Friday, June 25, 1999
DJIA 10642.48 +107.65 (+1.02%) S&P 500 1327.33 +11.55 (+0.88%) Nasdaq 2577.65 +23.66 (+0.93%) Russell 2000 444.94 +1.78 (+0.40%) 30-Year Bond 88 3/32 +15/32 6.12 Yield

An Investment Opinion
by Paul Larson

Campbell Soup Spills

Campbell Soup (NYSE: CPB) shareholders were left with a bad taste in their mouths this morning. Along with news that the company was going to spend $35 to $45 million to restructure the company, Campbell announced that the current quarter's earnings would be $0.08 to $0.10 below the current analysts' estimate of approximately $0.38 per share. Needless to say, Wall Street did not palate the news well and traded the shares down as low as $40 1/2 in moderately heavy trading.

Longtime shareholders in Campbell must be suffering a case of D�j� vu as this is the second time this year that the company warned analysts that it was aiming too high. Back in early January the company warned that earnings estimates for the fiscal year ending in July were also too high. While analysts dutifully lowered their profit estimates after that first warning, apparently they did not lower them enough.

Campbell said that most of the current shortfall would come due to the fact that retailers were trimming excess inventories of the company's soup products. While consumption of the company's core soup products has been growing at a fairly healthy 3% so far this year, actual production and shipments are lower as the company's previously warned "supply chain initiative" works itself out.

Excluding the restructuring charge, the company should now report earnings of about $1.73 per share for the full fiscal year ending next month. This is quite a ways below the $1.89 the company said it was comfortable with back in April. With such a terrible signal as that, it's no wonder even the most pessimistic analyst missed the boat.

After Campbell's latest gaffes and after watching the company alienate longtime DRiP shareholders by initiating a fairly hefty fee on its dividend reinvestment plan, one can't help but wonder what's going on in Campbell's top ranks. Nevertheless, even though management may have goofed with investors in recent months, Campbell's awesome brand continues to own roughly 75% of the soup market in the United States. And with the recent weakness, the company is priced relatively cheaper than most on the exchanges at about 21 times revised forward earnings. Is it time to stock up? Perhaps, but only if Campbell's management can rebuild some trust with investors.


Defense contractor Lockheed Martin (NYSE: LMT) ascended $1 5/16 to $36 1/2 this morning. The company wants to shed at least $1 billion in assets as part of a restructuring aimed at restoring profits and investor confidence, The Wall Street Journal reported. Assets that may go include its military-aircraft electronics businesses -- such as those making radar, cockpit displays, and weapons-firing systems -- as well as parts of an information-services unit and a business providing energy and environmental services.

Telecom equipment maker Lucent Technologies (NYSE: LU) dialed up gains of $3/4 to $64 3/4 after saying it will acquire Nexabit Networks, a privately held start-up developer of high-performance Internet Protocol (IP) wide area network (WAN) switching/routing equipment, for about 14 million Lucent shares. Based on yesterday's close, the deal is worth roughly $900 million. The deal is expected to be neutral to fiscal 1999 and 2000 earnings. The company yesterday closed its acquisition of Ascend Communications.

Metal-castings maker Citation Corp. (Nasdaq: CAST) rose $1 7/8 to $16 after it said it agreed to be acquired by closely held Kelso & Co. for about $643.8 million, including assumed debt. The $18.10 per share deal represents a 28% premium to yesterday's closing price. At the same time, Citation warned that it expects fiscal third-quarter earnings to come in around $0.28 a share, short of analysts' mean estimate of $0.40.

Online retailer Amazon.com (Nasdaq: AMZN) climbed up $1 1/16 to $114 11/16 after naming Joseph Galli, a former top executive at Black & Decker (NYSE: BDK), its first president and COO. Galli will report directly to founder and CEO Jeff Bezos. The bizarre twist is that the news came after Galli had twice indicated that he would take a top post at PepsiCo (NYSE: PEP); for more on this, head back to today's Breakfast With the Fool.

Online services company America Online (NYSE: AOL) is reportedly in talks with privately held Microworkz.com Corp. about including AOL's service in the PC maker's computers and even producing an AOL-branded computer. On Monday, at the PC Expo trade show in New York, Microworkz unveiled its new $200 PC/Internet appliance, which uses no Microsoft (Nasdaq: MSFT) software -- it uses a unique combination of the Linux and Be Inc. operating systems. AOL shares took $1 3/8 to $108 1/8 this morning.

High-tech communications equipment company Comtech Communications (Nasdaq: CMTL) tuned in $1 5/16 to $11 9/16 after the Army chose it to implement its movement tracking system, which could mean as much as $418 million of mobile terminals, computers, peripherals, and communications systems and services over an eight-year period.

