<THE EVENING NEWS>
Thursday, July 22, 1999
MARKET CLOSE
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30-Year Bond   90 3/32   -25/32   5.97 Yield

HEROES

Communications chipmaker Conexant Systems (Nasdaq: CNXT) connected for a $7 1/2 gain to $65 1/2 after posting fiscal Q3 EPS of $0.24, up from $0.08 last quarter and $0.05 ahead of the IBES mean estimate. The company had tipped off analysts last month that their earnings estimates for the period were too low, but in subsequent revisions, analysts ended up underestimating the company's growth anyway. Conexant's revenues increased 20% sequentially to $380 million, thanks to 76% sequential sales growth for the firm's network access products. For Q4, the company is predicting 10% sequential revenue growth and higher operating margins than the 8% turned in during Q3. With demand for its remote access components, xDSL chipsets, and CDMA power amplifiers white hot, and revenues rising nearly 50% faster than operating expenses, Conexant looks poised to surprise again in the current quarter. With that in mind, Merrill Lynch and Credit Suisse First Boston both raised their fiscal 1999 earnings estimates today.

Tissue, personal care, and healthcare products company Kimberly-Clark (NYSE: KMB) rolled up a $4 13/16 gain to $61 13/16 after reporting Q2 EPS of $0.72 (before one-time items), up from $0.58 a year ago and ahead of analysts' mean estimate of $0.69. The company also said it has restated financial results for 1995 through the first quarter of 1999 following a SEC review, increasing its cumulative earnings for the period by approximately $0.20 per share but resulting in added depreciation charges over the balance of 1999 and into next year. The results prompted a Goldman Sachs upgrade to "recommended list" from "market outperform" for the company, which is on a roll after beating analysts' estimates by an average of $0.04 per share over the past three quarters. With today's rise, Kimberly-Clark trades at 21 times analysts' forward earnings estimates, a 25% discount to the S&P 500 Index's forward P/E of 28.

GOATS

You watched today's move in Finnish mobile phone maker Nokia (NYSE: NOK), a loss of $8 1/4 to $86 3/8, and you read Jolly J. J. Cramer's response to the company's earnings news at TheStreet.com (Nasdaq: TSCM), you just have to sigh. Nokia reported second quarter net profits of 581 million euros, squeaking past reported analyst estimates -- though short of the high-end -- but coming in 59% above year-ago levels. The company said full-year sales growth, driven by a mobile phone division where Q2 sales increased year-over-year by more than 70%, may exceed its targeted 25% to 35% figure. Cramer's take? He chides the company for not effectively managing analysts so that Nokia doesn't allow "rogue high-end forecasts... that simply can't be beaten no matter how hard you try." Sure, Nokia shouldn't be guiding analysts astray -- but there's no law that says companies need to guide them at all, particularly to cover sell-side butts. J. J. is smart enough to realize that "this whole game is just a giant charade," but he nevertheless manages to avoid placing even the slightest modicum of blame on the heads of Wall Street and its "analysts" who, at last check, were the ones who guessed wrong. Sigh.

News that unfavorable currency effects were likely to counteract improving financial performance at Xerox Corp. (NYSE: XRX) pulled shares of the publishing, printing, and copying equipment maker down $4 9/16 to $50 13/16 today. Q2 EPS was $0.62, better than last year's pre-charge $0.54 but flat with market projections. Encouraging were improved operating margins, which were boosted by a "substantial" decline in general and administrative spending (which wasn't broken out in the company's press release) and resurgent U.S. and European revenue growth that CEO Rick Thoman believes will continue into the second half. But Thoman's prepared statement also said, "Any continuation of the current weak European exchange rates, together with ongoing weakness in Brazil and Japan, make this earnings growth a much more challenging objective for the remainder of the year." Later, in a conference call with analysts, CFO Barry Romeril refrained from issuing specific earnings guidance but said he expected EPS to be cut by between a nickel and a dime for the year. First Call's current estimate is $2.68 per share, up 15% from last year's $2.33.

