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Don’t cry for me BHP Billiton

It’s been a dream run for stockmarkets so far in February. The S&P ASX 200 has climbed 3.7% this month so far, and we’re only just over half way through!  The market was up 0.2% in early morning trade today, thanks to some strong earnings results.

As Invast expert Peter Esho tweeted…  “Talk about big IPOs coming, low interest rates, earnings beating estimates. Let’s face it, we’re in the early stages of the next major bull market.”

The party’s started, Foolish readers — turn up the music, break out the party hats, and prepare to FILL YOUR BOOTS.  The team at Motley Fool Share Advisor were seen dancing around the office today after two of the stocks on their scorecard jumped 6% higher after reporting excellent results.

Strong results today from Arrium (ASX: ARI), ex-OneSteel, Asciano (ASX: AIO) and Monadelphous Group (ASX: MND) have driven the market higher.  And the good news keeps on coming…

9 days of bull for BHP Billiton

The world’s largest miner, BHP Billiton (ASX: BHP) has today reported an 83% jump in interim net profit to US$8.1 billion. The company even increased its dividend by 3% to US 59 cents.  Shares in BHP were up 1.6% to $38.63 at the time of writing. Remarkably, BHP shares have now risen nine days in a row, its longest winning streak since July 2009.

Motley Fool General Manager Bruce Jackson is not sure whether to laugh or cry.

He’s been keen to add to his family’s holding in BHP Billiton, but has been patiently waiting for a lower entry price.  Bar some general market melt-down, it looks like he’ll simply have to make good with what he’s already got… and reflect on his folly of stubbornly not paying $30.43 back in June last year to top up his holding in the Big Australian.

Back to reporting season…  I note Sonic Healthcare’s (ASX: SHL) profit has soared 17.7%, increasing its dividend by 8% to 12.15 cents.  I also note the mining services company that I mentioned last week, Cardno  (ASX: CDD), has reported a 7% rise in net profit, and an increase in its dividend.

What’s not to like about those juicy rising dividends? It’s yet another reason why term deposits won’t make you rich, and why investing in shares is great for your financial health. In certain circumstances, it can allegedly also enhance your looks.

Coca-Cola losing its fizz?

Despite the good results above, it hasn’t been all that great for some sectors.  Coca-Cola Amatil’s (ASX: CCL) full year profit is down a WHOPPING 83% to $80 million, after taking a $423 million hit on SPC Ardmona write-downs.  Shares in the company are currently trading down a bubble-bursting 6%.

The soft drink giant’s decision to spend $524 million diversifying its earnings in 2005 by acquiring the fruit and vegetable processor is a classic case of ‘diworsification’, destroying shareholder value.  At the time of the acquisition, managing director Terry Davis said…  “The acquisition of SPC Ardmona provides an opportunity for CC Amatil to complement its existing beverage business with leading brands in the ready to eat packaged fruit sector.”

Bank of America Merrill Lynch analyst David Errington was scathing in his criticism of Coca-Cola Amatil.  “$730 million has been spent on a business that is currently generating no earnings and which has caused material downgrades and write-downs.”

Coca-Cola Amatil is pouring another $78 million over the next three years into SPC Ardmona, but it remains to be seen whether that will be money well spent.  Mr Errington says diversification rarely works, and management would do better to reinvest in existing core businesses.  You don’t have to look far to see the consequences of a truly bad acquisition, with Forge Group falling into administration after one of its ‘diworsifications’ virtually killed the company.

Pants down

Undies maker Pacific Brands (ASX: PBG) has also reported a horrible result, losing $219 million in the past six months, after taking a $252 million hit mainly from write-downs of previous acquisitions.  Investors have pantsed Pacific Brands shares, which have dropped more than 11% in morning trade.

But things may be turning around, with Pac Brands growing revenues for the first time in five years, albeit by just 2.7%.  It was mainly driven by underwear sales, which rose 10% and CEO John Pollaers says second quarter sales were up significantly.

A case of being caught with your pants up?

It’s yet another reminder for investors to be wary of companies making acquisitions. Ignore the feel good comments from management such as “earnings accretive”, “synergies” and “provides opportunities”.  Most of the time, an acquisition is for corporate ego rather than rational business reasons, the destruction of shareholder value often being the inevitable outcome. Buyer beware!

Petrol prices to skyrocket

Another acquisition is giving one transport company and its shareholders one giant petrol-fueled headache.  The NSW government has taken the unusual step of warning motorists to be sensible, after 400 Cootes petrol tankers were ordered off the road.  Fears are rising that the state will experience fuel shortages and soaring petrol prices, with Cootes supplying around a third of all petrol stations in NSW.

ABC News reports that close to half of the company’s fleet failed spot inspections.  NSW Roads Minister Duncan Gay says…  “We don’t believe that there is a huge shortage.”  Just a minor shortage then… perhaps?  He also added that he hoped service station owners aren’t trying to gouge the public (by raising prices).

Cootes has also grounded its entire Victorian fleet, after VicRoads found 25 defective trucks out of 32 trucks inspected.  It’s not great news for McAleese (ASX: MCS), which acquired Cootes in 2005. The company just can’t take a trick at the moment, coming on top of recent news that it had lost national contracts with BP (NSW) and Shell, as well as deciding to cancel its contract with 7-Eleven.

McAleese now says it expects to report a $37.9 million loss for the first half of this financial year, and a $22 million loss for the full year, compared to its prospectus forecast of a $36.5 million profit.  Shares in McAleese has slumped 47% since its IPO in November 2013, including more than 24% today alone.

McAleese is a low quality, capital intensive business, and was offered to investors at a bargain basement price to get it over the line. You get what you pay for sometimes.

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Mike King holds positions in Coca-Cola Amatil.

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