Specialty water treatment chemicals provider Nalco Chemical Co. (NYSE: NLC) added to its $3 1/2 gain of yesterday, rising $2 11/16 to $43 9/16, after yesterday afternoon confirming that it was in merger talks. Bloomberg News yesterday fingered oil refiner and specialty chemical firm Ashland (NYSE: ASH) and French water company Vivendi as possible buyers.

Aluminum sheet manufacturer Commonwealth Industries (Nasdaq: CMIN) was burnished for a gain of $2 5/8 to $12 5/8 after saying it expects to report Q2 EPS between $0.35 and $0.45. Six analysts surveyed by First Call were looking for EPS of $0.23. The expectations primarily reflect significant volume gains at Commonwealth's aluminum products business.

Small business Internet services firm Netopia (Nasdaq: NTPA) moved up $2 7/8 to $20 7/8 after high-speed Internet access company Jato Communications chose Netopia as its preferred provider of digital subscriber line customer premises equipment.

Online city guide and event ticketing company Ticketmaster Online-CitySearch (Nasdaq: TMCS) bagged $2 7/8 to $25 7/8 after Thomas Weisel Partners rated the stock a new "buy."

Industrial and consumer packaging products company Sonoco (NYSE: SON) improved $1 15/16 to $28 after Morgan Stanley Dean Witter raised its full-year 1999 EPS estimate to $1.76 from $1.74. First Call's 10-analyst consensus estimate is $1.78. The brokerage kept its price target at $35 per share.


Pharmaceutical contract research organization (CRO) Parexel International (Nasdaq: PRXL) tumbled another $4 1/8 to $12 13/16 after dropping 21% yesterday on fears that rival Covance (NYSE: CVD) would call off its planned merger with the company. This morning, Covance confirmed those fears and cut loose Parexel, saying both companies agreed that the decision is "in the best interests of their respective shareholders." Covance moved up $4 1/16 to $25 5/8 on the news.

Oilfield drilling fluids management services firm Newpark Resources (NYSE: NR) slid $2 5/16 to $8 7/16, giving back yesterday's 15% merger rumor-induced gain. After the bell, the company agreed to merge with oilfield tubular coating and inspection services firm Tuboscope (NYSE: TBI) in a $1.3 billion stock swap. The new company's ownership will be split 50-50 between the shareholders of both companies. While not estimated, merger-related cost savings are expected. Tuboscope lost $3/8 to $13 7/8 this morning.

Business technology integration consultant AnswerThink Consulting Group (Nasdaq: ANSR) went brain-dead for a $5 1/8 loss to $22 5/8 after deciding it is of like minds with corporate e-business tools and applications developer THINK New Ideas (Nasdaq: THNK), which it will acquire for about $231.2 million in stock. AnswerThink expects the deal to add to its earnings in calendar year 2000.

Global energy provider American Electric Power Co. (NYSE: AEP) was zapped by a $2 1/2 loss to $39 1/8 after saying it will spend $574 million to restart the Unit 1 and Unit 2 reactors of its Cook Nuclear Plant by the end of next year. The costs are expected to trim the company's earnings per share by $0.27 in the first half of 1999, $0.37 in the second half of 1999, and $1.15 in 2000. AEP said forking over the dough for a restart outweighed the option of shutting down the plant entirely and writing off the investment, which would have resulted in the loss of "significant sales opportunities."

Pegasus Communications (Nasdaq: PGTV) had its wings clipped and fell $2 1/2 to $36 after Merrill Lynch cuts its near-term rating on the marketer of digital broadcast satellite (DBS) systems to rural areas to "accumulate" from "buy."

Spanish-language Internet portal Quepasa.com (Nasdaq: PASA) retreated $2 1/16 to $15 1/16 after rising 43% yesterday following its initial public offering of 4 million shares at a price of $12 per share.

Biopharmaceutical company Centocor Inc. (Nasdaq: CNTO) slipped $2 1/8 to $44 3/4 after Bear Stearns cut the firm's fiscal 1999 earnings estimate to $0.51 per share from $0.62 per share and its fiscal 2000 estimate to $0.95 per share from $1.00 per share, citing higher anticipated research and development spending.

Textile company Delta Woodside Industries (NYSE: DLW) unraveled for a $1 3/16 loss to $5 15/16 after a plan to sell its Delta Mills Marketing Co. operating business came apart at the seams due to a lack of satisfactory offers. Instead, Delta Woodside is considering the sale of its Delta Apparel and Duck Head units to its Delta Mills Inc. khaki making subsidiary, or spinning off the two units to its shareholders as separate publicly traded companies in an effort to recapitalize the parent company.

Online discount broker DLJdirect (NYSE: DIR) slid $1 5/16 to $26 3/16 after Morgan Stanley Dean Witter -- an underwriter of the company's initial public offering last month -- started coverage of the firm with a less-than-enthusiastic "neutral" rating.


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