THE MARKET MIDDAY
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Restaurant operator CBRL Group (Nasdaq: CBRL), formerly known as Cracker Barrel Old Country Stores, tumbled this morning on news that earnings for the rest of the fiscal year would fall well below expectations. Although fiscal Q2 (ended in January) earnings per share (EPS) were announced in line with expectations at $0.28 per share, the company cautioned that results for the year would fall in the $1.35-$1.45 range. Current estimates call for the company to earn $1.65per share this year, flat with last year's results.
Today's earnings warning is the second in two quarters. At the end of last quarter, the company warned that the company expected EPS to be in the $1.65-$1.75 range, down from the then-current $1.89 estimate.
The same-store restaurant sales decline in Q2 was 3.4%, an acceleration from the 2.0% decline in the Q1. The company did comment that prior to December 23, when horrible winter weather hit, same-store restaurant sales were down 2.0%. What disappoints me is the continued decline in restaurant sales while many other casual dining chains, such as Brinker International's (NYSE: EAT) Chili's chain, are reporting improved results. The trend that is emerging does not bode well for the near future. To address the issue, Cracker Barrel will be rolling out a new menu in Q3 that management hopes will improve the chain's price/value perception.
Because of the weak performance at its stores, it is scaling back expansion for the balance of this year and next to 40 stores from 50 stores each year. Given the poor recent results for the chain, this move appears to be prudent, but it also reduces prospects for near-term growth.
From a longer-term perspective, CBRL completed its announced acquisition of Logan's Roadhouse yesterday. This moderately priced chain of 46 restaurants will not be able to fuel the CBRL ship entirely, though, as it will account for less than 10% of CBRL's revenues based on last year's results. Over time, however, it may prove to be good concept into which CBRL can plow its capital.
The first priority of CBRL has got to be to stabilize its core concept. The enormous brand equity built over the years by providing an excellent dining experience should make a recovery possible. Nonetheless, the disappointments announced in the past two quarters have reduced investor confidence in management's ability to satisfy customers. Although successful for many years in the past, management at this company is going to have to prove itself once again before investors become interested in this stock.
Wireless communications software company Geoworks Corp. (Nasdaq: GWRX) shot up $2 7/16, or 72.2%, to $5 13/16 after announcing that online "books, music and more" retailer Amazon.com (Nasdaq: AMZN) will acquire a 7% stake in the company for $5 million and assume its Seattle office lease and hire certain employees.
Semiconductor equipment maker Applied Materials (Nasdaq: AMAT) applied a $2 3/4 gain to $70 5/8 after reporting fiscal Q1 EPS of $0.11 (excluding one-time items), down from $0.52 last year but better than analysts' mean estimate of $0.06. The company said, "The near-term outlook for our industry is favorable, with an improved DRAM [dynamic random access memory] pricing environment, healthy PC demand and a strong U.S. economy."
Telecommunications equipment maker Lucent Technologies (NYSE: LU) picked up $13/16 to $98 13/16 after announcing plans to split its stock 2-for-1 for the second time in 12 months. New shares will be issued April 1.
eBay (Nasdaq: EBAY) jumped $11 /12 to $242 5/8 on news that it is in talks with America Online (NYSE: AOL) regarding a closer business relationship, which could entail anything from jointly developing content to AOL acquiring a minority stake in the online auction company, according to The Wall Street Journal. For more details, get a helping of today's Breakfast With the Fool.
Great Lakes Chemical Corp. (NYSE: GLK) soared $3 7/8 to $39 1/2 on news that Berkshire Hathaway (NYSE: BRK.A) has acquired about 4 million shares, or a 6.8% stake, in the leading maker of chemicals used in flame retardants.
Natural gas utility Public Service Co. of North Carolina (NYSE: PGS) surged $6 3/4, or 29.7%, to $29 1/2 after announcing it has agreed to be acquired by energy company SCANA Corp. (NYSE: SCG) for about $900 million, including the assumption of debt. The deal is expected to be accretive to SCANA's earnings per share in 2001.
AmSouth Bancorp (NYSE: ASO) rose $3 7/16 to $48 3/16 after Standard & Poor's announced it will add the regional bank holding company to the S&P 500 Index to replace Tele-Communications Inc. (Nasdaq: TCOMA) when AT&T (NYSE: T) completes its pending acquisition of the cable company.
MySoftware Co. (Nasdaq: MYSW) was bumped up $1 3/4 to $21 after announcing that Netscape Communications (Nasdaq: NSCP) will promote its MyProspects.com list prospecting service on the Netscape Small Business Channel within Netscape Netcenter. Similarly, Intuit (Nasdaq: INTU) will also feature the prospecting service on Small Business by Quicken.com.
Non-laser vision correction products maker KeraVision Inc. (Nasdaq: KERA) saw its share rise $1 1/16 to $12 3/8 after saying that its pre-market approval application to sell Intacs, a treatment for myopia, has been deemed "approvable" by the Food and Drug Administration (FDA). The development puts it one step closer to winning FDA approval for the product.
Specialty chemical company H.B. Fuller Co. (Nasdaq: FULL) tacked on $2 13/16 to $41 3/16 after saying it expects fiscal Q1 earnings from continuing operations to be "substantially above" last year thanks to sooner-than-anticipated savings from restructuring efforts and reduced costs for raw materials. The company will report earnings March 23.
