<THE EVENING NEWS>
Tuesday, March 3, 1998
DJIA: 8584.83 +34.38 (+0.40%) S&P 500: 1052.02 +4.32 (+0.41%) Nasdaq: 1757.14 -1.40 (-0.08%) Value Line ndx 942.25 +3.37 (+0.36%) 30-Year Bond 100 23/32 -27/32 6.07% Yield
Shares of US Airways Group (NYSE: U) took off today, gaining $4 9/16 to $68 1/16 after a Merrill Lynch analyst upgraded the stock to "near-term buy" from "near-term neutral" and set a 12-month price target of $77 per share. Recently, several market participants and airline industry commentators have taken turns climbing on the US Airways soapbox to scream to the masses that the company is a pristine takeover candidate. While all of the bluster has helped the stock soar toward the heavens over the past year, not one potential suitor has presented itself. Today, the analyst at Merrill threw two more potential acquirers, American Airlines parent AMR Corp. (NYSE: AMR) and United Airlines operator UAL Corp. (NYSE: UAL), into the merger speculation fray. The theory is that US Airways' strong position on the East Coast makes it strategically attractive to both UAL and AMR. Unfortunately, American Airlines (or AMR's American Eagle regional carrier) already serves every major East Coast city, while United is also firmly entrenched in the region. Still, the speculation helped UAL add $4 to $87 1/4 while AMR also rose $4 9/16 to $132 9/16.
Promotional marketing company Cyrk Inc. (Nasdaq: CYRK) shot up $2 1/4 to $15 3/4 after the firm signed a deal with the U.S. subsidiary of Japanese beer giant Kirin Brewing Co. (Nasdaq: KNBWY) to handle all of the promotions for its upcoming marketing campaign. The campaign will attempt to sell the virtues of Kirin Lager, Kirin Ichiban, and Kirin Light to U.S. beer drinkers by offering goodies such as mountain bikes and neon lights emblazoned with the company's moniker, as well as that ubiquitous American marketing tool, the T-shirt. The company tends to manufacture promotional products for companies with well-recognized brands, such as Philip Morris (NYSE: MO) cigarettes, Pepsi-Cola (NYSE: PEP), Mars Inc.'s Snickers and M&M's, and Fidelity Investments. Cyrk hopes to become the leader in the $72 billion promotions industry, and marketing a brand that is not well known in the U.S. will certainly offer enough risk/reward to put the company in the spotlight should it succeed.
In tandem with a reported 10.3% jump in new home starts announced this morning (the largest monthly increase in over four years), Kaufman & Broad Home Corp. (NYSE: KBH) gained $1 7/8 to $28 3/4 after the homebuilder was upgraded by Prudential Securities to "buy" from "hold." Yesterday, the company announced plans to acquire two privately held homebuilders, Hallmark Residential Group and PrideMark Homes. Hallmark, which will fetch some $50 million, will provide the company with access to roughly 4,700 lots in the Houston area. In fiscal 1998, Hallmark is expected to construct and sell approximately 750 new homes, accounting for $73 million in revenues. Kaufman & Broad is hoping to stretch the number of units to be delivered in fiscal 1999 to about 1,000. For its part, PrideMark built and sold about 600 residential homes in Denver and Northern California in 1997, making it the fifth-largest homebuilder in that area. Kaufman & Broad will pay roughly $65 million for the company, which includes 5,500 lots currently owned in PrideMark's hometown of Denver.
QUICK TAKES: Steel and industrial adhesive products maker NS Group (NYSE: NSS) gained $13/16 to $15 after announcing yesterday that it had bought back 167,900 of its shares in the open market as of the end of February... Poultry processor Pilgrim's Pride Corp. (NYSE: CHX) added $3/4 to $13 1/4 after saying yesterday that analysts' expectations for fiscal Q2 EPS of between $0.15 and $0.20 were "reasonable"... Pitt-Des Moines Inc. (AMEX: PDM) tacked on $3 3/8 to $42 after the engineering and construction company reported Q4 EPS of $1.54, up 90% from $0.81 a year ago... Speech recognition software developer Voice Control Systems (Nasdaq: VCSI) rose $15/16 to $7 1/4 after announcing that it has integrated its FreedomRecognition product with Lucent Technologies' (NYSE: LU) open system platform.
