<THE EVENING NEWS>
Thursday, January 21, 1999
DJIA 9264.08 -71.83 (-0.77%) S&P 500 1235.16 -21.46 (-1.71%) Nasdaq 2344.72 -70.77 (-2.93%) Russell 2000 424.05 -6.57 (-1.53%) 30-Year Bond 101 25/32 +20/32 5.13 Yield
How will the West be won? It appears United Airlines operator UAL Corp. (NYSE: UAL) believes its manifest destiny is to acquire America West Holdings (NYSE: AWA), the nation's ninth-largest airline. America West rose $3 9/16 to $23 1/16 after UAL confirmed "an interest in a possible acquisition of America West." United reportedly needs planes for its expansion at Washington's Dulles Airport and "is alarmed by American Airlines' recent purchase of Reno Air, primarily a Western operation," The Wall Street Journal reported. American's parent company AMR Corp. (NYSE: AMR) agreed to buy Reno Air (Nasdaq: RENO) for $7.75 per share in mid-November. A United/America West pairing would link up the #1 and #3 competitors on the West Coast. UAL, which also reported Q4 EPS of $1.52 (before charges) -- short of last year's $1.74 mark but besting the $1.45 consensus estimate -- lost $1 3/16 to $60 today.
Seeking alternative ways to clear out excess inventory, Advanced Marketing Services (Nasdaq: ADMS) -- which distributes books and other media to warehouse clubs and specialty retailers -- experimented with a small team of sales associates. That worked well enough that the company now plans to phase out its chain of retail stores, which served the same purpose, a slight change in strategy since the company planned to just about double its store base during this fiscal year. Advanced Marketing popped up $3 1/2 to $25 after it said fiscal third quarter EPS was $1.18, up from last year's $0.80 and crushing the two-analyst estimate of $0.84 provided by First Call. This was the eighth consecutive quarter the company met or beat Wall Street's projections. CEO Michael Nicita credited increased business in higher-margin book categories and growing sales from international subsidiaries for the windfall. The company also announced a 3-for-2 stock split effective Feb. 15.
QUICK TAKES: Shares of Silicon Graphics (NYSE: SGI), a maker of high-powered computer workstations used by engineers and graphic designers, grafted on $2 11/16 to $17 11/16 following a smaller-than-expected second quarter loss. Head back to today's Lunchtime News for a closer look... Internet advertising firm DoubleClick (Nasdaq: DCLK) grabbed $10 3/16 to $97 15/16 on news of a narrower-than-expected loss in Q4. The company also announced a three year advertising services pact with Compaq Computer's (NYSE: CPQ) AltaVista search engine yesterday... Kennametal (NYSE: KMT) was burnished $3 15/16 to $25 5/16 after the metal working and mining tools maker said fiscal Q2 EPS was $0.47, up from $0.25 a year ago and a dime ahead of the market's expectations.
Shares of Internet portal and search company Lycos Inc. (Nasdaq: LCOS) jumped $12 3/16 to $117 after confirming that it is looking for a partner in the media or telecommunications industry to take a 20% stake in the company. For more on this developing story, check out this morning's Breakfast With the Fool... Mortgage finance company BNC Mortgage (Nasdaq: BNCM) grabbed $3/8 to $6 after announcing fiscal Q2 EPS of $0.40, a nickel off last year's mark but a nickel above First Call's two-analyst estimate. The company also agreed to acquire privately held America's Lender, which operates an Internet-based wholesale mortgage lending operation... International media company CanWest Global Communications (NYSE: CWG) plugged in $15/16 to $15 5/8 after yesterday afternoon's announcement that it plans to buy NetStar Communications for $875 million.
Pratt & Whitney aircraft engines, Carrier air conditioners, and Otis elevators parent United Technologies (NYSE: UTX) improved $1 15/16 to $113 15/16 on news of Q4 EPS of $1.16, a nickel better than analysts' expectations and well ahead of the year-ago $0.97 figure. United retained Goldman, Sachs & Co. to explore strategic alternatives for its automotive business... Oilfield services giant Schlumberger (NYSE: SLB) took on $1 5/8 to $49 7/8 after it announced Q4 EPS of $0.50, a penny ahead of Street estimates but well off last year's $0.71 figure. CEO Euan Baird expects higher oil prices and oilfield services activity in early 2000... Automation, avionics, and semiconductor systems maker Rockwell International Corp. (NYSE: ROK) solidified $1 1/16 to $42 1/16 after Merrill Lynch upgraded its near-term rating on the stock to "accumulate" from "neutral," saying it underestimated management's ability to cut costs.
