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Cablevision Overpays for Newsday

editor@secinvestor.com (SECInvestor.com) — Mon, 12 May 2008 18:15:28 GMT

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New York cable company Cablevision Systems Corp. (NYSE: CVC) beat an offer from Rupert Murdoch’s News Corp. (NYSE: NWS) to buy the newspaper Newsday from Tribune Co. – in a deal that has Cablevision almost certainly overpaying.

Tribune will get $612 million in exchange for Cablevision acquiring a 97% stake in Newsday plus an additional $18 million in prepaid rent. Tribune will keep a remaining 3% stake in Newsday worth $20 million. The deal values the newspaper at $632 million minus the value of the rent included in the deal.

Newsday had a circulation of 379,613 in the six months through March 31 – nearly 5% less than a year earlier, though the newspaper still had EBITDA of $80 million last year.

Cablevision hopes to use Newsday to increase its ability to advertise in the greater New York City area. Tribune is happy to sell because the company carries $13 billion in debt on the books.

The real question is if Murdoch walked away from the deal last week at $580 million because the economics no longer made sense, what makes Cablevision think they can make the deal work at a higher price tag - $50 million higher?

In the statement announcing the deal, Cablevision said it will generate substantial cash flow from the deal as they leverage Newsday for more local ads and subscriptions – Cablevision shareholders better hope such promises come true.

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Circuit City Acquisition Looks Very Likely

editor@secinvestor.com (SECInvestor.com) — Fri, 09 May 2008 20:40:36 GMT

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Circuit City (NYSE: CC) is taking the first steps towards a potential $1 billion merger bid with Blockbuster (NYSE: BBI) by allowing the video rental chain to conduct due diligence. The electronics retailer also received a letter from activist investor Carl Icahn saying that he is prepared to buy the company if Blockbuster cannot secure its own financing on its own or get shareholder approval. The move sent shares more than 5% higher on the day.

This news is music to the ears of Circuit City shareholders. Blockbuster pledged to purchase the company for no less than $6 per share, subject to due diligence. The fact that a standby offer is now in place by Carl Icahn makes a $5+ bid nearly certain. Speculations are now waiting to hear the results of the due diligence. If no problems are found, shares could rally significantly higher to the $6 per share minimum offer.

Blockbuster's move to acquire Circuit City comes amid a continued turmoil in the movie rental business. Competitor Movie Gallery recently filed for Chapter 11 bankruptcy amid increasing competition from video-on-demand and mail-order services like NetFlix (NDAQ: NFLX). Meanwhile, movie piracy continues to rise at a shocking rate and further eat into margins. Blockbuster is hoping that this diversification into electronics would change things.

In the end, it appears that a deal is relatively certain now given the due diligence agreement and Carl Icahn's standby offer. The price of the deal remains at the top of the list of concerns for shareholders, but this won't be determined until due diligence is completed successfully. Combined, these factors make CC a stock worth watching closely!

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Citigroup Finally Makes Divesture Plans

editor@secinvestor.com (SECInvestor.com) — Fri, 09 May 2008 19:15:25 GMT

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Citigroup Inc. (NYSE: C) CEO Vikram Pandit made the long overdue announcement that he wants to make the bank “fit” by trimming $400 billion in assets. Currently, Citi reigns as the world's largest bank by assets with more than $2.1 trillion on the books compared to Bank of America Corp.'s (NYSE: BAC) $1.74 trillion.

With Citi's shares losing more than half their value over the past year, it is about time that management starts paying attention to who's biggest by market capitalization – not assets on the books. With a market capitalization of about $123 billion, Citi is dwarfed by both Bank of America, at more than $164 billion, and J.P. Morgan Chase (NYSE: JPM), at nearly $158 billion.

In all fairness, current CEO Pandit isn't to blame for Citi's bloated state. When he took over this last December, he inherited the boneheaded legacies of CEOs Sanford Weill and Charles Prince. Pandit has already begun cutting the fat by getting rid of CitiCapital and its $13 billion in assets, selling office buildings, and unloading more than $12 billion of leveraged loans.