Lehman Brothers Holdings (NYSE: LEH) advanced $3 5/16 to $65 15/16 amid renewed speculation that the investment bank may be a takeover target, according to Bloomberg News... Cabletron Systems (NYSE: CS) gained $15/16 to $14 3/16 from its last trade at $13 1/4 reached in after-market trading yesterday. The data communications equipment supplier announced after the bell last night that it would take a $1.28 per share Q4 charge related to the closing of its network products business, which will result in a break-even to slightly negative fourth quarter net income before the charge... Internet commerce company Open Market (Nasdaq: OMKT) gained $2 3/8 to $18 1/8 after receiving three patents for secure payment, electronic shopping cart, and session identifier technologies used for Internet retailing.
Business computer services provider XLConnect Solutions (Nasdaq: XLCT) was driven $4 1/2 higher to $21 3/4 after The Wall Street Journal reported that Xerox (NYSE: XRX) is considering a deal to buy the company for as much as $420 million, or $26 per share. Intelligent Electronics (Nasdaq: INEL), which owns an 80% stake in XLConnect, also rose $3/8 to $7 1/8... Sealright Co. (Nasdaq: SRCO) soared $2 3/8 to $13 1/2 after the food packaging firm agreed to be acquired by Finland's Huhtamaki for $122 million in cash and $80 million in assumed debt. According to Huhtamaki's CEO, the combined company will be the world's leading premium ice cream container maker... Year 2000 problem-solver Accelr8 Technology Corp. (Nasdaq: ACLY) rose $1 to $23 3/4 after reporting fiscal Q2 EPS of $0.14, crushing the First Call mean estimate of $0.08.
Enterprise software company IQ Software (Nasdaq: IQSW) tacked on $1 7/8 to $10 5/8 after reporting Q4 EPS of $0.20, beating the $0.15 forecast from the sole analyst surveyed by I/B/E/S... Microwave test and measurement devices manufacturer ORBIT/FR Inc. (Nasdaq: ORFR) leapt $1 to $12 3/8 on reporting Q4 EPS of $0.08, down 75% from a year ago and 50% below the First Call mean estimate... Philadelphia-based document management firm ImageMAX Inc. (Nasdaq: IMAG) climbed $5/8 to $8 7/8 after reporting a Q4 loss of $0.04 per share compared with a $0.23 per share loss a year ago. The company also said that it has acquired privately owned Document Management Group, ImageTec Inc., and three other companies with combined fiscal 1997 revenues of roughly $8 million.
Sunbeam Corp. (NYSE: SOC) rose another $4 1/4 to $49 7/8 after announcing yesterday that it would acquire Coleman Corp. (NYSE: CLN), Signature Brands (Nasdaq: SIGB), and First Alert (Nasdaq: ALRT) in deals valed at $2.5 billion. Coleman also rose $1 7/8 to $32 13/16, as part of the deal price for that company is valued in Sunbeam stock... Molecular Biosystems (NYSE: MB) jumped $1/2 to $9 1/4 after the developer of ultrasound imaging agents received a patent protecting its invention of using emulsions of gas-forming chemicals as an ultrasound image enhancer... Medical tissue cohesive products maker Closure Medical Corp. (Nasdaq: CLSR) picked up $2 3/16 to $21 1/4 after Lehman Brothers raised its rating on the stock to "buy" from "attractive."
Idexx Laboratories (Nasdaq: IDXX) was lifted $1 15/16 to $16 1/16 after the shares of the distributor of biology- and chemistry-based detection systems were upgraded to "buy" from "attractive" by Bear Stearns... Oil driller Rutherford-Moran Oil Corp. (Nasdaq: RMOC) rose $1 7/8 to $20 1/8 after announcing successes at three of its exploratory wells in the Benchamas Field in Thailand... Clinical and management information services provider Cerner Corp. (Nasdaq: CERN) gained $2 5/16 to $22 15/16 after announcing yesterday that it would acquire Multum Information Services Inc., a privately held supplier of databases and software to the healthcare industry... Oracle (Nasdaq: ORCL) climbed $1 15/16 to $26 1/16 after the database software company was upgraded to "buy" from "hold" by SoundView Financial... PC Connection Co. (Nasdaq: PCCC) jumped $3 3/4 to $21 1/4 after the direct marketer of brand-name computer products sold 3,125,000 shares in an initial public offering today at a price of $17.50 per share.