Packaging manufacturer and ceramics and other engineered materials company ACX Technologies (NYSE: ACX) wrapped up gains of $2 1/8 to $15 1/2 after reporting Q4 EPS of $0.37, flat with last year's figure but $0.07 ahead of the three-analyst estimate provided by First Call... Syringe maker Becton Dickinson & Co. (NYSE: BDX) added $1 9/16 to $36 13/16 after Merrill Lynch boosted its near-term rating on the company to "buy" from "accumulate" based on recent dips in the share price because of concerns the brokerage called "overstated"... Surgical instruments maker CardioThoracic Systems (Nasdaq: CTSI) advanced $1 1/4 to $8 1/8 after it launched 10 new products for minimally invasive cardiac surgery... Intelligent automation software and hardware products maker Adept Technology (Nasdaq: ADTK) gained $1 5/8 to $8 as it reported fiscal Q2 of $0.07, down from $0.13 a year ago but two cents ahead of Street estimates. CFO Betsy Lange resigned effective Jan. 31 to spend more time with her family.
Electronic transactions technology company IVI Checkmate (Nasdaq: CMIV) cashed in $1 1/8 to $7 1/16 after it said grocer Fred Meyer Inc. (NYSE: FMY) ordered $2.5 million of customer activated debit/credit terminals... Construction and industrial products and services marketer NationsRent (NYSE: NRI) added $1 3/8 to $7 15/16 after Rental Service Corp. (NYSE: RSV) agreed to buy the company in a stock swap valuing NationsRent at about $8.25 per share, a 26% premium based on yesterday's closing prices... Credit card lender Providian Financial Corp. (NYSE: PVN) took on $4 to $87 after the company handed in Q4 EPS of $0.66, $0.04 better than last year's mark and well above the year-ago $0.37 figure. The company expects 50% EPS growth in 1999, about on track with Street projections.
Digital Link (Nasdaq: DLNK) up $7/8 to $6 1/16; Q4 EPS $0.05 vs. $0.05 last year; estimate: breakeven
Benihana Inc. (Nasdaq: BNHNA) up $1 3/8 to $11 3/4; Q3 EPS $0.28 vs. $0.24; estimate: $0.25
E. W. Blanch Holdings (NYSE: EWB) up $3 1/8 to $53; Q4 EPS $0.79 vs. $0.49 last year; estimate: $0.57
Genentech Inc. (NYSE:GNE) up $3/8 to $79; Q4 EPS $0.28 vs. $0.33 last year; estimate: $0.19
Harmonic Lightwaves (Nasdaq: HLIT) up $3 1/4 to $21 1/8; Q4 EPS $0.05 vs. $0.05 last year; estimate: $0.02
IONA Technologies (Nasdaq: IONAY) up $4 1/4 to $44 3/4; Q4 EPS $0.23 vs. $0.11 last year; estimate: $0.22
Kofax Image Products (Nasdaq: KOFX) up $1 3/4 to $9 3/8; fiscal Q2 EPS $0.23 vs. $0.14 last year; estimate: $0.17
Perclose Inc. (Nasdaq: PERC) up $1 15/16 to $40 15/16; fiscal Q3 EPS $0.14 vs. $0.07 last year; estimate: $0.09
Peregrine Systems (Nasdaq: PRGN) up $5 5/8 to $62 1/8; fiscal Q3 EPS: $0.22 vs. $0.14 last year; estimate: $0.21
Praxair Inc. (NYSE: PX) up $15/16 to $35 1/4; Q4 EPS $0.66 vs. $0.65 last year; estimate: $0.66
Read-Rite Corp. (Nasdaq: RDRT) up $1 1/16 to $18 15/16; fiscal Q1 EPS $0.02 vs. $0.02 last year; estimate: $0.17 loss
SBS Technologies (Nasdaq: SBSE) up $5 3/8 to $24 3/8; fiscal Q2 EPS $0.47 vs. $0.37 last year; estimate: $0.46
Synopsys Inc. (Nasdaq: SNPS) up $1 5/16 to $54 11/16; fiscal Q1 EPS $0.56 vs. $0.32 (pro forma) last year; estimate: $0.56
Lucent Technologies (NYSE: LU) fell $8 7/8 to $106 5/8 today, suffering its biggest one day percentage drop since Aug. 31, 1998. Revenue growth fears were to blame, as the telecommunications equipment heavyweight reported that its fiscal Q1 revenues increased by a less-than-eye-popping 6% to a shade over $9.2 billion. According to the firm, sales force snafus resulted in the recognition of about $800 million of expected Q1 revenues to be pushed into Q2, when revenues are expected to post a 30% year-on-year gain and EPS is forecasted to double to $0.28. The revenue shortfall didn't hurt Lucent's quarterly profitability too much, though, as earnings rolled in at $1.05 per share, topping the First Call mean estimate by $0.04 per share. Meanwhile, merger mate Ascend Communications (Nasdaq: ASND) lost $8 3/16 to $81 3/4.
