Fool.com: Ups and Downs Plus Top News (QuickNews) August 30, 1999

Motley Fool QuickNews
Monday 8/30/99

Editor's Note: One of the things readers have said they miss with our new news format is a single page with a daily market review and other Fool news and commentary. In response to that, this week we introduce The Motley Fool's QuickNews, where you'll find our mainstay Ups and Downs and the day's top news stories in one easy-to-read composite. Of course, don't forget to check out the links to the rest of our news features, published throughout the day. Comments or questions? E-mail the Fool News team at news@fool.com.

Closing Market Numbers -- 08/30/99

DJIA           10914.13    -176.4    (-1.59%) 
S&P 500         1324.02    -24.25    (-1.80%)
Nasdaq          2712.69    -46.21    (-1.67%)
Russell 2000     427.36      -5.9    (-1.36%)
30-Year Bond  100 27/32  -1 07/32  6.06 Yield

Today's Market Movers:

UPS

Commercial aircraft maker and defense contractor Boeing (NYSE: BA) swooped $15/16 to $44 3/4 on reports it reached a preliminary agreement with its union, the International Association of Machinists and Aerospace Workers (IAM). Boeing's previous contract with the IAM expires September 2, and a strike was viewed by some as likely.

Front office solution software maker Applix (Nasdaq: APLX) jumped $2 1/8 to $18 5/8 as investors expect the Westboro, Massachusetts company will continue riding the wave of excitement surrounding the Linux software market. Linux is a free programming language some think will challenge Microsoft's (Nasdaq: MSFT) dominance in the operating system market. Applix's products are available on many platforms, including Windows, Windows NT, UNIX, and Linux.

International telecommunications service provider Ursus Telecom (Nasdaq: UTCC) zipped $7 5/16 to $20 1/16 after an analyst from Scott & Stringfellow upgraded the stock from "hold" to "long term buy."

Internet application service provider Unify (Nasdaq: UNFY) stomped $2 1/2 to $14 1/4 after posting record earnings for its fiscal 2000 first quarter. Net income for the three months ended July 31 soared 500% to $0.18 per diluted share, compared to $0.03 per diluted share a year ago. Revenue jumped 31% to $8.7 million, up from $6.7 million a year ago.

Specialty drugmaker Diatide (Nasdaq: DITI) bubbled up $1 5/16 to $7 on news its anticancer experimental drug rhenium-188 reduced the size of pancreatic tumors in laboratory mice. The results showed no harm to other tissues. Diatide plans to further evaluate the clinical effect of the drug in a program to be launched later this year.

Internet services company Scient (Nasdaq: SCNT) added $11 11/16 to $63 11/16 when David Grossman, an analyst at Thomas Weisel, bumped up his fiscal 2000 estimates on the company to $0.24 per share from $0.14 per share. Grossman noted improved margins and aggressive hiring trends at Scient. A Morgan Stanley analyst increased his rating on the company from "neutral" to "outperform."

DOWNS

Heavy equipment maker Caterpillar (NYSE: CAT) drilled losses of $2 1/8 to $59 1/2 after announcing plans Friday to shut down one of its manufacturing plants for five weeks as a result of soft markets for earth-moving equipment.

Insurance holding company Progressive (NYSE: PGR) wilted $16 1/4 to $102 3/4 after the company said it would miss third-quarter expectations as a result of higher costs. For more details, see News World. The earnings scare sent shares of other insurance concerns falling: Safeco (Nasdaq: SAFC) lost $1 9/16 to $34 5/8, and Allstate (NYSE: ALL) dropped $1 13/16 to $33 11/16.

Internet service provider Prodigy (Nasdaq: PRGY) slid $2 1/8 to $18 7/8 after an analyst at Soundview Technology downgraded the stock to "hold" from "buy."

Internet marketing information firm Acxiom (Nasdaq: ACXM) dropped $2 3/16 to $18 3/8 after the Associated Press reported that the company plans to cut its workforce by 5%, or 250 employees.