QUICK CUTS: Shares of leading online retailer Amazon.com (Nasdaq: AMZN) plunged $18 1/4 to $107 3/16 following last night's report of roughly in-line second quarter results and warnings about steepening losses as the company spends heavily to build out its distribution infrastructure. The Fool's Louis Corrigan ventured into the Amazon in today's Fool Plate Special... Telecommunications services provider MGC Communications (Nasdaq: MGCX) moved back $2 13/16 to $23 11/16 today after announcing the offering of 5 million shares of company stock for $25 per share, a more than 5% discount to yesterday's closing price... Coffee roster and retailer Starbucks (Nasdaq: SBUX) steamed off $1 5/16 to $23 15/16 before announcing after the bell that fiscal Q3 EPS was $0.13, up from $0.11 (excluding charges) last year but flat with First Call's consensus projection.

High-performance workstations and servers company Sun Microsystems (Nasdaq: SUNW) dropped $3 1/2 to $67 3/16 today. After the close, the company turned in fiscal Q4 EPS of $0.48, beating last year's $0.37 and coming in $0.02 better than projected... Bovine boxmaker Gateway (NYSE: GTW), down $2 7/8 to $62 7/8 today, after the close released Q2 EPS of $0.56, better than last year's $0.38. The market's consensus projection was $0.55... Online services provider America Online (NYSE: AOL) dialed up a loss of $4 9/16 to $110 1/2. The company turned in fiscal Q4 earnings of $156 million, or $0.13 per share before charges, up from $58 million, or $0.05 per share, from the same quarter a year ago. More on the story can be found in this morning's Breakfast With the Fool.

PC maker Compaq (NYSE: CPQ) lost $1 to $25 today. After the bell, the company named acting COO Michael Capellas its new CEO, replacing the ousted Eckhard Pfeiffer... Wireless and satellite-based Internet access support systems company Adaptive Broadband (Nasdaq: ADAP) was unplugged for $3 3/4 to $17 3/4 after Northrop Grumman (NYSE: NOC) sued the company, alleging misinformation about a business unit it bought from Adaptive for $98 million... High-tech knickknacks retailer Sharper Image Corp. (Nasdaq: SHRP), which announced the offering of 3 million shares of company stock to the public -- a 33% boost to the total currently outstanding -- shed $1 3/16 to $10 3/4.

Analog integrated circuits and power and signal discrete semiconductors company Microsemi Corp. (Nasdaq: MSCC) slowed $2 3/4 to $7 5/16 after the company said to expect fiscal Q3 EPS of between $0.04 and $0.06, well off First Call's two-analyst estimate of $0.17 and below last year's $0.20... Shares of downloadable music website MP3.com (Nasdaq: MPPP) closed down $2 3/8 to $60 15/16 in the stock's second day of trading. The company's issues rocketed up yesterday after it sold 12.3 million shares to the public at $28 each... Midwestern Internet service provider Voyager.net (Nasdaq: VOYN) traveled down $1 7/16 to $13 5/8 today in day two of the company's foray into the public marketplace. Yesterday the company sold 9 million stubs for $15 apiece.

Shares of Mac maker Apple Computer (Nasdaq: AAPL) lost $1 11/16 to $52 3/8 today after adding $1 3/16 yesterday following the introduction of the company's nifty new iBook notebook computers... Online job recruiting services firm Webhire Inc. (Nasdaq: HIRE), up $4 13/16 over the past two trading days on news that Japanese Internet investment company SOFTBANK agreed to take a 40% stake in the company, returned $13/16 to $10 5/8 today... Pizza Hut, Taco Bell, and KFC restaurants operator Tricon Global Restaurants (NYSE: YUM), down yesterday on news that its admittedly bewildering Star Wars tie-in was a bomb and Q2 EPS was flat with estimates, lost another $1 1/2 to $46 today.

