Tuesday, December 1, 1998
DJIA            9133.54     +16.99      (+0.19%)
S&P 500         1175.28     +11.65      (+1.00%)
Nasdaq          2003.75     +54.21      (+2.78%)
Value Line ndx   893.22      +2.02      (+0.23%)
30-Year Bond   103 7/32     +16/32  5.04% Yield


Two more companies helped themselves to big stock gains today after announcing forays into e-tailing. Online data broadcasting firm WavePhore (Nasdaq: WAVO) rushed ahead $7 1/2 to $15 1/4 after it announced the launch of the "WaveTop Store electronic commerce channel," a system that allows electronic purchasing without going online. Nine companies, including Barnes & Noble (NYSE: BKS), Audio Book Club (AMEX: KLB) and CompUSA (NYSE: CPU), have joined the "broadcast mall" so far. Meanwhile, online discount apparel retailer Bluefly (Nasdaq: BFLY) shooed up $6 1/8 to $20 15/16 after announcing a co-branded version of its online store on Yahoo's (Nasdaq: YHOO) Yahoo! Shopping service. A sign of the times: Bluefly has rocketed up from the $3 per share level since it changed its identity from a golfing apparel company trading as Pivot Rules Inc. to online marketer Bluefly.com in late October.

Today's second-biggest oil industry merger news lacked some of the dollar value of the $77 billion Exxon-Mobil deal but packed a lot more short-term pop where stock prices were concerned. Paris-based Total SA (NYSE: TOT), the world's ninth-largest publicly traded oil concern, agreed to buy Belgian refiner Petrofina SA (NYSE: FIN) in a nine-for-two stock swap valued at $11.6 billion. The new company, Total Fina, will be the sixth largest in the world. Petrofina investors, thrilled with the deal that will pay about a 37% premium over Friday's prices, watched their American depositary receipts (ADRs) shoot up $8 1/8 to $48 13/16 today. Total shareholders, however, noticed what appeared to be either a change in -- or lack of -- focus for the company, which has historically avoided the less profitable petrochemicals business, a Petrofina staple. Total's ADRs slid $5 5/8 to $55 1/2 today. Industry watchers are expecting more consolidation as oil prices fall, but some think Total is paying too much for its ticket to the oil merger ball.

QUICK TAKES: Coffee roaster and retailer Starbucks (Nasdaq: SBUX) bounced up $3 15/16 to $50 1/16 after reporting a 6% increase in November same-store sales. Monthly revenues rose 30% to $117 million from $91 million the year before... Computer workstations and Java programming language developer Sun Microsystems (Nasdaq: SUNW) rose $5 7/8 to $79 15/16 after it introduced a 360MHz UltraSPARC IIi processor into its Ultra AXi motherboard family and cut prices on its SPARCEngine Ultra AXi motherboards by up to 22%... Corrections Corp. of America (NYSE: CCA) locked up $1 3/8 to $21 7/8 after its shareholders approved its planned $2 billion merger with CCA Prison Realty Trust (NYSE: PZN). Prison Realty shareholders, who will vote on the merger Thursday, watched their shares advance $1 9/16 to $25 13/16 today.

Online retailer Amazon.com (Nasdaq: AMZN) swung up $17 1/2 to $209 1/2 after it announced an agreement to become the exclusive books and music retailer for Broadcast.com (Nasdaq: BCST)... Troubled apparel designer Mossimo Inc. (NYSE: MGX) warmed $2 3/4 to $5 3/4 after it said former Polo Ralph Lauren (NYSE: RL) and Tommy Hilfiger (NYSE: TOM) executive Edwin Lewis will join the company as president and CEO... Telecom giant MCI Worldcom (Nasdaq: WCOM) rang up $3 1/8 to $62 1/8 after Chairman Bert Roberts said at a conference that his company might eventually acquire a mobile phone service provider in light of falling values in the industry... Fiber optic telecommunications components and laser subsystems maker Uniphase (Nasdaq: UNPH) zipped ahead $3 11/16 to $57 7/8 after it said it acquired privately held Broadband Communications Products, a maker of fiber optic transmitters and receivers and test instrumentation for telecommunications equipment manufacturers.

