<THE EVENING NEWS>
Monday, March 2, 1998
DJIA: 8550.45 +4.73 (+0.06%) S&P 500: 1047.70 -1.64 (-0.16%) Nasdaq: 1758.54 -11.97 (-0.68%) Value Line ndx 938.88 +2.42 (+0.26%) 30-Year Bond 101 18/32 -1 7/32 6.01% Yield
Sunbeam Corp. (NYSE: SOC) gained $3 7/8 to $45 5/8 after the consumer products company announced it will acquire in three separate transactions the following companies: Coleman (NYSE: CLN), maker of outdoor recreation equipment; Signature Brands (Nasdaq: SIGB), a maker of consumer and institutional products such as Mr. Coffee machines; and First Alert (Nasdaq: ALRT), which makes smoke detectors and other home safety equipment. Coleman gained $10 1/16 to $30 15/16, Signature Brands perked up $2 25/32 to $8 1/32, and First Alert gained $2 1/32 to $5 5/32 on the news, as each is being taken over at a premium. Sunbeam gained ground not only because the company says the deals will be accretive to projected EPS over the coming year, but also because Chairman and CEO Al Dunlap has committed to staying on at the company for three more years to oversee the shaping up of the acquired companies.
WHX Corp. (NYSE: WHX), the holding company of steel manufacturer Wheeling-Pittsburgh Steel Corp., added $15/16 to $14 3/4 after announcing that it will acquire all outstanding common shares of Handy & Harman (NYSE: HNH) for $35.25 per share in cash. Handy & Harman fell $1 9/16 to $34 7/8 as risk arbitrageurs unloaded their positions in the company. WHX currently owns 13.6% of Handy & Harman. Handy & Harman's precious metals, automotive components, and specialty wire and tubing products will diversify and complement WHX's existing businesses that focus on hot and cold-rolled steel sheet and related products. Following the merger announcement, Standard & Poor's said ratings on WHX and Wheeling-Pittsburgh will remain on CreditWatch with negative implications. The ratings had been placed on CreditWatch on Dec. 17 when WHX announced its initial $30 all-cash bid for Handy & Harman. S&P said the transaction may result in increased financial leverage for WHX, even though some benefit will be realized from the combination of Handy & Harman's overfunded pension plan with Wheeling-Pittsburgh's underfunded plan.
Insurance products and services company American Bankers Insurance Group (NYSE: ABI) jumped $5 1/16 to $61 5/16 after insurance giant American International Group (NYSE: AIG) raised its bid for the company by 23% to $58 in stock and cash for each American Bankers share. The increased offer matches rival Cendant Corp.'s (NYSE: CD) hostile bid for American Bankers. AIG also pledged to keep American Bankers as a separately managed company within AIG, to provide it with the necessary capital to grow, and to maintain its headquarters in Miami. In late December, AIG agreed to acquire American Bankers for $2.2 billion, or $47 a share. In January, Cendant stepped in and topped AIG's bid with an unsolicited cash and stock offer of $2.8 billion, or $58 a share. Stay tuned, because Cendant hasn't bowed out of the race yet. In response to American International's latest bid, Cendant said it remains committed to acquiring American Bankers and is evaluating all its options. The bidding war could continue to escalate -- along with American Banker's stock price, which is up around 36% from the end of last year when it traded at around $45.
Owens-Illinois Inc. (NYSE: OI) rose $3 to $41 3/8 after the glass and plastic containers manufacturer announced that it will acquire the worldwide glass and plastic packaging businesses of BTR Plc in a $3.6 billion all-cash transaction. The deal is expected to have a neutral effect on earnings in 1998 and add to earnings in 1999. Owens-Illinois expects that following the acquisition its international operations will contribute nearly half of the company's sales compared with 36% now. In 1997 BTR Packaging had approximately $1.5 billion in sales. Since 1991, not including the BTR units, Owens-Illinois has acquired 10 glass container companies serving emerging markets and eight plastic packaging operations. Salomon Smith Barney initiated coverage on Owens-Illinois with a "buy" rating, and Merrill Lynch upgraded its rating on the company to "long-term buy" and "near-term buy" from "accumulate."