Today's Top Stories:

AT&T Hits Its Numbers, Gets Aggressive with Pricing
By Richard McCaffery (TMF Gibson) (TMF Gibson)

AT&T (NYSE: T) executives reaffirmed expectations to meet earnings expectations, grow revenue, and reduce costs in 1999 in a conference call with analysts today.

Management expects 1999 earnings in the range of $2.12 to $2.20 per share, in line with Zacks mean estimate of $2.18 per share. Pro forma revenue growth between 5% and 7% per share is expected, with the company's wireless, professional services, outsourcing and data units leading the way. Revenue from long distance services -- the company's traditional bread and butter operations -- will be lower than expected as a result of competition from hundreds of long distance players that have entered the market in the last two years, officials said.

But the company also announced aggressive new pricing plans to compete with moves by MCI WorldCom (Nasdaq: WCOM), and Sprint (NYSE: FON), which now offer long distance calls to consumers at $0.05 per minute. AT&T plans to combat the move with a $0.07 per minute plan, expected to best the MCI and Sprint offerings because the AT&T plan doesn't include time restrictions for long distance services. "This saves money compared to the $0.05 plan," said Michael Armstrong, AT&T chairman.

The good news for investors in all this is that the aggressive plan demonstrates Armstrong's cost-cutting moves should allow AT&T to become competitive once again in the long distance market. Since joining AT&T in October 1996, Armstrong has made great strides to reduce the company's bloated operational costs, which kept it from being competitive in shark-filled waters. Sales, General and Administrative costs (SG&A) represented 30% of revenue in 1997. Armstrong committed to reducing SG&A to 23% by year-end 1999, and actually exceeded that goal. SG&A expenses were 21% at June 30.

Perhaps even more important than getting costs under control, Armstrong has given AT&T a strategy. Through aggressive purchases of companies like TeleCommunications Inc. (TCI), AT&T now has access to 40 million homes via cable wire, which the company plans to use to offer consumers bundled, one-rate packages including cable, telephony, and Internet services. In the complicated world of technology, where consumers have to juggle Internet service providers, cable operators, local and long distance phone companies, AT&T's plan to reduce complexity by offering one-stop shopping is a compelling business model.

AT&T is currently trading at a little over two times book value and at a trailing P/E multiple of 19.7 -- not bad for a company that should be a major player over the next 10 years. AT&T's moves to reduce debt, trim operational costs, repurchase $3 billion in stock, and position itself as a complete communications services provider make it worth another look. Though its size will probably prevent it from generating double-digit earnings growth, investors should consider AT&T as a core holding for their portfolios.

The AT&T conference call replay will be available starting at 2:30 p.m. EDT today for 72 hours. Call 800-475-6701, enter access code 467773.

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Carrefour, Promodes Gird For Wal-Mart
By Dave Marino-Nachison (TMF Braden)

It's not quite Normandy, but two French retailers scurried to erect their defenses against an American invasion today as Carrefour moved to create the world's second-largest retailer by bidding more than $16 billion for rival Promodes.

The move was intended in large part to hold off Arkansan Wal-Mart (NYSE: WMT), which with nearly $138 billion in fiscal 1999 revenues would still dwarf the combined companies. Together, Promodes and Carrefour would have about $50 billion in annual sales.

On foreign exchanges, the stocks of several other European retailers jumped into action. Although most Continental chains aren't traded in the U.S., one that may be worth watching is Dutch grocer Koninklijke Ahold (NYSE: AHO). A spokesman for Ahold, which has significant holdings here in the U.S., told Reuters it was looking at options in France, Britain, Italy, and Spain but wouldn't carry out any hostile bids. German chain Metro, formerly the world's #2, is also scoping possibilities.

Reports said Spanish "hypermarket" chains Continente and Pryca, controlled by Carrefour and Promodes respectively, would likely soon combine.