Compaq Computer Corp. (NYSE: CPQ) dropped $1 3/8 to $29 3/4 after Merrill Lynch lowered its rating on the world's largest supplier of personal computers to "intermediate-term accumulate" from "buy" while maintaining a "long-term buy" rating. Merrill Lynch also cut its first quarter earnings estimate for Compaq to $0.32 per share from $0.37 and its year-end estimate to $1.80 per share from $1.85. The downgrade came after Compaq's CFO Earl Mason said at a Merrill Lynch Technology conference that the pricing environment in January in North America was tougher than expected. Merrill's downgrade is a function of the fact that it feels that there are more near-term "unknowns" than "knowns," principally uncertainty surrounding: (1) the Digital Equipment (NYSE: DEC) acquisition; (2) inventory pricing; and (3) recent factoring that critics claim is a veiled attempt to bring the company's balance sheet more in line with Dell, but the company asserts was only performed in regions where there was collection risk. Yesterday, Compaq announced price reductions across its entire line of Armada portable notebooks. Though it deals with different pricing and product dynamics than Compaq, Dell Computer (Nasdaq: DELL) inched down $4 19/32 to $131 1/8, while consumer-oriented PC company Gateway 2000 (NYSE: GTW) also fell $1 7/16 to $40 1/4.
QUICK CUTS: Texas Instruments (NYSE: TXN) lost $2 7/16 to $53 1/16 after Deutsche Morgan Grenfell lowered its 1998 earnings estimate for the maker of digital signal processors, memory chips, and other electronics products to $2.15 per share from $2.45 per share... Railroad giant Union Pacific Corp. (NYSE: UNP) skidded $1 5/16 to $49 7/16 after the company reported that its continuing railroad freight logjam worsened last week as average train speed fell to 13.5 miles per hour. The company announced that it expects a loss this quarter following a loss last quarter... Power tools maker Black & Decker Corp. (NYSE: BDK) was unplugged for $1 5/16 to $48 9/16 after diversified manufacturer and holding company Newell Co. (NYSE: NWL) announced that it has sold all of the 7.9 million Black & Decker shares it held. The company was also hurt by the Federal Aviation Administration's announcement that the company could be fined $318,000 for shipping improperly packaged lawn mowers.
Warehouse home-improvement company Eagle Hardware & Garden (Nasdaq: EAGL) was hammered for $2 7/8 to $16 3/8 after reporting fourth quarter earnings of $0.12 per share on sales of $222.5 million. That compares with $0.11 for the prior-year quarter and the First Call mean estimateof $0.14... Office products retailer OfficeMax Inc. (NYSE: OMX) tumbled $1 to $16 1/2 after reporting fourth quarter earnings of $0.32, matching the First Call mean estimate among 18 analysts... RCM Technologies (Nasdaq: RCMT) fell $1 9/16 to $19 7/16 after reporting first quarter earnings of $0.22 a share versus $0.16 for the year-earlier period... Metal products manufacturer Amcast Industrial Corp. (NYSE: AIZ) was cut $1 3/8 to $20 5/8 after Furman Selz lowered its rating on the company to "sell" from "hold" due to concerns about the company's near-term outlook.
Semiconductor equipment manufacturer ASM International (Nasdaq: ASMIF) dropped $7/8 to $12 after reporting fourth quarter earnings of $0.16 per share versus EPS of $0.11 (excluding charges) for the third quarter. The First Call estimate was $0.15... Integrated circuits manufacturer Linear Technology Corp. (Nasdaq: LLTC) slipped $1 5/8 to $70 3/8 after company Vice President Robert Dobkin filed to sell 10,000 of the company's shares... Telecom services and data provider WinStar Communications (Nasdaq: WCII) was disconnected for $1 to $38 1/2 after Legg Mason Wood Walker yesterday lowered its rating on the company to "market perform" from "outperform," saying that the shares had exceeded its price target of $40 a share... Bear Stearns started coverage of United Auto Group (NYSE: UAG) yesterday with a lukewarm "neutral" rating, sending the car-dealership consolidator and operator down $1/2 to $15.
Medical practice management software and services provider InfoCure Corp. (AMEX: INC) shed $5/8 to $14 3/4 after announcing that it has completed the acquisition of Medical Software Integrators (MSI), the largest supplier of practice management systems and decision support tools to the anesthesia community. With today's implosion of Physician Computer Network (Nasdaq: PCNI), down $2 31/32 to $1 9/32, the entire segment has been put on its heels. Just like the revenue recognition problems and subsequent paranoia that occurred in the database software industry, Physician Computer has turned some regulatory eyes toward the practices of healthcare systems software providers. The company announced that it will restate numbers for the year and delay reporting results for its fourth quarter, but pre-announced that it expects a loss for the year in the range of $27 to $31 million.
What's a Conference Call?