4Front Technologies (Nasdaq: FFTI) jumped $1 11/16 to $9 11/16 after the provider of enterprise help desk support and computer network services said it agreed to buy I-NEA SA, the computer on-site service delivery unit of French company Siemens Nixdorf, for $4.1 million in cash... Biotechnology firm Organogenesis Inc. (AMEX: ORG) ran ahead $15/16 to $14 1/2 on news that it will replace DeKalb Genetics (NYSE: DKB), which is being acquired by Monsanto (NYSE: MTC), in the Standard & Poor's SmallCap 600 Index after today's close... Independent music company Platinum Entertainment (Nasdaq: PTET) rose $2 15/32 to $8 7/8 following the news that 1.5 million people visited its retail website last month, crushing the 13,500 figure for October, its first month of operation... GLC Limited (Nasdaq: GLCCF) cashed in $16 9/16 to $25 after its subsidiary GalaxiWorld Limited said its online casino is open and ready to take your real-money bets.

Uniform rental services company Unitog Co. (Nasdaq: UTOG) leaped ahead $5 1/4 to $27 after it said it hired two investment banking firms to advise it on "strategic alternatives for enhancing shareholder value," including selling the company or merging with another company... Canadian broadband data communication products company Newbridge Networks (NYSE: NN) and network products maker 3Com Corp. (Nasdaq: COMS) got boosts today -- Newbridge up $1 11/16 to $30 13/16 and 3Com up $4 3/16 to $42 7/8 -- after north-of-the-border company BC Telecom selected and deployed both companies' comprehensive asymmetric digital subscriber line (ADSL) solutions in its network... Drug developer Copley Pharmaceuticals (Nasdaq: CPLY) popped ahead $7/8 to $9 on last night's news that the FDA approved the company's new drug application (NDA) to make and market 300 mg antiarrhythmic hydrochloride tablets, which regulate the heartbeat.

Jewelry marketer OroAmerica Inc. (Nasdaq: OROA) wrapped up a gain of $1 1/4 to $10 1/4 after it reported Q3 EPS of $0.46, a penny ahead of Street estimates and beating last year's $0.15 figure (before a one-time $0.41 per share gain)... Disk drive maker Seagate Technology (NYSE: SEG) spun ahead $2 1/4 to $31 3/4 after its Seagate Software subsidiary launched its Seagate Info 7 business intelligence software suite... Microcomputer products wholesale distributor PCC Group (Nasdaq: PCCG) grabbed $2 1/4 to close at $7 after it launched Computer Discount Center, an online retail subsidiary.


Life sciences company Monsanto Co. (NYSE: MTC) fell $1 13/16 to $43 1/2 after its long-awaited Celebrex pain management drug won a recommendation for approval from an Federal Drug Administration advisory panel today as a treatment for both osteoarthritis and rheumatoid arthritis. While the recommendation was good news, the panel left unresolved the important question of whether the new drug will carry the standard gastro-intestinal warning label that is affixed to other painkillers. The absence of stomach irritation side effects was to be a major selling point for Celebrex, which is the first of a new line of drugs called Cox-II inhibitors. The drugs interfere with the Cox-II enzyme that is associated with pain and swelling, hopefully without messing too much with the stomach-acid-shielding Cox-I enzyme. Monsanto and Celebrex marketing partner Pfizer (NYSE: PFE) are hoping that a positive ruling on the labeling question will be handed down by the FDA soon, or at least before the agency reviews the approval application for Merck's (NYSE: MRK) rival Cox-II inhibitor, Vioxx.

Young adult fashion retailer Pacific Sunwear of California (Nasdaq: PSUN) was burned $1 9/16 to $13 1/4 after reporting a 1.6% drop in November same-store sales compared to a year ago. The company said it is refocusing its men's pants offerings for the spring, which will include garments with "narrower leg openings." In the ever-fickle teenage fashion market, trendy styles tend to change faster than free agent baseball players change their uniforms. Pacific Sunwear learned this lesson the hard way this year. The company got caught with its pants down when the wide leg pant rage abruptly subsided, thanks in part to a never-ending stream of "Khaki is cool" media propaganda from commodity clothing retailer Gap (NYSE: GPS). Meanwhile, to divert attention away from its elephant trunk-sized pants problems, the company today said it will buy back up to one million outstanding shares.