Despite these efforts, the total assets sold so far amount to not even $30 billion – to get to $400 billion, he has a long way to go.

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MicroFace: Microsoft's Renewed Pursuit of Facebook

editor@secinvestor.com (SECInvestor.com) — Wed, 07 May 2008 20:17:43 GMT

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After pulling its offer to purchase Yahoo! Inc. (NASDAQ: YHOO), Microsoft Corporation (NASDAQ: MSFT) not only finds itself with about $40 billion in previously tied-up funds but also needs a new strategy to have a better online presence.

Well, according to the Wall Street Journal, that new strategy might just be purchasing an even hotter Internet property, Facebook. Though neither Facebook nor Microsoft have officially commented on the rumor, the WSJ reported that Microsoft bankers have sent subtle message to see if Facebook would be open to an outright acquisition.

Microsoft already has a small interest in Facebook, purchasing less than 2% of the company last October for a staggering $240 million. Using these multiples, Facebook would be worth at least $15 billion.

Facebook is considered one of the most valuable destinations on the Internet for not only its user growth rates but the time each user spends on the site. With social network, chat, photo sharing and games, Facebook's 70 million active users are incredibly loyal.

Facebook founder Mark Zuckerberg, already one of the youngest self-made billionaires in history according to Forbes, has proven himself a very savvy player – refusing to sell the company in the early stages in favor of building it organically first.

At all of 23 years-old, however, a multi-billion dollar payday might just persuade Zuckerberg to sell.

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The Oracle Speaks

editor@secinvestor.com (SECInvestor.com) — Tue, 06 May 2008 21:22:57 GMT

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Berkshire Hathaway, Inc.'s (NYSE: BRK.A) famous leader Warren Buffett and his second-in-command Charlie Munger spoke at length to reporters this last weekend at the the company's annual shareholder meeting, below are some of the highlights as reported by Money Magazine's Jason Zweig:

In response to a question from Barbara Kiviat of Time on how he and Munger control their emotions, Buffett replied: "[It] comes about from having an investment philosophy grounded in the idea that a stock is a piece of a business. If you look at it that way, there's no reason to get excited whether some analyst is recommending it or the company is splitting the shares two-for-one, or whatever. The only way to drive the extraneous thoughts out of your mind is to have a philosophy. And for us that philosophy comes from Benjamin Graham and The Intelligent Investor, especially chapters 8 and 20. It's not very complicated stuff."

"You have to have the right temperament. I tell the students who come visit me that if you have more than 120 or 130 I.Q. points, you can afford to give the rest away. You don't need extraordinary intelligence to succeed as an investor. You need a philosophy and the ability to think independently...It doesn't make any difference what other people think of a stock. What matters is whether you know enough to evaluate the business," he opined.

"You should be able to write down on a yellow sheet of paper, 'I'm buying General Motors at $22, and GM has [566] million shares for a total market value of $13 billion, and GM is worth a lot more than $13 billion because _______________." And if you can't finish that sentence, then you don't buy the stock. [Note: Buffett mentioned GM for illustrative purposes only.] All this requires some temperamental detachment from other people's behavior. Both Charlie and I have a natural instinct in that direction. We value our opinions more than others' -- perhaps to an extreme!"

Kiviat followed up by asking whether they mind being regarded as "a bastion of calm" by others. Buffett simply stated, "I think they're probably right," while Munger was more loquacious: "Not only are they right, but it's a huge advantage to us to get the reputation of being wiser and stronger than other places. Would any of you object to being considered wiser and stronger when you're trying to get anything in life? The key is not to be seduced by crazy ideas, but instead just stick to the fundamentals year after year. Academia doesn't get too interested in us -- we're too simple. What would the professors do? A great many of the formulas [they use to analyze securities and markets] are dead wrong. They exist purely to give the intellectual class something to do. We don't do anything just exercise our intellectual proclivity for mathematical formulas."