Mammoth Wal-Mart can take credit for the sudden feeding frenzy among European retail investors. Already strong in Latin America and starting to expand in China and Korea, its recent move to pick up U.K. grocer ASDA for nearly $11 billion -- combined with its ownership of two German hypermarket chains -- has stoked a fire in the acquisition engines of European retailers.

"We are still smaller than the biggest companies that are far from renouncing their intentions to become ever more powerful," Carrefour director Daniel Bernard said at a news conference.

(For a Foolish take on the advances of American office supply chains into European markets, click here.)

And Wal-Mart is certain to be examining further options. With the U.K. and Germany already invaded, the company needs only a French acquisition to have footholds in Europe's top three markets. French supermarket company Auchan, a family-owned operation, said in June that Wal-Mart came calling.

Some analysts suggested Wal-Mart might regard today's news deal as little more than a temporary setback and simply swoop in to acquire the combined company. Wal-Mart certainly has considerable weight to throw around; its market capitalization is some four times that of Carrefour and Promodes together.

The Normans, after all, will remember that although the landing on their beaches was difficult at first, the Americans wouldn't be denied for long.

More of Today's Best:

Republic Services Trashed
By Dave Marino-Nachison (TMF Braden)
-- Investors turned up their noses at waste collection and disposal services provider Republic Services (NYSE: RSG) today, sending the company's shares down more than 30% on heavy volume following news that full-year earnings are expected to disappoint.
FULL STORY>>

FOOL ON THE HILL An Investment Opinion
MP3 Revolution
By Yi-Hsin Chang (TMF Puck)
-- There's a revolution going on in the music industry, and it's happening right here on the Web. I'm not talking about ordering CDs online from the likes of Amazon.com or CDnow, which simply shift an old world business to a new world medium. I'm talking about music direct sellers, a new way of doing business that cuts out the middlemen -- in this case, record studios and retailers. I'm talking about a potential category killer.
FULL STORY>>

FOOL PLATE SPECIAL An Investment Opinion
Coulter Malignant with Cancer Drug Delay
By Warren Gump (TMF Gump)
-- Shareholders in developmental-stage biotech firm Coulter Pharmaceuticals (NYSE: CLTR) were hit with some of the negative risk associated with new drug development. The company announced this morning that the Food and Drug Administration (FDA) requested modifications to its application for marketing approval of its leading drug candidate, Bexxar, for non-Hodgkins lymphoma. The company's press release stated that the requested changes were primarily related to reformatting and reorganizing data and seeking additional information on existing data. Nonetheless, the stock fell by almost a third in morning trading.
FULL STORY>>

Reactionaries Dump Progressive
By Brian Graney (TMF Panic)
-- Auto and specialty property-casualty insurer Progressive Corp. (NYSE: PGR) took it on the chin this morning after the company said late Friday that its third quarter earnings will fall short of the First Call mean estimate of $1.46 per share. The warning is uncharacteristic for the Cleveland-based insurer, which is usually tight-lipped about giving earnings guidance to anyone, including Wall Street analysts. In a sense then, the announcement was a way to tell the whole world that analysts were completely missing the boat in regards to how the business is performing in the current quarter.
FULL STORY>>

BREAKFAST WITH THE FOOL An Investment Opinion
McLeodUSA Gets $1 Billion Infusion
By Brian Graney (TMF Panic)
-- Confirming a report in this morning's Wall Street Journal, private investment firm Forstmann Little & Co. has agreed to invest $1 billion in Cedar Rapids, Iowa-based competitive local exchange carrier (CLEC) McLeodUSA (Nasdaq: MCLD). Under the deal, Forstmann Little will buy convertible preferred shares representing a 12% stake in the company, which had needed a capital infusion to fully fund its business plan. In return, Forstmann Little senior partner Ted Forstmann and another partner plan to join the company's board.
FULL STORY>>