QUICK TAKES: Scientific-Atlanta Inc. (NYSE: SFA), a supplier of communications network and satellite-based video equipment, shot up $1 5/8 to $19 1/8 after announcing that it will sell its interdiction business to Blonder Tongue Laboratories (AMEX: BDR) for $19 million in cash, Blonder Tongue stock valued at $1 million, and an option to buy additional shares. Blonder Tongue gained $1 1/8 to $15 1/2... Oil and gas drilling company Global Marine (NYSE: GLM) rallied $1 3/16 to $24 1/2 after announcing that it has received a letter of intent from BHP Petroleum to build and lease a deep-water drilling rig. The order will generate $186 million in revenue over 30 months, a dayrate of approximately $200,000.
Management and information systems consulting firm Computer Sciences Corp. (NYSE: CSC) gained $3 1/4 to $107 15/16 after software giant Computer Associates International (NYSE: CA) said it will continue its unsolicited $108 per share all-cash offer to acquire the company despite CSC's board's decision to reject the bid. Today CSC mailed a letter to stockholders recommending that they do not tender any of their shares to CA because the offer "does not represent fair value" for the company... PETsMART Inc. (Nasdaq: PETM) surged $1 3/8 to $9 after Bankers Trust Alex. Brown raised its rating on the pet products retailer to "strong buy" from "market perform"... Chicken producer Pilgrim's Pride Corp. (NYSE: CHX) leapt $1 3/4 to $12 1/2 after saying that analysts' earnings estimates of $0.15 to $0.20 per share for the company's second quarter are "reasonable." Commenting on recent declines in its stock price, Pilgrim's Pride said chicken prices are higher, export markets are stronger, and feed ingredients prices are lower than they were at the end of 1997.
Bear Stearns initiated coverage on Circuit City Stores CarMax Group (NYSE: KMX) with an "attractive" rating, driving the used car superstore chain up $3/4 to $10... Upscale apparel and shoe retailer Nordstrom Inc. (Nasdaq: NOBE) jumped $3 31/32 to $61 5/16 after Credit Suisse First Boston raised its rating of the company to "strong buy" from "buy" and named the company its featured stock of the week... Portuguese private financial group Banco Comercial Portugues SA (NYSE: BPC) rallied $2 7/16 to $34 13/16 after announcing that it plans to start a "strategic cooperation" with Polish private financial group BIG Bank GDANSKI SA to develop retail banking services in Poland... International telecommunications company Viatel Inc. (Nasdaq: VYTL) gained $1 11/16 to $10 11/16 after announcing plans to build a Pan-European fiber-optic network that will connect select cities in Belgium, France, the Netherlands, and Britain. The company expects construction of the network, known as Circe, to begin late this spring and be operational next year.
Bank holding company CNB Financial (Nasdaq: CNBF) picked up $5 7/8 to $37 7/8 after announcing plans to extend its stock repurchase agreement and buy back up to 332,061 of its outstanding shares between March 16, 1998, and March 15, 1999... U.S. Satellite Broadcasting (Nasdaq: USSB) rose $1 5/16 to $9 7/8 after Bell Atlantic Corp. (NYSE: BEL) and SBC Communications (NYSE: SBC) announced separate agreements to offer USSB's premium movie services to their customers... Preview Travel (Nasdaq: PTVL) gained $2 5/8 to $24 after BancAmerica Robertson Stephens raised its rating on the Internet travel services company to "buy" from "long-term attractive"... ProMedCo Management Co. (Nasdaq: PMCO) added $1 7/16 to $14 1/16 after ABN AMRO initiated coverage of the physician practice management company with a "buy" rating.
