PetSmart. The CFO may be tired of the rat race. Likewise, the decision may be due to the CFO's performance in some area. The company's Board may feel that a younger, more aggressive or more experienced CFO is in the company's and shareholder's best interests.
Whatever the reason, sudden departures – especially C-Level departures – are major events that demand investor scrutiny. Owning stock is about more than pieces of paper, it's co-ownership of a large, and hopefully profitable, business enterprise. While we are always open to being pleasantly surprised (as we were with PetSmart), the fact remains that once Elvis has left the building, the show is usually over.
FatalX has no positions in the stocks mentioned above. The Motley Fool owns shares of Best Buy and Facebook and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Best Buy, Facebook, and PetSmart. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!