Biotechnology firm Corixa Corp. (Nasdaq: CRXA) added $2 to $10 1/4 after reporting fourth quarter earnings of $0.12 a share versus a loss of $0.23 in the year-ago period. Analysts had predicted a loss of $0.07 a share.
PC maker and direct-seller Dell Computer (Nasdaq: DELL) dropped $7 3/4 to $81 after announcing fiscal fourth quarter earnings of $0.31 a share, up 55% from a year ago and meeting analysts' expectations. Revenues increased 38% to $5.17 billion, falling short of analysts' projections as well as the 56% average growth rate in the preceding eight quarters. Dell also announced a 2-for-1 stock split effective March 5. For more on Dell's earnings, see last night's Evening News. The company's conference call is available on its website.
Among other PC makers, Hewlett-Packard (NYSE: HWP) moved back $1 5/16 to $69 3/16 after it said fiscal first quarter earnings increased to $0.92 a share from $0.86 a year earlier, topping First Call's analysts' mean estimate of $0.83. The computing giant reported a mere 1% increase in revenues and warned that "there are many reasons for continued caution, given the economic environment." In its conference call, HP said it expects Q2 sales to rise just slightly year-over-year -- between 1% and the mid-single digits -- and fiscal 1999 sales growth on the low end of its earlier projection of an 8% to 10% gain.
Medical technology firm Medtronic Inc. (NYSE: MDT) plunged $4 9/16 to $76 7/16 after the company said Q3 revenues from Arterial Vascular Engineering, bought in late November, will be lower than expected. Arterial Vascular's coronary stent sales fell more than 35% from Q2 as competitive shifts in U.S. market share were greater than anticipated.
Asynchronous transfer mode (ATM) switching products maker FORE Systems (Nasdaq: FORE), whose ForeRunner ASX-4000 switch was chosen by MCI WorldCom's (Nasdaq: WCOM) UUNet Internet service provider for its network upgrades, lost $1 3/4 to $14 3/4 this morning. Competitor Cisco Systems (Nasdaq: CSCO) moved back $2 9/16 to $96 1/2.
Chocolate maker Hershey Foods (NYSE: HSY) melted $1 1/8 to $59 15/16 after it announced plans to buy back up to $230 million in shares using proceeds from the company's recent sale of its pasta business. The authorization comes on the heels of its completion of a $200 million buyback program authorized in early 1996.
Web community theglobe.com (Nasdaq: TGLO) fell $11/16 to $48 9/16 this morning. The company reported a Q4 loss of $0.53 a share compared with last year's loss of $0.16 per share and analysts' expectations of a loss of $0.65. Revenues totaled $2.8 million, up 78% from the prior quarter and 682% from the same quarter a year ago.
Information technology consulting firm Atlantic Data Services (Nasdaq: ADSC) dropped $4 3/8 to $5 after it said last night that it expects fiscal Q4 (ending March 31) earnings to come in between a $0.04 per share loss and a $0.03 per share profit. Three analysts surveyed by First Call currently provide a $0.12 per share consensus profit estimate. "We have experienced noticeably lower bookings than anticipated and possible interim fall-off in business with major banking institutions," said CEO Robert Howe.
Computer products direct marketer Micro Warehouse (Nasdaq: MWHS), which announced the launch of Computersbynet.com, an Internet-only computer discount retailer to complement its full-service Warehouse.com and Webauction.com, lost $2 13/16 to $26 1/4 this morning. Q4 EPS was $0.38, down from $0.21 last year and beating the Street's $0.05 estimate. Gross margins were essentially flat with year-ago and Q3 levels at 16.4%.
Truck and bus maker Navistar International (NYSE: NAV) slowed $2 1/4 to $40 1/8 after adding $7 1/8 yesterday following reports that Sweden's Volvo AB (Nasdaq: VOLVY), the world's second largest heavy-truck maker, is in talks to buy Navistar.
Abercrombie & Fitch (NYSE: ANF) down $1 9/16 to $76 7/16; fiscal Q4 EPS $1.12 vs. $0.68 last year; estimate: $0.97
Computer Horizons (Nasdaq: CHRZ) down $1 1/2 to $13 1/2; Q4 EPS $0.38 vs. $0.29 last year; estimate: $0.38
Coyote Network Systems (Nasdaq: CYOE) down $1 3/32 to $6 29/32; fiscal Q3 EPS loss of $0.38 vs. loss of $0.42 last year; estimate: $0.06
Kushner-Locke Co. (Nasdaq: KLOC) down $21/32 to $7 11/32; fiscal Q1 EPS loss of $0.64 vs. $0.02 profit last year; no estimate
NICE Systems Ltd. (Nasdaq: NICEY) down $1 1/16 to $23 3/16; Q4 EPS $0.19 vs. $0.39 per share; estimate: $0.17
Orbital Sciences Corp. (NYSE: ORB) down $2 3/4 to $26 7/8; Q4 EPS loss of $0.18 vs. $0.69 profit last year; estimate: loss of $0.04
Sigma-Aldrich Corp. (Nasdaq: SIAL) down $1 1/4 to $25 3/8; Q4 EPS $0.39 vs. $0.41 last year; estimate $0.41
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