Genesco Inc. (NYSE: GCO) charged ahead $1 5/8 to $15 3/8 after Bear Stearns started coverage of the footwear company on Friday with a "buy" rating... Automated manufacturing systems supplier Gerber Scientific (NYSE: GRB) gained $1 5/8 to $21 7/16 after announcing that its Gerber Optical subsidiary has purchased privately held Coburn Optical Industries Inc., which makes a broad range of ophthalmic lens processing equipment and related supplies used in the production of eyeglass lenses, for approximately $63 million in cash... Level 8 Systems (Nasdaq: LVEL), a provider of middleware software products and services utilizing messaging, rose $7/8 to $13 3/8 after reporting fourth quarter earnings of $0.03 per share versus $0.02 in the year-earlier period. The company also announced it would acquire privately held software vendor Momentum Software Corp. in a stock transaction.
Battery management products maker BENCHMARQ Microelectronics (Nasdaq: BMRQ) advanced $7/8 to $17 1/8 after announcing that it has agreed to be acquired by integrated circuits manufacturer Unitrode Corp. (NYSE: UTR) in a transaction valued at $135 million... Drug developer and manufacturer BIORA AB (Nasdaq: BIORY) moved up $1 7/8 to $21 after announcing that it has received European marketing approval for its new product PrepHgel, a multi-purpose device used for conditioning exposed root surfaces during periodontal surgery. BIORA plans to launch PrepHgel in Europe in the second quarter... U.S. cable TV firm At Entertainment (Nasdaq: ATEN) vaulted $7/8 to $12 1/4 after announcing plans to issue roughly $150 million worth of bonds to raise funds for its Polish digital television unit, Wizja TV.
Aspect Telecommunications Corp. (Nasdaq: ASPT), a global provider of business solutions for mission-critical call centers, rang up $2 to $28 3/8 after announcing that it has settled a patent infringement suit with Lucent Technologies (NYSE: LU). Under the agreement, Aspect will pay Lucent a one-time fee as well as future royalties that are not expected to be material to Aspect's results from operations... The Energy Group Plc (NYSE: TEG) powered up $3 1/16 to $54 1/2 after Texas Utilities Co. (NYSE: TXU) announced an all-cash agreement to buy the diversified international energy group for 810 pence ($13.37) per share and $53.46 per American Depositary Share. PacifiCorp (NYSE: PPW) upped the ante by raising its bid to 820 pence ($13.54) a share from an earlier offer of 765 pence ($12.63) a share.
Orbital Sciences Corp. (Nasdaq: ORBI) rocketed ahead $3 3/8 to $41 1/2 on news that the aerospace firm has received a five-year $1.117 billion U.S. defense contract to provide targeting support for the Defense Department's Ballistic Missile Defense Organization, which is working to find ways to shoot down ballistic missiles in flight.
The fall of Callaway Golf Co. (NYSE: ELY) sent a number of golf related issues into triple-bogey territory today, as investors pondered the effects of both the Asian currency crisis and El Nino on the operating performance of these firms. (For more on Callaway, see today's "Fool on the Hill" column below.) "The Little One" is wrecking havoc on prime winter golf locales in Florida and California, and the strength of the dollar has hurt Asian sales of leisure industry products across the board. Callaway's warning also dragged down clubhead maker Coastcast Corp. (NYSE: PAR), which dropped $1 3/8 to $19 3/8. Aluminum investment castings company Sturm Ruger (NYSE: RGR) fell $1 to $19 3/16, while boron carbide ceramic composite maker Alyn Corp. (Nasdaq: ALYN) dropped $1 1/2 to $8 1/2. Golden Bear Golf (Nasdaq: JACK) was also down $5/8 to $8 1/4.
Auto service contract and extended warranty provider Interstate National Dealer Services (Nasdaq: ISTN) fell $1 3/16 to $8 1/8 after reporting fiscal Q1 earnings of $0.17 per share, missing the Zacks consensus estimate of $0.20 per share. The results included a one-time gain of $300,000, or $0.06 per share, associated with the settlement of a dispute with an unaffiliated party. The company's operating margins slid to 4.9% from 8.0% during the quarter, primarily due to more cancellations in its high-margin telemarketing sales business. The company said it is installing procedures to reduce the high level of telemarketing cancellations, but declined to elaborate what exactly those controls may be. Moreover, the first quarter is historically the firm's slowest, resulting in a lower average margin, but on the flip side, Interstate National recorded higher sales for its deferred contract products -- which have lower gross margins than the telemarketing sales game.