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Microsoft Shoots Down Yahoo Deal

editor@secinvestor.com (SECInvestor.com) — Mon, 05 May 2008 19:33:33 GMT

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After trying for months to complete a much publicized merger, Microsoft Corporation (NASDAQ: MSFT) officially dropped its bid for Yahoo! Inc. (NASDAQ: YHOO), for now at least. Microsoft released the full text of CEO Steve Ballmer's letter to Yahoo CEO Jerry Yang announcing its decision:

May 3, 2008

Mr. Jerry Yang
CEO and Chief Yahoo
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089

Dear Jerry:

After over three months, we have reached the conclusion of the process regarding a possible combination of Microsoft and Yahoo!.

I first want to convey my personal thanks to you, your management team, and Yahoo!’s Board of Directors for your consideration of our proposal. I appreciate the time and attention all of you have given to this matter, and I especially appreciate the time that you have invested personally. I feel that our discussions this week have been particularly useful, providing me for the first time with real clarity on what is and is not possible.

I am disappointed that Yahoo! has not moved towards accepting our offer. I first called you with our offer on January 31 because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62 percent premium at that time reflected the strength of these convictions.

In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer.

Also, after giving this week’s conversations further thought, it is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders. This approach would necessarily involve a protracted proxy contest and eventually an exchange offer. Our discussions with you have led us to conclude that, in the interim, you would take steps that would make Yahoo! undesirable as an acquisition for Microsoft.

We regard with particular concern your apparent planning to respond to a “hostile” bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons:

First, it would fundamentally undermine Yahoo!’s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them. This would undermine the reliance on your display advertising business to fuel future growth.

Given this, it would impair Yahoo’s ability to retain the talented engineers working on advertising systems that are important to our interest in a combination of our companies.

In addition, it would raise a host of regulatory and legal problems that no acquirer, including Microsoft, would want to inherit. Among other things, this would consolidate market share with the already-dominant paid search provider in a manner that would reduce competition and choice in the marketplace.

This would also effectively enable Google to set the prices for key search terms on both their and your search platforms and, in the process, raise prices charged to advertisers on Yahoo. In addition to whatever resulting legal problems, this seems unwise from a business perspective unless in fact one simply wishes to use this as a vehicle to exit the paid search business in favor of Google.

It could foreclose any chance of a combination with any other search provider that is not already relying on Google’s search services.

Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path. Instead, I hereby formally withdraw Microsoft’s proposal to acquire Yahoo!.

We will move forward and will continue to innovate and grow our business at Microsoft with the talented team we have in place and potentially through strategic transactions with other business partners.

I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.

But clearly a deal is not to be.

Thank you again for the time we have spent together discussing this.

Sincerely yours,

Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation

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Back to Reality for Ford

editor@secinvestor.com (SECInvestor.com) — Fri, 02 May 2008 19:02:44 GMT

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For a few weeks, Ford Motor Co. (NYSE: F) seemed to be on a roll. First, it was announced that a study found new Ford vehicles in a statistical tie with Honda Motor Co. (NYSE: HMC) vehicles for best in initial quality.

Then, Ford announced a shocking first quarter profit of $100 million compared to a loss of $282 million for the same period last year. CEO Alan Mulally’s turnaround plan for the company - heavy cost reductions, such as cutting expensive North American jobs, combined with new vehicle models - was hailed as a success by many, including billionaire Kirk Kerkorian who announced he had amassed a 4.7% stake in the company.

The sum of these announcements led to a very good two weeks for Ford stock, but many investors seemed to be forgetting the harsh big picture: in a slowing economy with record-high fuel price, Ford continues to rely on expensive trucks and SUVs for its profits. Not only that, but the economical models it does have are still considered far inferior in long-term quality to Japanese automakers' Honda and Toyota Motor Corp. (NYSE: TM), which contributes to the continued erosion of Ford's U.S. market share.

Well, Thursday Ford share got a dose of reality when it was announced that light truck sales fell 18.1% in April compared to last year. Unfortunately for Ford, there is no reason to predict this trend ending any time soon.

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Morningstar Surges on Positive Results

editor@secinvestor.com (SECInvestor.com) — Fri, 02 May 2008 18:50:43 GMT

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Morningstar, Inc. (NDAQ: MORN) shares surged higher after the company announced a sharp increase in first quarter profits. The investment research firm reported a 32 percent jump in profits, which beat analyst expectations by a wide margin. Net income increased to $23.1 million, or 47 cents per share, on revenues of $125.4 million. At least one analyst also raised its price target for the stock to $72 per share, which represents a 21% premium.

