FOOL PLATE SPECIAL
An Investment Opinion
by Alex Schay

Earnings Plus the Trimmings

The largest maker of decorative trimmings for the home furnishings industry, Conso International Corp. (Nasdaq: CNSO) -- formerly Conso Products -- sliced ahead $15/16 to $7 this morning after reporting first quarter results for fiscal year 1999. Conso came in with earnings of $1.4 million, or $0.20 per share, which was ahead of estimates of $0.18, and $0.06 ahead of last year's per share figure. Net sales were $29.4 million, compared with $16.7 million (a 76% increase) in the prior year's first quarter. However, pro forma net sales (satisfying investors' fruit fetish with an apples-to-apples comparison) were on the order of $31.2 million, reflecting the combination with home sewing and craft products maker Simplicity as if it had been acquired in last year's first quarter and not in June of this year.

The decorative trimmings produced and sold by both Conso US and the firm's unit across the pond, British Trimmings, include various fringes, cords, and tasseled accessories that are prominent in areas like the edges of chairs, sofas, decorative pillows, and draperies. As previously mentioned, Conso acquired one of the world's largest producers of home sewing patterns earlier the year for a total consideration of about $54.3 million (7.2 times earnings before interest, taxes, depreciation and amortization) with the help of a $20 million long-term note and a new revolving credit facility. Conso's U.S. division contributed roughly $0.19 per share of the total Q1 EPS, while British Trimmings continued to drag down results -- on the order of $0.04 per share thanks to a 10% sales decline and eroding margins.

Despite the grim results "over there," investors have always been attracted to Conso for its unusually high margins (gross margins of 39% this quarter, and operating margins around 10%) and turns for what can only be considered a textile manufacturer -- although the company would argue that it is more of a consumer products firm by virtue of the unique design elements involved in trimmings. With over 22,000 SKUs (stock keeping units), diversity of offerings has never been Conso's problem. The company continues to be hurt by pricing pressure from domestic and imported products, as well as the overall Asian financial crisis. Conso has been proactive on these fronts though, forming India Trimmings in an attempt to combat price weakness and aggressively cutting overhead by removing duplicate functions in its merger with Simplicity -- as well as bringing a new dyehouse online in Spring 1999 to ease dying costs and yarn inventory. With a return on invested capital (ROIC) of about 11% and expanded distribution possibilities ahead, Conso is still cheap enough to warrant a closer look.

UPS

Regional theme park company Premier Parks (NYSE: PKS) grabbed $1 9/16 to $24 9/16 after it reported Q3 EPS of $1.48 (excluding extraordinary losses), a dime above Wall Street's projections. CEO Kieran Burke said the firm's European parks were performing in line with expectations and that its major-market parks posted strong results during the quarter.

Entertainment and consumer products retailer and direct marketer K-tel International (Nasdaq: KTEL) rocketed up $8 1/8, or 70.3%, to $19 11/16 this morning after it said Microsoft (Nasdaq: MSFT) has agreed to include its "K-Tel Express" home shopping service on the Microsoft Network's shopping channel. K-Tel stock has been busy of late, after the company signed a co-marketing agreement with Playboy.com last week. Microsoft gained $1 3/8 to $112 1/16.

Internet services provider EarthLink Network (Nasdaq: ELNK) snagged $1 5/8 to $56 3/4 after Web address registrar Network Solutions (Nasdaq: NSOL) added EarthLink to its Alliance Program, which lets member companies provide distribution for each other's complementary services. EarthLink will give customers a link to Network Solutions' domain name registration and other services, while Network Solutions will provide its customers with a link to EarthLink's Web hosting and dial-up Internet access services.

Internet services provider MindSpring Enterprises (Nasdaq: MSPG) jumped $5 9/16 to $58 3/8 after it said it will buy the consumer dial-up Internet access clients of Cox Interactive Media in Atlanta; Austin, Texas; West Palm Beach, Florida; and San Francisco. Cox Interactive is a unit of privately held Cox Enterprises, which is the majority owner of broadband cable TV and telecommunications network operator Cox Communications (NYSE: COX).