QUICK CUTS: Integrated oil and gas giant Exxon Corp. (NYSE: XON) dropped $3 3/8 to $71 5/8 after putting days of speculation to rest by agreeing to acquire rival Mobil Corp. (NYSE: MOB) in a stock swap valuing Mobil at about $99 per share. Mobil ended the day down $2 1/4 at $83 3/4... Vitamins and nutritional products firm Twinlab Corp. (Nasdaq: TWLB) dissolved for a $3 5/8 loss to $13 after saying Q4 EPS will come in between $0.23 and $0.26, missing the First Call mean estimate of $0.41, due to "excess levels of inventory" in the retail channel. Other recently beaten-down vitamin firms also fell on the news, as Rexall Sundown (Nasdaq: RXSD) dropped $1 5/16 to $12 1/16 and General Nutrition Companies (Nasdaq: GNCI) slid $11/16 to $17 1/16.

Bookseller Barnes & Noble (NYSE: BKS) was tossed for a $1 1/4 loss to $31 7/8 after Brown Brothers Harriman and Fahnestock & Co. lowered their ratings on the company... Retailer Sears, Roebuck & Co. (NYSE: S) slumped $2 7/8 to $44 9/16 after Bear Stearns slapped the 112-year-old company with a downgrade to "attractive" from "buy" and lowered its fiscal 1998 earnings estimate to $3.49 per share from $3.55 per share. The fiscal 1999 forecast was trimmed to $4.00 per share from $4.25 per share... Radio Shack operator Tandy Corp. (NYSE: TAN) moved down $3 5/16 to $41 3/4 on concerns raised by analysts that the company's November same-store sales may have been lower than expected due in part to Radio Shack's lack of a PC priced below $1000 to peddle to customers... Online auctioneer and retailer Onsale Inc. (Nasdaq: ONSL) was marked down $7 1/4 to $54 1/4 after Needham & Co. lowered its rating to "buy" from "strong buy" and Everen Securities cut its short-term rating to "market perform" from "outperform."

Digital imaging software tools maker MetaCreations Corp. (Nasdaq: MCRE) gave back $2 11/16 to $5 3/8 after rising 111% yesterday on word that software giant Microsoft (Nasdaq: MSFT) may distribute its MetaStream graphics product with the Microsoft Windows 98 operating system. This morning, CIBC Oppenheimer lowered its rating on the stock to "hold" from "buy"... Electric and natural gas utility Public Service Co. of New Mexico (NYSE: PNM) lost $1 15/16 to $17 1/2 after the New Mexico Public Utility Commission ordered the company to cut its electric rates by $91 million over the next two years, which the firm said could result in a write-off of up to $400 million... Internet bank Net.B@nk (Nasdaq: NTBK) slid $2 3/8 to $29 after Interstate/Johnson Lane lowered its rating to "neutral" from "long-term buy."

Information technology education firm Computer Learning Centers (Nasdaq: CLCX) fell $1 5/8 to $4 13/16 after Maryland's Higher Education Commission fined the company and threatened to revoke the license of a CLC school in the state based on allegations that it improperly admitted students and kept shoddy financial records, according to Bloomberg News... Voice, video, and data systems provider ADC Telecommunications (Nasdaq: ADCT) dropped $1 13/16 to $28 1/16 after reporting fiscal Q4 EPS of $0.34, which was in line with the Zacks' mean estimate. However, the company received downgrades from three Wall Street firms today... Software developer Micro Focus Group (Nasdaq: MIFGY) lost $5/8 to $10 1/8 after announcing that company director Gary Greenfield will replace Martin Waters as president and CEO. The company also reported fiscal third quarter earnings per American depositary share of $0.04 (before charges), down from $0.27 a year ago.

