Monday, January 25, 1999
DJIA 9137.92 +17.25 (+0.19%) S&P 500 1228.17 +2.98 (+0.24%) Nasdaq 2350.56 +11.68 (+0.50%) Russell 2000 421.36 -1.08 (-0.26%) 30-Year Bond 102 5/32 -11/32 5.11 Yield

An Investment Opinion
by Warren Gump

3M Posts a Gain

Diversified manufacturing giant and Dow Jones Industrial component Minnesota Mining and Manufacturing (NYSE: MMM) -- commonly known as 3M -- maker of thousands of products in the industrial, consumer, and healthcare markets such as Post-It notes and Thinsulate insulation taped up a $4 13/16 gain to $76 1/8 after announcing earnings this morning. Q4 earnings per share (EPS) came in at $0.86, well above First Call analyst estimates of $0.80 but slightly below the $0.89 recorded last year.

The consensus estimate fell from $0.96 to $0.80 in mid-December when the company warned that earnings were likely to fall 10% from the prior year, obviously an overly pessimistic projection. EPS for all of 1998 fell to $3.74 from $3.88. All of these earnings numbers exclude restructuring charges of $161 million and $493 million ($0.25 and $0.77 per share, respectively) for the quarter and year.

Sales for the quarter rose 2%, with volume increases and price increases each up about 1%. Despite the uncertain international environment, international sales growth of 3% exceeded the 1% domestic increase. (International operations accounted for 52% of 3M's 1997 sales and operating profit.) For the year, sales were basically flat both domestically and internationally. Negative currency translation reduced international sales by 1% for the quarter and 6% for the year. The company estimates that those adjustments reduced quarterly EPS by $0.05 and the annual number by $0.35.

While the earnings number being ahead of expectations is contributing to today's rise, an annual earnings decline is always disheartening to long-term investors. At the same time, 3M is undoubtedly one of the global leaders in innovation. In 1997, the company spent over $1 billion (6.6% of sales) on research and development expenditures. From a financial perspective, the company is on extremely solid ground. Operating cash flows increased to $2.4 billion while capital expenditures were only $1.4 billion, leaving an extra $1 billion for dividends and share repurchases.

Exposure to many cyclical industries and the world economies is going to result in sporadic earnings performance from 3M. Long-term investors will likely be well served to take advantage of these downturns to get a piece of the action in the global leader. There is no reason to jump into this stock on today's price jump, as a spectacular rebound in 1999 isn't expected. In mid-December, 3M projected 4%-5% revenue growth and an 8% EPS increase for the year. Reports indicated that the company reaffirmed those expectations today. Nonetheless, 3M could be a core holding in many investor's portfolios.


Yahoo! (Nasdaq: YHOO) and Rupert Murdoch's News Corp. (NYSE: NWS) have entered into a major marketing relationship spanning network and cable TV and the Internet. Yahoo! will advertise throughout Fox's pre- and post-game Super Bowl programming and sponsor the debut of The Family Guy, a new cartoon premiering after the big game. The deal also involves cross-promotions between Yahoo! and Fox Sports Net, Fox Television Station Group, FX, Fox News Channel, Twentieth Century Fox Film, Fox Music, and Fox Interactive. Yahoo! added $11 1/2 to $297 1/2 this morning, while News Corp. reported a move up of $5/16 to $26 3/4.

Microsoft (Nasdaq: MSFT) advanced $4 15/16 to $161 3/16 after announcing plans for a 2-for-1 stock split on or about March 26, subject to shareholder approval, to keep its stock "broadly accessible to individuals." This would mark the eighth stock split since the company went public in March 1986.

Elsewhere in Microsoft's world, NTL Inc. (Nasdaq: NTLI), a U.S.-based company that provides telecom and cable service in the U.K., moved ahead $10 11/16 to $78 3/8 as it announced a partnership to develop broadband services for the U.K. and Ireland with the software giant. Microsoft will also make a $500 million investment in NTL to speed deployment of high-speed voice, video, and data services over its fiber-optic networks and to continue the company's introduction of Internet, telephone, and cable television services over its broadband facilities.

Enterprise computing and software company Sun Microsystems (Nasdaq: SUNW) rose $2 5/16 to $100 5/16 on reports that the company would unveil Jini, a new technology expected to make connecting computing devices to networks much easier, today. Scores of companies, from consumer electronics giant Sony (NYSE: SNE) to disk drive maker Seagate Technology (NYSE: SEG), are reportedly licensing the technology.

Embedded systems software company Wind River Systems (Nasdaq: WIND) was swept up $2 5/8 to $34 13/16 after diving $17 5/16 on Friday on the reported earnings worries of a Lehman Brothers analyst. Later that night, the company said it expects Q4 EPS of between $0.27 and $0.30. Five analysts surveyed by First Call provided a $0.29 per share consensus estimate for the quarter. "We do anticipate another solid quarter of results and remain confident as to our prospects for fiscal 2000,'' said CFO Richard Kraber.

(NYSE: C) rose $7/8 to $52 1/2 after it announced Q4 EPS (before charges) of $0.60, down from $0.80 the year before but ahead of analysts' expectations of $0.56. The company's co-CEOs said "substantial progress" has been made in the integration of Citibank and Travelers but admitted that progress is slower in Citigroup's corporate business due to the extreme market volatility in global markets.

Drug developer NeoPharm Inc. (AMEX: NEO) added $1 3/4 to $16 3/4 after it reported the signing of a 30-day negotiating period for its liposomal products with "an international pharmaceutical company." No further information was available.