QUICK CUTS: Semiconductor manufacturers and equipment makers were beaten up today after brokerage and investment bank DMG Technology Group said in a research note that Micron Technology (NYSE: MU ) had delayed delivery of a number of machines used in the final processes of fabricating semiconductors. The main victim of the push-out, Teradyne Inc. (NYSE: TER), lost $6 3/16 to $41, and Credence Systems (Nasdaq: CMOS) fell $2 5/8 to $30 3/4. Other equipment companies down today include Applied Materials (Nasdaq: AMAT), which lost $1 3/8 to $35 7/16; KLA-Tencor Corp. (Nasdaq: KLAC), which slid $3 5/32 to $43; and Novellus Systems (Nasdaq: NVLS), which skidded $3 to $44 15/16... Newspaper publisher and TV and radio station operator Pulitzer Publishing (NYSE: PTZ) slipped $4 5/8 to $79 3/8 after putting its broadcasting division up for sale on Friday. The stock was downgraded to "accumulate" from "buy" by A.G. Edwards.
CKE Restaurants (NYSE: CKR), which franchises Carl's Jr. and Hardee's fast-food eateries, was burned for $1 7/16 to $41 after announcing plans to add to its debt load by selling $150 million of 6-year convertible notes to institutional investors... Apple Computer (Nasdaq: AAPL) lost $7/8 to $22 3/4 after the company cut the price of its Power Macintosh G3 personal computers. On Friday, the company said it would stop making its Newton hand-held computer... Ceramic products maker Ceradyne Inc. (Nasdaq: CRDN) lost $5/8 to $6 3/4 despite announcing that it has won a multi-year contract to provide up to $100 million in ceramic armor products to a U.S. government agency... Paper and packaging supplies maker Unisource Worldwide (NYSE: UWW) fell $3/4 to $12 7/8 after being downgraded to "neutral" from "attractive" by PaineWebber.
Luxury goods retailer Tiffany & Co. (NYSE: TIF) dropped $1 7/16 to $45 9/16 after Hambrecht & Quist lowered its rating on the stock to "hold" from "buy"... Symons International Group (Nasdaq: SIGC) slipped $2 to $17 3/8 after the nonstandard car and crop insurer reported Q4 EPS of $0.07, which was way below the Zacks mean estimate of $0.45... Engineered reinforcement fabrics maker Brunswick Technologies (Nasdaq: BTIC) dropped $2 3/8 to $13 5/8 after the company reached an agreement on Friday to buy British composite reinforcement materials manufacturer Tech Textiles International Ltd. for about $5.9 million in cash... Sun Microsystems (Nasdaq: SUNW) slipped $1 7/8 to $45 3/4 after its CEO Scott McNealy and Netscape Communications (Nasdaq: NSCP) CEO Jim Barksdale told a Senate panel that the Justice Department should broaden its anti-trust lawsuit against Microsoft Corp. (Nasdaq: MSFT). Microsoft also fell $1 3/8 to $83 3/8.
Retail brokerage and investment bank PaineWebber Group (NYSE: PWJ) lost $2 1/2 to $38 1/2 after the firm declined to comment on Friday when asked by the New York Stock Exchange about recent volatility in its stock price. According to rumors, the company may be a takeover target... Software developer Seibel Systems (Nasdaq: SEBL) dropped $5 15/16 to $55 9/16 after announcing an agreement to acquire Scopus Technology (Nasdaq: SCOP), a provider of customer information management software, in a stock swap valued at $460 million, or $22.79 per share (based on Siebel's opening price). Scopus rocketed $4 7/16 to $18 9/16... Telecommunications services company WinStar Communications (Nasdaq: WCII) slid $2 9/16 to $39 1/2 after the stock was downgraded to "market perform" from "outperform" by Legg Mason Wood Walker.