Earnings Movers


Adaptec (Nasdaq: ADPT) down $1 3/4 to $38 1/4; fiscal Q1 EPS: $0.44 (before gain) vs. $0.12 last year; estimate: $0.39

Becton Dickinson & Co.
(NYSE: BDX) down $1 1/4 to $27 1/4; fiscal Q3 EPS: $0.38 vs. $0.37 last year; estimate: $0.38

Best Software (Nasdaq: BEST) down $7/8 to $16 1/2; Q2 EPS: $0.20 vs. $0.15 last year; estimate: $0.20

Broadcom Corp. (Nasdaq: BRCM) down $9 3/8 to $121 7/8; Q2 EPS: $0.19 (before charges) vs. $0.05 last year; estimate: $0.16

Budget Group (NYSE: BD) down $2 11/16 to $9 3/4; Q2 EPS: $0.42 vs. $0.33 last year; estimate: $0.42

CMI Corp. (NYSE: CMI) down $3/4 to $10; Q2 EPS: $0.24 vs. $0.20 last year; estimate: $0.22

Compuware Corp. (Nasdaq: CPWR) down $6 7/8 to $26 3/4; fiscal Q1 EPS: $0.24 vs. $0.18 last year; estimate: $0.24

General Semiconductor (NYSE: SEM) down $7/8 to $8 1/8; Q2 EPS: $0.14 vs. $0.19 last year; estimate: $0.15

IKOS Systems (Nasdaq: IKOS) down $2 1/8 to $8 1/8; fiscal Q3 EPS $0.08 vs. loss of $0.56 last year; estimate: $0.05

International Telecommunication Data Systems (Nasdaq: ITDS) down $5 9/16 to $10 1/8; Q2 EPS: $0.26 vs. $0.18 last year; estimate: $0.25

i2 Technologies (Nasdaq: ITWO) down $10 11/32 to $32 1/8; Q2 EPS: $0.11 vs. $0.09 last year; estimate: $0.11

Network Solutions (Nasdaq: NSOL) down $5 3/8 to $71 7/8; Q2 EPS: $0.17 vs. $0.07 last year; estimate: $0.16

NorthPoint Communications Group (Nasdaq: NPNT) down $5 11/16 to $31 1/16; Q2 EPS loss of $0.44 vs. loss of $0.13 last year; estimate: loss of $0.35

Schlumberger Ltd. (NYSE: SLB) down $1 7/16 to $61; Q2 EPS: $0.23 vs. $0.69 ; estimate: $0.25

SpeedFam-IPEC Inc. (Nasdaq: SFAM) down $4 13/16 to $10 5/16; fiscal Q4 EPS: loss of $1.58 (before charges) vs. loss of $0.07 last year; estimate: loss of $0.39

Stryker Corp. (NYSE: SYK) down $7 1/2 to $61 1/4; Q2 EPS: $0.38 vs. $0.36 last year; estimate: $0.38

THQ Inc. (Nasdaq: THQI) down $5/16 to $32 3/8; Q2 EPS: $0.36 (before charges) vs. $0.25 last year; estimate: $0.32

QUICK TAKES: Enterprise network security software developer Network Associates (Nasdaq: NETA) rose $2 to $19 1/16 after reporting a Q2 loss of $1.05 per share, which was in line with the downwardly revised First Call mean estimate. Channel inventories, which have plagued the company recently, appear to be "at the right level" of 8 to 12 weeks, CEO Bill Larson reportedly said during a conference call.... Analog and embedded memory chipmaker Atmel (Nasdaq: ATML) climbed $1 5/8 to $29 5/8 after posting Q2 EPS of $0.13 (excluding one-time items), which was in line with analysts' estimates. Credit Suisse First Boston started coverage of the firm with a "buy" rating... Energy-related management consultant Navigant Consulting (Nasdaq: METZ) added $2 to $19 1/16 on news it will be added to the S&P MidCap 400 index.

Cancer and autoimmune diseases treatment developer Coulter Pharmaceutical (Nasdaq: CLTR) gained $2 3/16 to $26 1/16 after the FDA granted priority review status to its Bexxar radioimmunotherapy product for certain types of non-Hodgkin's lymphoma, which is being co-developed and marketed by SmithKline Beecham (NYSE: SBH)... Enterprise storage management software firm Legato Systems (Nasdaq: LGTO) was lifted $4 5/16 to $78 7/8 after posting Q2 EPS of $0.29 (excluding merger-related charges), up from $0.09 a year ago and ahead of the First Call mean estimate of $0.25. The company also set a two-for-one stock split payable Aug. 16... Automatic-dimming rearview mirrors maker Gentex Corp. (Nasdaq: GNTX) brightened $1 5/16 to $25 9/16 following an upgrade to "strong buy" from "accumulate" from Prudential Securities.