Formerly the exclusive domain of institutional investors, access to company conference calls is slowly becoming available to individual investors. This is not only good for investors, but it is also good for any publicly traded firm -- if that firm can accept the idea that it is beneficial for the company to keep its share price in line with intrinsic value. Rather than disserting on why a company should not lock investors out of its conference calls (or conference call replays, which are more efficient and convenient for everyone concerned), a more beneficial use of this space for new Fools is to explain what a conference call is and how Fools can profit from listening to them.
What Is a Conference Call?
A conference call is a quarterly teleconference in which the management of a company updates its owners and the analysts that follow the company and industry. In the conference call, the company's chairman, CEO, or president usually starts things off with a general overview of what happened during the quarter. Then the chief financial officer (CFO) comes on and details financial performance for the quarter. This can sometimes be a boring recital of what is contained in the press release, with the CFO moving on to detail later in the call, but sometimes the CFO will give exacting color to the numbers.
What's in the Numbers
Whether they packed into the start of the conference call or given in response to questions asked during the call, the numbers presented by a company's CFO are usually more helpful than what is contained in the press release. For example, very few companies publish a statement of cash flows when they report earnings, leaving that until the necessary filing of a 10-Q up to 45 days later. Cash flow statements can help investors bridge the gaps between the income statement and the balance sheet.
Some companies don't even publish a balance sheet for the quarter, which leaves out even more detail for investors. The CFO will usually go over some of the key balance sheet items needed to assess capital efficiency. In the absence of a cash flow statement, the balance sheet can give vital details on changes in cash, inventories, payables and receivables, changes in fixed assets, and changes in the way a company has been financed. Depending on the type of company in question, the inventory breakdown between raw materials, work in process (WIP), and finished goods can tell an investor how things went during the quarter and what might be coming up for in next quarter.
After a Fool has become comfortable working with these data, he or she will miss them when a company doesn't publish the information in the press release. It's not uncommon to hear the data detailed on the conference call even when it's not included in the press release. Companies hope the information will filter back to investors through analysts or reporters, but analysts have no incentive to tell non-clients about the information and reporters frequently miss reporting on important balance sheet information. Getting comfortable with the data is the first step -- getting on the conference call to be able to assess the data firsthand is the second important step.
One thing that is missed in federal filings like the 10-Ks and 10-Qs are discussions of strategy and tactics. While discussions of strategy appear in securities registration statements or in boilerplate form each year in the annual report, hearing tactical updates on how strategies are being carried out gives an investor a better idea of what is happening at the company. The business world is highly dynamic -- things change every day, week, month, quarter, and year. How the company adapts to changes, which is the tactical side of business, tells an investor as much (or more) about the quality of the company as a highly detailed statement of mission and strategy.
Being able to listen to a conference call helps an investor know what the company is planning. If a company's management tells investors and analysts during the conference call that their plans are A, B, and C for the coming period, it's much easier to assess the progress of the business over time. Without an informed idea of the yardsticks by which a company's management measures its own success, it's harder for an investor to know what he should be looking for.
This has morphed itself into the whole game of meeting or beating estimates, but making its projected EPS number isn't the only way to tell how a company did during the quarter and the year. On the conference call, the company can talk about margins, what sort of unit growth and pricing it is looking for, what sort of production challenges its is facing, the competitive environment, what customers are thinking, what challenges vendors are facing, and how various units have performed. Though some companies will say everything an investor needs to know in the press release, it's rare to never that you'll see the above issues in a quarterly earnings press release.
In the end, conference calls are what an investor makes of them. There may be only one piece of information that rounds out an investor's knowledge so that the investor will buy more stock. There may be a particularly illuminating interchange between an executive and a questioner on the call. The management's discussion of a particular set of issues may lead an investor to correct his approach to looking at the company or to gauging the company's success.
Whatever it is that each particular investor gets out of the call, it's highly important to listen to them at least once in a while to stay in touch with what's happening at the company. No other medium besides the conference call can provide the level of detail or the dynamics of real-time interchanges between informed followers of the company and its owners. That includes the annual meeting or the annual report. If you owned a private business, you would want to be able to hear a couple times a year how things are going, and not just on a superficial level. It's no different with a public company, especially when secondhand information can get garbled, misunderstood, and miscommunicated by the time it gets to the poor investor that didn't get to listen to the call.
Should you own a company that gives investors access to the conference call or conference call replay, that's great. If the company is reluctant to open it up to you, explain that you are an owner and that you are genuinely interested in what's happening with the business. The more that people ask about it, the more companies will understand that it's an important issue to their investors. At some point, access will be a standard feature of being an owner of publicly traded companies -- and there will be a lot informed and rational shareholders of publicly traded companies when that comes to pass.
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
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Brian Bauer (TMF Hoops), Fool