Callaway Yells "Fore!"
El Nino has claimed another victim. Shares of golf-club manufacturer Callaway Golf (NYSE: ELY) tumbled $3 9/16 to $28 3/4 today after the company announced late Friday afternoon that the combination of disastrously rainy weather in its major winter markets and the residual effects of the Asian currency crisis would have a severe effect on the company's earnings in the first quarter. Callaway CEO Donald Dye suggested that earnings could miss analyst estimates of $0.36 a share by as much as $0.25 per share, which would be a shortfall of almost 70%.
The announcement, coming on the heels of Nike's (NYSE: NKE) similarly gloomy outlook for the quarter, suggests that Asia's woes are going to have a material effect on some American manufacturers of consumer goods, particularly those looking to the Far East as a booming market for leisure goods. As they did for Nike, international sales for Callaway slowed dramatically in the fourth quarter of last year, and that slowdown has continued through the first two months of 1998. Predictably enough, the turmoil in Asia has put a severe dent in the market for golf equipment there, particularly in Korea and Southeast Asia, but also in Japan. And the strong dollar has also bitten into Callaway's sales abroad. Ironically, a recent piece in Business Week's "Inside Wall Street" tip-sheet column suggested that Nike was looking at Callaway as a possible acquisition in its attempt to expand into the sports equipment market. That article drove up the stock's price, making today's tumble all the more dramatic.
Callaway's problems seem to be primarily situational, and the situation is such that it may be awhile before investors can expect any real improvement. Callaway became a major player in golf equipment in 1991, when it introduced Big Bertha, a metal wood with an oversized head that, along with its successors (Great Big Bertha and Biggest Big Bertha), has become the most popular wood on the pro tour and a huge favorite of weekend hackers as well. The company still gets close to 70% of its revenue from sales of the woods, which are made of aerospace-grade metals like titanium and tungsten. Callaway has also done a good job of expanding around its core business, adding a line of irons and putters, and more recently starting a golf-ball subsidiary. At the beginning of this year, the company introduced the Big Bertha X-12 Irons (what X-12 stands for remains a bit unclear), and received more than 100,000 orders for the irons in their first month of availability. Still, with 35% of those orders coming from abroad, it's possible that many of those orders will be delayed or cancelled.
Callaway has succeeded in creating a powerful brand identity for itself, such that saying the word "driver" to a golfer is likely to elicit the response: "Callaway." More than five million golfers use Big Berthas off the tee, and Big Bertha, in fact, has become such a desirable trademark that Spalding recently introduced a new golf ball, the Top-Flite Ball/Club System C, that it advertises as designed to "maximize performance when used with the Callaway Great Big Bertha." Rather remarkably, Spalding did this without Callaway's cooperation, and not surprisingly Callaway responded by taking the ball manufacturer to court. But the whole episode does showcase the strength of the product's brand name, which Callaway has tried -- with varying degrees of success -- to leverage into its other product lines at home and abroad.
Still, no company in the sports business has a stronger brand name than Nike, and name recognition has not saved it in recent months from maturing markets, overpriced goods, and continuing public relations difficulties. Callaway's woes are somewhat different. The company is at the mercy of the weather to an inordinate extent, particularly in the typically slow first quarter, where heavy rains in a few select regions can wash out a majority of its business. At the same time, while the market for golf equipment is growing in the U.S., the markets for explosive growth are all abroad. Insofar as the effects of the Asian crisis could put a serious drag on growth in emerging markets for years to come, Callaway investors may need to readjust their expectations for the foreseeable future.
The company's balance sheet is strong, with no long-term debt, but receivables have been climbing steadily over the last year. More importantly, while operating margins have stayed relatively consistent, Callaway grew earnings last year by less than 10%, while even with today's hit, the stock trades at a P/E ratio of 15. Until El Nino disappears and Asia is flying right again, it's hard to see a real upside to Callaway right now. Even with Big Bertha, it's a company that's not likely to drive the green any time soon.
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