Various Internet-related stocks took it on the chin today as Morgan Stanley Dean Witter head gooroo Barton Biggs suggested that if investors think the recent "Internet mania" will last, they have another thing ".com"- ing. Although unwilling to go on the record with an exact date for the online day of reckoning, Biggs reportedly said during a speech in Japan that the "Internet bubble is close to its end." That was enough to send some traders to the closest exit from the information superhighway today. E-tailer Amazon.com (Nasdaq: AMZN) fell $7 to $106, portal Yahoo! (Nasdaq: YHOO) dropped $22 3/16 to $265, online broker E*Trade (Nasdaq: EGRP) slid $9 1/8 to $77 3/8, and auctioneer eBay (Nasdaq: EBAY) sank $32 to $181 3/4.
QUICK CUTS: Minneapolis-based financial services company U.S. Bancorp (NYSE: USB) slid $1 3/8 to $31 1/8 after posting Q4 EPS of $0.52 (excluding merger-related charges), up from $0.45 a year ago and on target with the Zacks mean estimate. However, J.P. Morgan lowered its rating to "market perform" from "buy" today... Interactive entertainment software maker Midway Games (NYSE: MWY) slipped $1 1/2 to $9 1/16 after reporting fiscal Q2 EPS of $0.29 versus $0.48 a year ago, which was in line with the First Call mean estimate. However, the company said its revenues and earnings in the second half of its fiscal year will be below last year's results... Medical tissue cohesive products maker Closure Medical Corp. (Nasdaq: CLSR) bled $7 1/2 to $40 after Lehman Brothers cut its rating to "outperform" from "buy."
Business diagramming and technical drawing software maker Visio Corp. (Nasdaq: VSIO) fell $13 1/16 to $26 13/16 after reporting fiscal Q1 EPS of $0.32, matching the First Call mean estimate. That was not enough to satisfy Merrill Lynch, however, which downgraded the company today based on "weakness in Asia, in the distribution channel, and in the technical product category"... Call center management software developer Aspect Telecommunications (Nasdaq: ASPT) slid $4 to $9 after posting Q4 EPS of $0.16 (excluding charges), beating the First Call mean estimate by $0.04. However, the company said it will "likely" report an operating loss in Q1 and in the following one or two quarters as its revenue growth returns to its "historical range."
Meatless food products company Worthington Foods (Nasdaq: WFDS) was trimmed $4 1/4 to $12 after warning that higher sales and marketing expenses will result in Q4 EPS between $0.05 and $0.10, short of the First Call mean estimate of $0.20. Piper Jaffray cut its opinion to "buy" from "strong buy"... The share price of programmable logic devices maker Altera Corp. (Nasdaq: ALTR) fell $7 7/8 to $61 1/8 after the company reported Q4 EPS of $0.45 (excluding charges), enough to beat the Zacks mean estimate of $0.42. Nonetheless, Morgan Stanley Dean Witter and BT Alex. Brown both lowered their ratings on the stock today... Mutual fund manager Franklin Resources (NYSE: BEN) fell $2 3/16 to $30 13/16 after reporting fiscal Q1 EPS of $0.40 (excluding charges), down from $0.52 last year but in line with the Zacks mean estimate.
Brokerage firm Donaldson, Lufkin & Jenrette (NYSE: DLJ) traded $4 15/16 lower to $47 5/16 after reporting Q4 EPS of $0.47, below last year's $0.77 but in line with the First Call mean estimate. The company will also reportedly decide this quarter whether or not to sell part of its DLJdirect online brokerage to the public... Teen accessories retailer Claire's Stores (NYSE: CLE) dropped $2 9/16 to $18 3/4 after Scott & Stringfellow cut its rating to "buy" from "strong buy," reportedly on fears of managerial uncertainty following the departure of the president and COO of the firm's Claire's Accessories subsidiary... Phone carrier billing and customer service firm Billing Concepts Corp. (Nasdaq: BILL) slid $1 15/16 to $7 15/16 after saying that infrastructure investments for its software business may result in fiscal Q2 EPS flat with the Q1's $0.19 and fiscal 1999 EPS $0.10 below the current Zacks mean estimate of $0.93.