Several other Internet-related stocks that rose quickly yesterday enjoyed more success today. Bookseller Amazon.com (Nasdaq: AMZN) rose $11 3/8 to $138 1/4; online auctioneer eBay (Nasdaq: EBAY), a recent Daily Double, was bid up $21 5/16 to $124 5/16 while competitor Onsale (Nasdaq: ONSL) moved ahead $1 9/16 to $19 9/16; broker E*Trade (Nasdaq: EGRP) ascended $2 1/4 to $27 1/4; software e-tailer Egghead.com (Nasdaq: EGGS) rose $3 3/8 to $14 13/16; portal and software firm Netscape Communications (Nasdaq: NSCP) caught $1 1/8 to $30 1/4; and content aggregator Excite Inc. (Nasdaq: XCIT) won $5 5/8 to $53 1/8.

Meanwhile, portal company Yahoo! Inc. (NYSE: YHOO) moved ahead $9 5/8 to $174 3/8. The company announced an official sponsorship of the National Hockey League this morning and reported a partnership with Genesis Direct's proteam.com site, which sells sports memorabilia.

Mainframe re-engineering software developer SEEC Inc. (Nasdaq: SEEC) jumped ahead $1 11/16 to $10 5/8 this morning. SEEC earned $3 1/16 yesterday after it won a contract with the New York State Office of General Services and got some good press in Barron's.

Clinical products developer Vysis Inc. (Nasdaq: VYSI) shot up $2 5/16 to $8 9/16 after a Food and Drug Administration panel unanimously recommended its PathVysion HER-2 DNA Probe Kit for detecting a gene that promotes tumor growth in breast cancer patients for conditional approval. The kit now awaits final FDA review and the passing of its pre-market approval application.

Diebold Inc. (NYSE: DBD) advanced $3 13/16 to $35 1/8 after Salomon Smith Barney reiterated a "buy" rating on the card-based transaction systems maker.

Earnings Movers

Au Bon Pain Co. (Nasdaq: ABPCA) up $3/16 to $6 15/16; Q3 EPS: loss of $0.04 vs. gain of $0.12 last year; Estimate: loss of $0.07

OfficeMax (NYSE: OMX) up $11/16 to $10 15/16; Q3 EPS: $0.27 vs. $0.25 last year; Estimate: $0.27

Pomeroy Computer Resources (Nasdaq: PMRY) up $1/2 to $18; Q3 EPS: $0.46 vs. $0.39 last year; Estimate: $0.46

Unitog Co. (Nasdaq: UTOG) up $7/8 to $18 7/8; Q3 EPS: $0.32 (excluding charges) vs. $0.34 last year; Estimate: $0.31

DOWNS

Personal computer products retailer CompUSA (NYSE: CPU) crashed for a $1 1/8 loss to $13 15/16 after saying it "remains cautious" in its outlook for its fiscal second quarter and expects low single-digit negative comparable-store sales for the quarter due to "anticipated lower average selling prices" and "continued softness in corporate sales." The company announced a 1.7% drop in same-store sales in its fiscal Q1 and reported EPS of $0.09, down 64% from $0.25 in the same year-earlier period but ahead of analysts' mean estimate of $0.07.

Oilfield service and equipment companies tanked this morning after the International Energy Agency cut its forecast for the growth in world oil demand for Q4 1998 and for 1999. The Paris-based agency said the imbalance between supply and demand will continue to worsen. National Oilwell (NYSE: NOI) tumbled $1 1/2 to $14 7/16, Cooper Cameron (NYSE: RON) slid $1 15/16 to $30 3/16, Transocean Offshore (NYSE: RIG) shed $2 3/16 to $34 1/8, Schlumberger (NYSE: SLB) fell $1 15/16 to $53 7/8, Halliburton (NYSE: HAL) dipped $1 3/4 to $34 7/16, and R&B Falcon (NYSE: FLC) dropped $1 3/4 to $13 11/16.