Internet relationship management software firm Vignette Corp. (Nasdaq: VIGN) moved ahead $5 7/16 to $73 after posting a Q2 loss of $0.22 per share (excluding merger charges and amortization related to stock options), which was not quite as bad as the loss of $0.25 per share expected by the analysts surveyed by IBES... Servers and visual workstations maker Silicon Graphics (NYSE: SGI) advanced $15/16 to $16 15/16 after reporting fiscal Q4 EPS of $0.12 (excluding a one-time gain), well above the Zacks analysts' estimates range of a loss of $0.13 per share to earnings of $0.09... Local telecommunications company Cincinnati Bell (NYSE: CSN) rose $1 7/16 to $21 1/4, erasing some of yesterday's 16% loss as investors warmed up to its proposed $3.2 billion acquisition of competitive local exchange carrier IXC Communications (Nasdaq: IIXC). IXC added another $2 3/8 to $42 1/8 today.

Auto finance company Arcadia Financial Ltd. (NYSE: AAC) drove $1 1/8 higher to $9 7/16 after saying it will report Q2 EPS between $0.35 and $0.40 sometime in the next three trading days. The company was originally expected to report today, but the announcement has been delayed as the firm transitions to new auditors... Computer-based measurement and automation products maker National Instruments (Nasdaq: NATI) gained $5 1/32 to $47 1/4 after posting Q2 EPS of $0.33, topping the Zacks mean estimate by a penny. The company also said it will split its stock three for two... French computer-assisted design (CAD) software maker Dassault Systemes S.A. (Nasdaq: DASTY) added $4 3/4 to $38 1/2 after reporting a 40% rise in net income per share and a 32% increase in total revenues for the second quarter.

Earnings Movers


ANTEC Corp. (Nasdaq: ANTC) up $15/16 to $37 1/4; Q2 EPS: $0.21 vs. $0.09 last year; estimate: $0.19

Asymetrix Learning Systems (Nasdaq: ASYM) up $1 7/8 to $9 3/16; Q2 EPS: loss of $0.14 vs. loss of $0.32 last year; estimate: loss of $0.14

Basin Exploration (Nasdaq: BSNX) up $1 1/8 to $19 5/8; Q2 EPS: $0.23 (no income tax provision) vs. $0.05 last year; estimate: $0.08

CommScope (NYSE: CTV) up $4 7/16 to $34 3/8; Q2 EPS: $0.33 vs. $0.17 last year; estimate: $0.29

Deltek Systems (Nasdaq: DLTK) up $3 1/2 to $13 1/4; Q2 EPS: $0.25 (excluding charges) vs. $0.18 last year; estimate: $0.22

ESS Technology (Nasdaq: ESST) up $1 15/16 to $14 3/8; Q2 EPS: $0.18 vs. loss of $0.32 last year; estimate: $0.14

Harmonic (Nasdaq: HLIT) up $7 13/16 to $72 13/16; Q2 EPS: $0.25 vs. loss of $0.25 last year; estimate: $0.13

IDX Systems Corp. (Nasdaq: IDXC) up $2 7/16 to $22 1/4; Q2 EPS: $0.02 (excluding charges) vs. $0.20 last year; estimate: loss of $0.03

Peregrine Systems (Nasdaq: PRGN) up $4 7/16 to $30 11/16; fiscal Q1 EPS: $0.14 (excluding charges) vs. $0.08 last year; estimate: $0.12

Providian Financial Corp. (NYSE: PVN) up $6 1/2 to $; Q2 EPS: $0.87 vs. $0.43 last year; estimate: $0.85

Shaw Industries (NYSE: SHX) up $1 7/16 to $19 11/16; Q2 EPS: $0.48 vs. $0.22 last year; estimate: $0.38

Zebra Technologies Corp. (Nasdaq: ZBRA) up $3 7/8 to $44 3/8; Q2 EPS: $0.57 (excluding charges) vs. $0.45 last year; estimate: $0.52

FOOL ON THE HILL
An Investment Opinion
by Yi-Hsin Chang

UPS Makes Wish Come True

A couple of months ago, as I was brainstorming for a special feature on "Companies Fools Wish Were Public," I chose J. Crew and United Parcel Service, commonly known as UPS. Well, one of them granted my wish -- I won't be so bold as to say I caused the company's sudden change of plans, though it's fun to joke about it.

