THE MARKET MIDDAY
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SCI Cries Wolf?
Electronics manufacturing services (EMS) provider SCI Systems (NYSE: SCI) has fallen from an all-time high of $58 1/2 early in 1999. Today at midday, it's down another $7 15/16 to $35 after the company told investors yesterday evening that it is revising its expectations for the coming two quarters.
One of the largest electronics manufacturing services (EMS) companies, SCI expects that it will not meet earlier revenue and earnings projections for the March and June quarters, but it still expects to meet or exceed year-earlier results. In Q3 1998, the company's revenues were $1.69 billion and earnings were $0.50 per share. In the fourth quarter, revenues were $1.59 billion and EPS was $0.54. So we have a string of quarters for SCI where the top line looks like this:
Revenue (in billions)
According to Zacks, the EPS numbers look like this:
This is in an industry where growth is more than 20% per year due to the natural growth in electronics output and the shift in assets from original equipment manufacturers (OEMs) to EMS companies. This is a pretty lackluster performance. Competitor Solectron (NYSE: SLR) recently posted a 71% increase in quarterly sales, to $1.9 billion, while Jabil Circuit (NYSE: JBL) showed a 40% increase in net revenues, to $447.9 million in its most recent quarter. Flextronics (Nasdaq: FLEX) grew revenues 69%, to $499.9 million. SCI says, however, that "...market conditions and pricing in several product areas appear to be degrading somewhat." What a surprise. When companies are dramatically underperforming their peers, one of the first refuges is to blame problems on the industry.
SCI did say that "...customer market share shifts are occurring..." Big customer Apple (Nasdaq: AAPL) seems to have had an alright time of things lately. Perhaps there are a few too many iMacs in the channel, though. Hewlett Packard (NYSE: HWP) is also a major customer, but it's hard to trace back to SCI individual trends at H-P, since H-P is diversified. Nevertheless, Hewlett did say in its last conference call that orders were up 5% year-over-year and 15% sequentially. Perhaps SCI is losing some of H-P's business, and some of that may be going to Jabil.
Overall, there are some individual investors that are pretty ticked off with SCI, since the company's stock showed a gap down and some pretty ugly movements right before this earnings release. To top it off, SCI released its typically uninformative quarterly press release and then told institutional investors and analysts on the conference call lots of other stuff that it didn't tell individuals. It put out a release last night that said essentially, "Yes, business is soft and we think it's these things," but that was about it.
You can't even tell from the company's filings what its gross margin is. Why anyone would invest in a company where you can't figure out the individual income statement line items and capital management metrics is beyond me. What's funny is the company doesn't even let some buy-side analysts in on its calls. All around, if the EMS sector is down today, keep in mind SCI's comments, but don't give them too much weight. The company's credibility with investors is pretty thin, and it seems like this is a case of an underperformer blaming its problems on what otherwise looks like robust industry conditions.
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Digital audio and video tool creator Avid Technology (Nasdaq: AVID) rose $4 23/32 to $33 3/16 after reporting "tax-effected" Q4 earnings of $0.57 (excluding charges), up from $0.37 last year and ahead of the Zacks mean estimate of $0.22. The company said it will delay reporting net income figures as it works with the SEC to possibly adjust a $194 million acquisition-related charge for in-process R&D taken in Q3. Morgan Stanley Dean Witter raised its rating to "outperform" from "neutral."
NetRadio owner Navarre Corp. (Nasdaq: NAVR) advanced $7/8 to $19 15/16 after signing an e-commerce strategic alliance with online community theglobe.com (Nasdaq: TGLO) that will provide consumers "instant access to the hottest consumer software," according to Navarre President and CEO Eric Paulson.
Online and TV-based specialty retailer Shop At Home (Nasdaq: SATH) added $1 3/4 to $23 7/16 after direct broadcast satellite (DBS) system operator EchoStar Communications (Nasdaq: DISH) agreed to broadcast the company's shopping network free of charge to its DBS subscribers starting Feb. 8.
Pacemakers and cardiovascular medical devices company St. Jude Medical (NYSE: STJ) got investors' blood pumping this morning, rising $2 to $28 1/16 after agreeing to buy conglomerate Tyco International's (NYSE: TYC) Angio-Seal hemostatic arterial puncture closure device business for $167 million in cash. ING Baring Furman Selz raised the company's rating to "buy" from "hold."
Internet portal Lycos (Nasdaq: LCOS) gained $3 3/4 to $133 1/8 after the magazine Industry Standard reported that the company is in talks to sell a 35% stake to General Electric's (NYSE: GE) NBC unit.
Internet website co-location services and direct access provider AboveNet Communications (Nasdaq: ABOV) tacked on $2 1/8 to $34 1/8 after saying three Asian online content providers will use its co-location services at AboveNet's San Jose Internet Service Exchange.
Personal care products network marketer Nu Skin Enterprises (NYSE: NUS) rose $1 1/4 to $24 3/4 after announcing it will acquire privately held e-commerce technologies firm Big Planet for unspecified terms. The company also said it will buy Nu Skin USA and its remaining non-owned affiliates in Canada, Mexico, and Guatemala for $40 million cash, $14 million in notes, and the assumption of certain liabilities.