"We’re pleased with our results during the quarter,” said Joe Mansueto, chairman and chief executive officer of Morningstar. "We continued to generate healthy organic revenue growth, driven by strong gains in both Investment Consulting and Licensed Data. Assets under advisement for Investment Consulting grew 36% compared with the first quarter of 2007.

"We faced a headwind as the market declined, though, resulting in slightly lower asset levels in the first quarter of 2008 compared with the fourth quarter of 2007. We’ve also seen signs of belt-tightening among some of our clients, but it has not been widespread.

“Our operating margin increased by about 2 percentage points compared with the first quarter of 2007, and we continue to see opportunities across all segments of our business. We have a strong balance sheet and ended the quarter with more than $215 million in cash and investments and no debt, after paying annual bonuses and completing our acquisition of Hemscott’s data, media, and investor relations Web site businesses.

"With the addition of Hemscott, we’re creating a world-class global equity database and expanding our international operations. We’ve moved quickly to integrate Hemscott’s sizable data processing center in India into Morningstar, which is already benefiting our operations. The fund data business we acquired from S&P last year also contributed to revenue growth during the quarter. As a result of these acquisitions, as well as continued organic growth, our international operations now account for about one-fourth of our revenue."

Morningstar is a provider of independent investment research to investors worldwide. The company offers a line of Internet, software and print-based products for individual investors, financial advisors and institutional clients. It also provides asset management services for advisors, institutions and retirement plan participants.

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The Three Reasons Oil Declined

editor@secinvestor.com (SECInvestor.com) — Thu, 01 May 2008 17:47:17 GMT

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Exxon Mobile Corporation (NYSE: XOM) may have reported near-record earnings yet again, but huge numbers aren't good enough when expectations are high. The oil giant reported near-record profits of $10.89 billion on revenues of $116.8 billion, but shares dropped more than four percent before recovering slightly on the day. Many investors remain bullish on the energy markets, but this short-term blip has certainly sent a shockwave.

The big problem was with crude inventories that came in much higher than expected. This is bad news for oil producers like Exxon Mobile since a higher supplier typically means a lower price assuming that demand remains consistent. Meanwhile, a Nigerian strike that has kept oil prices at a high is coming closer to a resolution. This should help boost Exxon's oil output, but will likely lead to even higher crude supply.

The dollar also rallied today after bullish comments emerged from the Federal Reserve meeting that took place yesterday. Since oil is a dollar-priced commodity, the move had an adverse affect on crude prices. After all, an increase in purchasing power for the dollar means that more oil can be bought for the same dollar price. This means that the price of oil must drop in order to remain in equilibrium with the dollar's value.

In the end, these three factors combined with supply problems for Exxon Mobile led to a decline not only in this oil giant but also many other players in the sector. While this may only be a short-term blip, investors should be wary of an improving dollar and supply issues going forward. After all, the sharp rise in oil prices is only due to a small number of factors that could quickly change and slow down the dramatic growth!

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Amkor Surges on Impressive Results

editor@secinvestor.com (SECInvestor.com) — Thu, 01 May 2008 17:03:18 GMT

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Amkor Technology, Inc. (NDAQ: AMKR) added more than 20% to its shares midday Thursday after releasing impressive first quarter results. The Arizona-based semiconductor assembly company had net income more than double to $72 million, or 36 cents per share, from $34.6 million, or 18 cents per share, a year earlier.

These results handily beat Wall Street earning expectations of 26 cents per share - though Amkor sales missed expectations by about $1 million, coming in at $699.5 million. The strong earnings were a result of increased wireless sales and favorably currency exchange rates.

“We exceeded our sales and profitability targets for the first quarter due to select customer demand in certain wireless communications and networking applications, which partially offset the overall seasonal slowing that we had expected. Our first quarter net income included an approximately $9.5 million foreign currency gain principally due to the depreciation of the Korean won and the resulting remeasurement of our Korean employee benefit plan liability," sand CEO and Chairman James Kim.