Insulation and roofing products maker Johns Manville Corp. (Nasdaq: JM) rose $1 5/8 to $17 9/16 after it, along with 79% owner Manville Personal Injury Settlement Trust, said it will examine strategic alternatives, perhaps including the sale or merger of the company. Johns Manville is being advised by J.P. Morgan, while the Manville Trust retained Goldman, Sachs & Co.

"System on a Chip" company LSI Logic (NYSE: LSI) took on $1 3/8 to $22 9/16 after Prudential Securities upgraded the stock to "strong buy" from "hold."

Matthews Studio Equipment Group (Nasdaq: MATT), which supplies equipment and supplies to entertainment producers, ran up $7/8 to $5 1/2 after it said its online site (coming soon to a browser near you) will become an Amazon.com (Nasdaq: AMZN) "associate," exchanging links for referral fees.

Tire retreader and dealer Treadco Inc. (Nasdaq: TRED) rolled up $1 3/4 to $8 7/8 after Arkansas Best Corp. (Nasdaq: ABFS) agreed to buy all of Treadco's outstanding common stock for $9 per share, a 26% premium on Friday's closing price. Arkansas Best improved $7/16 to $8 11/16 this morning.

Realty Information Group (Nasdaq: RIGX), which provides Internet-based database software to real estate management companies, took $3 1/4 to $26 1/4 after it said it completed the purchase of privately owned Jamison Research, a commercial real estate information services provider in Atlanta and Dallas, on Friday.

Medical products and intimate apparel maker Alba-Waldensian (AMEX: AWS) stitched up gains of $1 1/2 to $22 1/2 after the company said it expects Q4 EPS to be "about twice" the third quarter's $0.52 figure. For a closer look at why this combination is working, click on this November Daily Double. New products and increasing demand for seamless intimate apparel were listed as reasons for the upside surprise.

Earnings Movers

Lexmark International Group (NYSE: LXK) -- up $2 1/8 to $101 3/8; Q4 EPS: $1.16 vs. $0.78 last year; estimate: $1.11

Mothers Work (Nasdaq: MWRK) -- up $5/8 to $12 7/8; fiscal Q1 EPS: $0.35 vs. $0.17 last year; estimate: $0.21 (one analyst)

ZOLL Medical Corp. (Nasdaq: ZOLL) up $3/4 to $10 3/4; fiscal Q1 EPS $0.08 vs. $0.03 last year; estimate: $0.06


Turfgrass and forage seed developer AgriBioTech (Nasdaq: ABTX) was uprooted for a $2 7/8 loss to $9 3/16 after saying late Friday that it has ended its three month-long search for a strategic partner and will remain independent. Instead, the firm is buying privately held HybriGene LLC for undisclosed terms. The moves have some folks scratching their heads about the firm's future direction, leading to downgrades from Piper Jaffray and Stephens Inc. The company will hold a conference call at 12:30 p.m. Eastern time at (800) 553-0326.

Several Baby Bells fell this morning on a Supreme Court ruling that will allow the Federal Communications Commission to set the pricing scheme for competitors entering into local phone markets. The Baby Bells had been hoping that the FCC would stay out of the pricing structure, allowing for perhaps more lenient policies from individual state regulators. Bell Atlantic (NYSE: BEL) fell $15/16 to $57 3/4, BellSouth (NYSE: BLS) lost $1 3/8 to $46 11/16, and US West (NYSE: USW) slumped $1 13/16 to $59 5/8.

Dense wavelength division multiplexing (DWDM) equipment maker Ciena Corp. (Nasdaq: CIEN) fell back $2 to $20 9/16 this morning after rising 23% on Friday thanks to renewed speculation that the company may be acquired, possibly by France's Alcatel (NYSE: ALA) or Canada's Nortel Networks (NYSE: NT).

Information technology outsourcer and Y2K problem-solver Information Management Resources (Nasdaq: IMRS) slid $3 3/4 to $24 3/4 after BT Alex. Brown lowered its rating to "market perform" from "strong buy."

Online auction house eBay (Nasdaq: EBAY) sank $4 to $192 3/4 on published reports that the company is the subject of a consumer fraud investigation by New York City regulators.

Contract electronics manufacturer Jabil Circuit (NYSE: JBL) slipped $2 13/16 to $67 3/16 after announcing plans to sell an additional $375 million of common shares, with some $150 million of the total being sold by current shareholders.

Metal golf clubheads manufacturer Coastcast Corp. (NYSE: PAR) was sliced $2 to $7 1/2 after saying reduced customer demand will result in a Q4 loss of $0.09 to $0.14 per share, missing the earnings of $0.07 per share expected by the sole analyst surveyed by Zacks. Moreover, the company said that sales in the first half of fiscal 1999 may be no better than the $23 to $25 million expected in Q4. Worse yet, sales in the second half of fiscal 1999 are expected to be lower than the first half's results.

Dearfoams slippers and thermal retention products maker R.G. Barry Corp. (NYSE: RGB) slid $1 1/8 to $11 after warning that "unseasonably warm weather" will result in fiscal 1998 earnings of $0.95 per share, missing the $1.15 to $1.20 per share the company said analysts had been expecting.

Bank and mortgage lender Roslyn Bancorp (Nasdaq: RSLN) dropped $2 1/8 to $19 1/8 after saying it will go ahead with its proposed merger with savings bank holding company T R Financial (Nasdaq: ROSE) after T R's board agreed to Roslyn's initial merger terms. Last month, T R said it would terminate the planned stock swap due to a decline in Roslyn's share price. T R gained $2 to $38 11/16 after changing its mind over the weekend.


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