An Investment Opinion
by Warren Gump

It's Earnings Warning Season

Achoo! A powerful market-moving event has emerged over the past few years that is now as common as the quarterly earnings season. It's called (as the creativity-o-meter goes berserk) the earnings warning season. During this period, companies that will not meet quarterly earnings estimates announce that a shortfall is imminent. This announcement is generally followed by a round of estimate and rating reductions by analysts and a plunging stock price.

Warning season usually starts about a month before the end of each calendar quarter, give or take a week. That means investors can start bracing for the warnings at the beginning of December, March, June, and September. The season tends to last for a month or so and is then followed by official earnings reports that are in line or ahead of street estimates.

Today's announcement by Twinlabs that its Q4 earnings will fall short of estimates threw the company's stock into a nose drive this morning. Based on past history, we can expect many more companies will be following suit over the next month. Given the dramatic fluctuations caused by these announcements, it might be helpful to see what happens afterward. I have gone back to the Fool News archives to look at three earnings warnings given during the first week of last December to see what has happened since.

First off is Pierce Leahy Corp. (Nasdaq: PLH), the acquirer and operator of document storage facilities. On December 5, 1997, the stock was hit for a loss of $6 9/16 to $15 7/16 after announcing that earnings would fall short of expectations due to increased spending on its sales staff to increase internal growth. In addition, the company noted that it may slow down its acquisition pace because of increasing prices being demanded by sellers.

The day after this announcement, the stock started an ascent that continued through May, when the stock approached $29 per share. The stock then began falling through October, hitting a low of $16 3/4 on September 1. Over the next month and a half, the stock did a round trip, hitting $22 1/2 before falling back below $18 in October. Since that time the stock has rallied with the market, with the stock now trading around $25. As it turns out, the company's investment in sales staff has helped maintain strong sales growth. Simultaneously, the acquisition pace has picked up as the company expended $187 million in the first nine months of 1998 compared to $92 million in the 1997 period. For a one-year Pierce Leahy price chart, click here.

Next is Moneygram Systems. There isn't any symbol for this company because it was taken over by Viad Corp. (NYSE: VVI) this past May. Last December 4th, Moneygram fell $2 13/16 to $10 1/4 after warning that it expected Q4 earnings to be $0.13-$0.15 per share, well below the $0.24 per share expected by analysts. The problem was that volume in the U.S.-to-Mexico money transfer market had declined because of price competition and because foreign currency spreads on those transactions were also reduced. The stock price drifted through late December and then started a rise to $14 in early April. The stock then jumped quickly above $16 when Viad announced the $17 per share acquisition (the deal actually closed in May at $17.35 per share). One advantage of our capitalist system is that predators will pounce on undervalued companies that can strategically enhance their long-term positioning.

Finally, let's look at Western Digital (NYSE: WDC). This major disk drive maker slipped $1 3/4 to $19 3/8 on December 2, 1997, after announcing that it would more than triple the size of a restructuring charge to $85-$95 million compared to previous expectations of $15-$30 million. It also stated that Q4 earnings were expected to be about breakeven, well below estimates of $0.25 per share. This estimate had already been reduced substantially in the prior month, and the stock continued the fall from $54 3/4 that had begun in August. In the month after the December earnings warning, Western Digital dropped even more. It then gyrated with an upward bias, hitting $22 1/16 in late April. From that point, the stock began a plunge down to $7 1/8 on October 15th as breakeven results turned into substantial losses. Since then, the stock has jumped up to $17 7/8 (including an unexplained gain of nearly $5 today). This link goes to a one-year price chart of Western Digital.

No magic formula can tell an investor what to do after an earnings warning. It really depends on the situation. Before deciding what to do, investors should ask themselves whether a company's long-term prospects are altered by the news. Learn about its business strategy, balance sheet strength, profitability drivers, and management adaptiveness. Decide if the news in the earnings warning will affect the long-term prospects. If you believe the company's stock has been knocked down to unfairly low levels, take advantage of the price decline that is brought on by the myopic Wall Street "pros." Don't invest blindly, though. Sometimes an earnings warning can be the start (or continuation) of a string of bad news that flows for years.


Please see the Motley Fool's Conference Calls page for call information and links to synopses.

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