The company also made strides by repaying over $100 million of debt in the first quarter - though the company still carries more than $1.6 billion of debt, this and previous pay-downs lowered interest expenses by 21% from a year earlier. Amkor expects net income for the second quarter of the year to be 32 cents to 36 cents per share.

Even with Thursday's gains, Amkor shares are significantly lower than their 52 week high of over $16 per share. As of publication, shares were up 21.62% to $11.61 per share.

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How to Profit from Time Warner Cable's Separation

editor@secinvestor.com (SECInvestor.com) — Wed, 30 Apr 2008 17:41:58 GMT

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Time Warner Inc. (NYSE: TWX) finally announced that it will separate its majority-owned cable division after months of speculation. The media giant offered few details of how it would structure the transaction, but said that a complete separation of the 84% stake is in the best interest of both companies' shareholders. The announcement also comes at a time when Time Warner is struggling to revive its AOL unit and lift the margins on its film and television businesses.

Investors should watch this situation carefully as it could mean opportunity for profit. A transaction structured as a spin off could mean huge value creation for shareholders of Time Warner Cable (NYSE: TWC), but only after a few months. The theory is that most TWX shareholders that receive TWC stock in a spin off situation will sell it, which will put substantial downside pressure on TWC despite no change in fundamentals.

The selling pressure would drop the share price and reduce Time Warner Cable's earnings multiple. This undervaluation could persist for some time, but will likely be corrected when the next earnings announcement is made and analysts recalculate where the shares should be at historic multiples. These analysts will then likely upgrade the stock and recommend that investors pick up more shares to take advantage of the undervaluation.

Many investors are also closely watching the parent Time Warner in the event of a sale of its stake. This would generate substantial proceeds for the parent company that it could use to fund a share buyback program or boost dividends to unlock value. Share buybacks reduce the number of outstanding shares and therefore increase the earnings per share number and eventually the earnings multiple. Meanwhile, boosting dividends also typically leads to a higher valuation due to common investment models put in place to value companies.

In the end, there are many different routes that Time Warner could take to get rid of its stake and all of them are worth watching. Instances like these often provide investors with the ability to profit handsomely!

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Lear Surges Amid Surprising Results

editor@secinvestor.com (SECInvestor.com) — Tue, 29 Apr 2008 21:15:10 GMT

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Auto-part maker Lear Corp. (NYSE: LEA) is up more than 20% after announcing surprising first quarter results. The Michigan-based company defied the weak economy by posting a 57% increase in profit from a year earlier while reaffirming its full-year earnings outlook.

Not ignoring the slow U.S. automarket, Lear Chariman, CEO and President Bob Rossiter said, ""Although we are facing significant challenges in North America, Lear's underlying operating fundamentals remain strong."

The world's largest automotive seat maker reported profits of 64 cents per share compared to expected earnings of only 48 cents per share. Though revenue fell, it still managed to beat expectations.

Most importantly, Lear raised its 2008 revenue projections from $15 billion to $15.5 billion - showing that the company can persevere through a possible vehicle sales downturn. The optimistic first quarter report led to a slew of analyst upgrades of the company's stock to "buy" and "outperform." For the time being, it seems like Lear is immune to the bigger problems facing the U.S. automotive sector.

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Oil Giants Post Record Gains

editor@secinvestor.com (SECInvestor.com) — Tue, 29 Apr 2008 19:10:46 GMT

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BP (NYSE: BP) and Royal Dutch Shell (NYSE: RDS) posted record earnings once again after rising oil prices bolstered profits at the two large gas companies. BP reported a 63% jump in its first quarter net income while Shell announced a 25% increase in its profits. Both companies attributed the better-than-expected profits to higher oil prices that beat expectations across the board. And the news only gets better as oil continues to head higher.

Companies like BP and Shell make money by selling gasoline and crude oil to consumers and companies. Since their profit margins remain the same as a percentage of sales, their net income has increased along with the higher dollar volume spent at the pump. For example, assuming the company makes 20% profit on its sales, a consumer will pay $0.20 for $1/gallon prices but $1 for $5/gallon prices. As you can see, the sharp rise in gas prices sparked a sharp rise in net income.