Computer-aided design and manufacturing software developer Parametric Technology (Nasdaq: PMTC) sank $1 to $13 1/2 after offering to buy product data visualization tools maker Division Group PLC for $46 million in either cash or stock... Slot machine maker International Game Technology (NYSE: IGT) lost $1 7/16 to $20 13/16 after reporting fiscal Q1 EPS of $0.32 versus $0.26 a year ago, missing the First Call mean estimate by a penny... Satellite systems maker and DirecTV DBS operator Hughes Electronics Corp. (NYSE: GMH) slid $2 3/4 to $44 3/4 as The New York Times reported that the company may be discussing a deal to buy certain assets of fellow DBS provider Primestar Partners. DBS rival EchoStar Communications (Nasdaq: DISH) also lost $3 1/8 to $49 1/4.
My Bookshelf: "The Emperors of Chocolate"
I'm a sucker for business books. A total Blow Pop -- the retailers can see me coming a mile away, and I frequently hear the ledger closing with a satisfied slam and the lock turning as a I walk out bookstores loaded down with the latest. I've even heard that the lights dim in Seattle as my orders tax the servers at Amazon.com. Following the normal bell curve that you find in almost any part of life, most of the books are so-so, a few are sub-par, and a few are really great. I've recently read one of the great ones and I wanted to pass it along.
The Emperors of Chocolate: Inside the Secret World of Hershey and Mars by Joel Glenn Brenner is one of those business books where you walk away satisfied that you've picked up some interesting and useful insights into an industry. That's the yardstick for me. I can't remember many books that tell you everything you need to know to about a particular industry in order to invest in that industry. If you can pick up one useful piece of information from a book like this, however, the purchase price becomes more than justified. For instance, I don't want to call myself provincial, but I had no idea about Hershey Foods' (NYSE: HSY) position in the global confectionery industry.
One vital point I picked up from this book is the fact that the Hershey bar and any confection with Hershey's milk chocolate in it stand little chance of picking up significant market share in Europe or any other country where European tastes have had a substantial influence on local palates. That's because Hershey's chocolate tastes sour to non-American palates. It's called "barnyard chocolate" by the rest of the industry because of its taste. (Who knew, huh? I love it, personally.) This definitely shapes my opinion on the company. When you think of Marlboro, you think "international brand." When you think of Coca-Cola, you think "international brand." If you think of a traditional American icon, the Hershey bar, and think "international brand," you'd miss a vital point of investing in the company. "Brand" is not always the magical answer.
Not that all markets will reject Hershey's milk chocolate. For instance, I would think Hershey's chocolate stock keeping units (SKUs) will have a better chance in inland China than in coastal provinces where British tastes would have a larger influence on things. You can pretty much forget huge chunks of the Indian subcontinent and the British Commonwealth countries, as Cadbury and more caramel and sweet chocolates have mindshare and "mouthshare." These issues are key in thinking about investing in Hershey Foods. Figuring out how it is doing in international markets with respect to individual brand SKUs would be pulling teeth, by the way, given the highly secretive nature of the confectionery industry.
The Emperors of Chocolate is particularly useful in its review of Mars, Inc., the maker of Mars bars, Three Musketeers, Snickers, Milky Way, M&Ms, Uncle Ben's rice, and Pedigree and Sheba pet foods, among other things. It's too bad the company isn't publicly traded. It sounds like a wonderful company, balancing out the good and the bad. The management (the company is still a family owned and run corporation and is one of the largest private corporations in the U.S.) of Mars probably didn't like the profiles in the book, because it is publicity shy and the author paints its admirable circumspection as being somewhat strange. Anyone who invests in Hershey or other packaged foods companies would do well to check out this book. Mars Inc. is also a tiger that deserves one's attention.
Overall, this is an excellent introduction to the U.S. confectionery industry and a fine historical work. The author could have used some help on the financial aspects of particular companies, though. That's pretty much the only criticism of the book that I have. Brenner follows in the footsteps of fellow Washington Post reporter Kara Swisher, who wrote the very well done aol.com, in turning a writing assignment for the paper into a great book. Overall rating: 8.5 out of 10 Fool hats.
Here's a link to the book at Amazon.com, but you can, of course, buy it elsewhere. If you do click the link above and buy the book, we get a commission on the sale, just to let you know what the relationship is there.
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
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