Luxury products maker Gucci Group (NYSE: GUC) strutted up $1 13/16 to $70 5/8 after Business Week's iffy "Inside Wall Street" column speculated that a pair of "upscale U.S. retailers" or a British firm may buy the company, if current stakeholder LVMH Moet Hennessy Louis Vuitton (Nasdaq: LVMHY) does not acquire a majority stake in the firm first.
Global air freight services firm Kitty Hawk (Nasdaq: KTTY) was boosted $3/4 to $10 3/8 after saying a "strong" holiday season will result in Q4 EPS between $0.65 and $0.72, ahead of the First Call mean estimate of $0.60.
Satellite-to-car digital radio broadcaster CD Radio (Nasdaq: CDRD) slowed $6 1/4 to $25 7/8 on news that it will need to raise another $175 million before launching its service, which was planned for April 2000. The company said it will have to pay Lucent Technologies (NYSE: LU) $27 million for the development of chip sets for its radio receivers, three times the originally anticipated sum. Former StockTalk subject CD Radio is also delaying its satellite launches, which will cost the company $50 million, and it must also pay $80 million for an additional satellite.
Information technology services firm Electronic Data Systems (NYSE: EDS) lost $4 3/8 to $47 5/8 after reporting Q4 EPS of $0.53, a penny above Street projections before charges. The charges -- which included a $12.7 million bill for the retirement of Vice Chairman Gary Fernandes -- pulled the quarter's final score down to $0.29 per share.
Computer chip maker Advanced Micro Devices (NYSE: AMD) retreated $2 1/16 to $16 7/8 following yesterday afternoon's warning that it could post an operating loss this quarter due to pricing pressures. The company said that in light of earlier-than-expected price cuts by arch-nemesis Intel (Nasdaq: INTC), it is "reassessing [its] competitive response." More on this is available in this morning's Breakfast With the Fool.
Procom Technology (Nasdaq: PRCM) was jolted for $1 3/4 to $6 3/4 after the data storage systems company said it expects fiscal Q2 EPS of between $0.01 and $0.03, down from last year's $0.14 and the $0.02 consensus reported by First Call. The company experienced a decrease in sales of its CD-ROM servers and arrays, while sales of its hard disk drive upgrades were soft because of lower average unit sales prices. Results were also affected by costs connected to a relocation of headquarters.
Contract nonclinical pharmaceutical testing firm BioReliance Corp. (Nasdaq: BREL) dropped $1 1/2 to $7 1/2 after saying Q4 results are seen coming in "well below expectations" and will likely miss Q3's $0.14 per share mark, itself a penny below the year-ago Q4 tally. CEO Capers McDonald blamed "customer deferrals of certain projects and delays in completing manufacturing projects." Q1 EPS is expected to miss estimates as well.
Manufactured housing firm American Homestar (Nasdaq: HSTR) tumbled $2 5/8 to $7 1/2 after saying it expects fiscal Q3 EPS to come in below the year-ago $0.25 mark. "Unprecedented growth in our retail operations over the past two years has stretched our people resources and has lowered average per store performance," co-CEOs Buck Teeter and Lad Dawson said in a statement. A replay of a conference call on the news will be available beginning this afternoon through Feb. 12 at (402) 398-4723.
Radiant Systems (Nasdaq: RADS), which makes software systems for retailers, dimmed $1 3/8 to $11 after turning in a Q4 loss of $0.02 per share, down from EPS of $0.15 a year ago but an improvement on First Call's projection of a $0.06 loss. The company also said Tricon Global Restaurants (NYSE: YUM) will adopt Radiant software in its offices and restaurants.
Broadcast tower services provider Westower Corp. (Amex: WTW) toppled $3 1/16 to $26 11/16 after reporting seven-month EPS of $0.19, down from $0.43 a year ago. The company said the lower figure was caused by increased acquisition spending. CEO Calvin Payne said Westower owns, or has contracts to buy or build and lease, 325 towers. Westower owned 12 towers last Feb. 28.
Brokerage stocks that moved ahead this week on an optimistic outlook for online investing turned tail this morning. M. H. Meyerson & Co. (Nasdaq: MHMY) fell $3 15/16 to $8 7/16, while J. B. Oxford (Nasdaq: JBOH) dropped $4 11/16 to $11 3/16 and Siebert Financial (Nasdaq: SIEB) lost $5 3/4 to $37 1/2. Elsewhere, E*Trade (Nasdaq: EGRP) gave back $6 1/4 to $47 1/4, while Ameritrade (Nasdaq: AMTD) slid $14 1/4 to $96 1/2. J. B. Oxford said just after the bell last night it would consolidate its Stocks-4-Less subsidiary into its JB Online division.
HIV drug developer Trimeris Inc. (Nasdaq: TRMS) stumbled today, returning $4 1/4 to $20 15/16 after gaining $4 3/16 yesterday on news that its T-20 developmental drug earned fast-track review status from the FDA.
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