Oil prices set a new record $119.93 in New York yesterday before profit-taking ensued today. These prices have remained pressured amid an uptick in militant attacks in Nigeria, however. The Movement for the Emancipation of the Niger Delta has stepped up its attacks on pipelines recently in an attempt to reduce the nation's crude exports. However, overall output came in higher-than-expected at 3.52 million barrels a day compared to analyst estimates of 3.37 million per day. This news sent oil prices lower on the day, but prices are still expected to remain high.

ConocoPhilips and Cheveron are also expected to report better earnings this quarter on May 1st and 2nd, respectively.

Billionaire Activist Amasses Stake in Ford

editor@secinvestor.com (SECInvestor.com) — Mon, 28 Apr 2008 19:05:09 GMT

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Billionaire activist investor Kirk Kerkorian is making waves Monday by announcing that his Tracinda Corp. not only has amassed 100 million shares of Ford Motor Company (NYSE: F), but that he is making an additional offer of $8.50 per share for another 20 million shares.

Worth more than $18 billion largely from plays in Las Vegas, Kerkorian nonetheless has a history of entangling himself with other Detroit automakers like General Motors Corp. (NYSE: GM) and Chrysler. This announcement is a signal that he has faith in the turnaround efforts of Ford CEO Alan Mulally.

With the purchase of an additional 20 million shares, Kerkorian would have more than a 5% stake in Ford, a company still dominated by family interests. Despite going public in 1956, the descendants of Henry Ford still control 40% of the voting rights in the company - and given their track record, this almost definitively rules out and acquisition. This is important because such a rapid accumulation of shares by an outsider is often a build-up to a take-over attempt.

Kerkorian's logic in building such a large stake in Ford remain somewhat mysterious. Though the company reported a surprising first quarter profit, it still expects to lose money overall in 2008. Ford's truck and SUV-dependent lineup continue to be a huge liability with record gas prices.

According to a release Kerkorian, though his company, said "Tracinda has been following Ford closely since the company released its fourth quarter 2007 results which indicated that Ford’s management was starting to achieve highly meaningful traction in its turnaround efforts. Last week this was reinforced by Ford's first quarter 2008 results, achieved despite the difficult U.S. economic environment. Tracinda believes that Ford management under the leadership of Chief Executive Officer Alan Mulally will continue to show significant improvements in its results going forward."

Whether Kerkorian proves to be right, only time will tell, but for now Ford faces an uphill battle.

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A Look Underneath RadioShack's Earnings

editor@secinvestor.com (SECInvestor.com) — Mon, 28 Apr 2008 19:00:27 GMT

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RadioShack Corporation (NYSE: RSH) shares fell more than ten percent on the day after the company posted a sharp drop in first quarter earnings. The electronics retailer reported that its profits fell 9 percent, hurt by weak results from its Sprint wireless partnership. Meanwhile, sales fell four percent but managed to come in ahead of expectations.

"We are pleased with the overall outcome for the first quarter of 2008, especially in light of the difficult economic environment. After a very challenging month of January, our sales and earnings trends improved significantly during February and March, resulting in an average comp store sales decrease of 1.2% for the two months," said Julian Day, Chairman and Chief Executive Officer.

The real driver that brought the stock down were bearish comments made by analysts. They noted that the company's lack of a sales pullback was impressive, but it came at a cost. Operating margins missed forecasts and declined for the first time in six quarters. Meanwhile, inventory growth outpaced cost-of-goods sold growth for the first time in eight quarters.

RadioShack has been working to effect a turnaround in recent months, having closed some 500 stores and trimmed other expenses. Analysts noted that these changes have resulted in better stores, but the items in these stories still suffer from lower gross margins and could prove to be a barrier to gross profit dollar growth.

In the end, RadioShack may not seem to be affected by the recession given its better-than-expected sales and earnings, but a quick look beneath the hood unveils continued problems with operating margins that are only exacerbated by issues with its Sprint partnership. Combined, these factors led to today's drop in shares.

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