Mirage Resorts (NYSE: MIR) lost $1 to $17 11/16 after Goldman Sachs downgraded its rating on the resort and casino operator to "market outperform" from "trading buy." Yesterday the company reported Q3 EPS of $0.16 (before unusual items), down from $0.28 last year and short of estimates of $0.20.

Carl's Jr. and Hardee's restaurants franchisor and owner CKE Restaurants (NYSE: CKR) was cut $2 9/16 to $19 7/8 on news it expects Q3 EPS of $0.39 to $0.40, lower than analysts' current mean projection of $0.41.

Natural and organic products grocer Whole Foods Market (Nasdaq: WFMI) was shopped down $1 11/32 to $33 15/16, after falling 12% yesterday, in advance of its Q4 earnings report, which is expected to be released tomorrow.

Grocery store operator Safeway Inc. (NYSE: SWY) fell $1 1/16 to $48 7/8 after announcing that Dominick's Supermarkets (NYSE: DFF) President and CEO Robert Mariano will resign from those posts effective the closing of the proposed merger between the two companies. Safeway also said it has filed a shelf registration statement with the SEC for 20 million shares of its common stock.

Drug maker ICN Pharmaceuticals (NYSE: ICN) sank $2 15/16 to $10 1/2 after saying that economic conditions in Eastern Europe and Russia offset strong Q3 performance in its North and Latin American operations, resulting in a loss of $0.45 per share (excluding loss provisions), compared with a profit of $0.50 a year ago and analysts' expectations of a loss of $0.15.

Hotel real estate investment trust (REIT) Patriot American Hospitality (NYSE: PAH) lost another $1 11/16 to $7 11/16 after late Sunday reporting Q3 EPS from operations of $0.36, compared with $0.44 last year and Wall Street's consensus of $0.39. CEO Paul Nussbaum blamed "income recognition issues related to certain management agreements" for the shortfall.

Mammography equipment, breast-biopsy systems, and digital dental X-ray equipment manufacturer Trex Medical Corp. (AMEX: TXM) dropped $2 7/16 to $11 1/2 after trading was halted for roughly 40 minutes as the company announced it couldn't record a number of orders as revenue in fiscal Q4 due to a delay in shipments. The company expects to record the revenue from those orders in the first half of fiscal 1999. Trex reported fiscal Q4 EPS of $0.13 compared with $0.15 a year ago and analysts' expectations of $0.17. The company is also being sued by Intermagnetics General Corp. (AMEX: IMG) for breaching their distributorship agreement.

"Prestige" perfume maker French Fragrances (Nasdaq: FRAG) stunk up a loss of $1 9/16 to $5 7/16 after warning that it expects earnings for fiscal Q3 and for the fiscal year will fall short of analysts' forecasts due to weak retail sales and the resulting inventory buildup at many of its retail customers. The company anticipates EPS of $0.41 (including a one-time charge of approximately $0.06, partially offset by $0.04 in other income), compared with $0.45 last year. Analysts were expecting EPS of $0.64.

Telecommunications equipment manufacturer Channell Commercial Corp. (Nasdaq: CHNL) plunged $1 11/16, or 19.3%, to $7 1/16 after saying it expects Q4 EPS of $0.18 to $0.22, Q1 EPS of $0.14 to $0.17, and 1999 EPS of $0.93 to $0.97. Analysts were projecting Q4 EPS of $0.26 and 1999 EPS of $1.15. The company reported Q3 EPS of $0.25, same as last year but below estimates of $0.28.

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Contributing Writers Yi-Hsin Chang (TMF Puck), a Fool Brian Graney (TMF Panic), another Fool David Marino-Nachison (TMF Braden), a new Fool Editing Brian Bauer (TMF Hoops), another Fool Bob Bobala (TMF Bobala), a Fool's Fool Jennifer Silber (TMF Amused), Fool at last