Yesterday, Atlanta-based shipping giant United Parcel Service of America announced that it has filed a registration statement with the Securities and Exchange Commission (SEC) to make an initial public offering (IPO) of about 10% of the company's shares by the end of this year. If all goes as planned, UPS will trade under the ticker symbol "UPS" on the New York Stock Exchange.

If you read my earlier article on why I wished UPS were public, you'd know that, unlike most privately held companies, UPS is already fairly widely held. About 125,000 employees own stock through the company's employee stock purchase program, meaning that around 38% of its 327,000 employees hold shares in the company. That's quite a substantial number, considering the program is completely voluntary, and employees must work for the company for at least one year to become eligible.

The interesting thing is that, again unlike that of most private companies, UPS stock is not illiquid. The company's board sets the stock price on a quarterly basis -- as of May, the stock was priced at $47 a share and paid a $0.55 dividend twice a year. Employees can purchase shares from and sell shares to the company at the set price. The main difference, of course, is that the company, not a public market, determines what the shares are worth.

With the IPO, UPS will now get a market valuation. Current employee-shareowners will get Class A common stock, and a new class of B shares will be offered to the public. Essentially, Class B shares will cost the same as Class A shares, but Class B shareowners will have only one-tenth the voting power. Class A shares can be converted to Class B shares upon transfer or sale, giving employee-shareowners the ability to sell their shares to anyone, not just to the company.

UPS currently has 550 million shares outstanding, so 10% of that would involve 55 million shares. Rounding up from the May share price of $47, we can guess that the shares might be offered at $50 to $55 a share some time in the next few months. That would gross $2.75 billion to $3 billion, which is nothing to sneeze at, even by a company that generated $24.8 billion in revenues last year.

Incidentally, a quarter before, in February, UPS stock had been valued at $43, so the stock essentially rose 9.3% in one quarter and 38% in one year from $34 a share. Not bad, especially since the public market will likely be more liberal in rewarding the company for strong operating results.

When I talked to Susan Rosenberg in the PR department at UPS back in May, she told me that the company had no plans to go public. So what changed management's mind, and why now?

That's exactly what I wanted to ask UPS Chairman and CEO Jim Kelly when I talked to him today. Here's what he said: "We're doing it now because we operate in a very competitive, global environment, and we're looking to stay ahead and maintain our leadership in the areas in the industries where we conduct business. This will provide us additional financial flexibility to pursue strategic alliances and acquisitions going forward. We think that that'll be necessary to compete in this new environment."

Kelly later explained that "strategic acquisitions" could be related to its core delivery business, its logistics business, or its e-commerce business. "It may be one, or it may be a combination of all three of those areas," he said.

While FDX Corp.'s (NYSE: FDX) Federal Express business got a lot of hype (including the cover of Barron's magazine) a while back, UPS is, in fact, the shipping industry leader in e-commerce and ships for 6 of the top 10 Internet retailers including Amazon.com. According to a Zona Research study, UPS delivered 55% of online purchases during the 1998 holiday season.

But Chairman Kelly declined to speculate on how the market might value UPS and whether it will get a higher valuation because of the vast amount of Internet business it does. "We'd like to be viewed as a 92-year-old company that has a great brand that does a wonderful job at what we do, and that certainly includes electronic commerce."

I am still very impressed with UPS. The IPO will no doubt prove to be incredibly popular. My only reservation thus far is the risk of a strike at the company. As you might recall, the 1997 nationwide strike -- the only one of that magnitude in the company's long history -- hurt the nation's economy, not to mention UPS's revenues and earnings. But Kelly called the strike "ancient history" and said management has worked to establish relationships with truck drivers and the unions. The current contract doesn't expire until 2002.

Now that my wish for UPS to go public is coming true, dare I wish for shares in the IPO?

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