Fool.com: Ups and Downs Plus Top News (QuickNews) September 2, 1999

Motley Fool QuickNews

Thursday 9/02/99

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

DJIA           10843.21    -94.67    (-0.87%) 
S&P 500         1319.11    -11.96    (-0.90%)
Nasdaq          2734.24    -16.56    (-0.90%)
Russell 2000     427.42     -3.57    (-0.83%)
30-Year Bond   99 30/32    -22/32   6.13 Yield

Today's Market Movers:

UPS

Online software delivery company Beyond.com (Nasdaq: BYND) surfed up $7 /16 to $17 1/8 after landing a three-year contract worth up to $3 million to deliver Corel (Nasdaq: CORL) software products to the Department of Defense.

Internet access company Ramp Networks (Nasdaq: RAMP) sped $1 7/8 to $20 1/2 after forging a partnership with communications firm Ameritech (NYSE: AIT) to provide its customers with products to gain fast access to the Internet.

Drugmaker Celgene (Nasdaq: CELG) jumped $3/4 to $18 1/8 after researchers reported that a Phase II clinical study showed that thalidomide, which the company is testing as a possible cancer fighting agent, reduced tumors by 50% in 30% of patients tested.

Pharmaceutical firm Isis (Nasdaq: ISIP) crept $1 3/8 to $11 7/16 on news it's negotiating with several major pharmaceutical companies to market Isis 2302, an experimental drug used to treat a disease that causes gastrointestinal inflammation in more than 800,000 people worldwide.

Filter and fluid clarification equipment maker Pall (NYSE: PLL) spotted gains of $7/8 to $20 15/16 after reporting that earnings for the fourth quarter increased 27% to $50.4 million, or $0.40 per share, up from $0.32 per share last year. For the year, earnings rose to $119 million, or $0.95 per share (minus nonrecurring charges and an accounting change), compared to $0.92 per share last year.

DOWNS

Computer products distributor Tech Data (Nasdaq: TECD) lost $7 1/16 to $29 despite matching analysts' estimates of $0.54 per diluted share for the second quarter and growing sales 82% to $4 billion. Shares fell because price pressures in Europe eroded profit margins, Bloomberg and Reuters reported.

Chip enhancement technologies developer Rambus (Nasdaq: RMBS) dropped $4 3/4 to $90 1/2 on fears that chip giant Intel (Nasdaq: INTC) is backing away from the company's memory chip technologies by stating that it will use a competing technology called PC-133 starting next year.

Drugmaker Regeneron (Nasdaq: REGN) skidded $2 1/8 to $7 7/16 after Procter & Gamble (NYSE: PG) backed out of an agreement to help bring Axokine, the company's obesity and diabetes drug, to market.

Internet and telecommunications facilities and service provider Global Crossing (Nasdaq: GBLX) clanked $1 9/16 to $22 7/16 after agreeing to add about 10% to its offer to purchase Frontier Corp. (NYSE: FRO). Under the new agreement, Frontier shareholders will receive 2.05 shares of Global for each share of Frontier. Based on Global's closing price yesterday the deal is worth about $10 billion.

Automotive replacement parts company R&B Inc. (Nasdaq: RBIN) tumbled $1 3/16 to $7 today after saying it will miss third-quarter earnings estimates of $0.35 per share by a country mile -- perhaps more than half. The shortfall is the result of customer inventory cuts, a soft market, and fluctuations in ordering patterns.

Today's Top Stories:

The Softness Side of Sears
By Dave Marino-Nachison (TMF Braden)

It's "Softer Side" advertising campaign a disappointment, venerable mega-retailer Sears, Roebuck & Co. (NYSE: S) dispatched its ad agencies to figure out a way to reinvigorate retail activity at the $36 billion chain. Up jumped "The Good Life at a Great Price. Guaranteed."

Jumping up today was news that August same-store sales rose a scant tenth of a percentage point as revenues (adjusted for store divestitures) managed just a 1.8% rise. With sales soft and gross margins hurting, the company now expects Q3 earnings per share (EPS) of between $0.63 and $0.67, missing both last year's $0.76 and First Call's $0.82 consensus. Full-year EPS is now seen increasing in the "low single-digit percentage range," considerably less than expected.

"Although we continued to drive strong increases in categories such as infants' and toddlers' apparel, home appliances, personal computers, and big screen and projection TVs," said Chairman and CEO Arthur Martinez, "sales in categories such as lawn and garden, men's, and footwear were below the levels of a year ago and overall comparable revenue performance for the month was not up to our expectations."

Sears is determined to revamp its retail sales. The company's "The Good Life at a Great Price. Guaranteed" campaign, announced last month, is intended to remind shoppers that Sears is the place to go for just about everything.

That, of course, lumps it in the rather unenviable department store category, which has been victimized by superstore chains -- such as Best Buy (NYSE: BBY), Linens 'N Things (NYSE: LIN), and Home Depot (NYSE: HD) -- that are considerably more nimble. Sears has attempted to address this by growing its network of specialty stores, but the going has been difficult despite a handful of good proprietary brands such as Craftsman tools and Kenmore appliances.

Perhaps mindful of that, Sears is launching the campaign by promoting its Crossroads, Fieldmaster, and TKSBasics apparel brands. While that's a nifty idea, in the apparel category the competition is as fierce as in home furnishings and electronics, with companies such as Wal-Mart (NYSE: WMT) to Gap Inc. (NYSE: GPS) firing away. Besides, "Softer Side" was supposed to do the same thing but didn't -- perhaps that's because Sears and fashion aren't exactly synonymous.

The company's other big news was something of a yawner. While the headline "Management Initiatives" on a press release can sometimes be grounds for some excitement, today there was little to report but the reshuffling of a few higher-ups.

Here's what happened: Sears Credit President Alan Lacy will also lead the company's home services and e-commerce businesses; CFO Julian Day got the newly created position of executive vice president and COO for finance, logistics, and information technology (he and Lacy join Martinez in the new Office of the Chief Executive); former executive vice president of marketing Lyle Heidemann is now president of hardlines; and retail marketing chief Mark Cohen won the title "President of Softlines."

Another part of this mess is that Robert Mettler, president of merchandising for Sears' full-line stores, is leaving. So what you've got at this point is the reordering of some business cards coupled with the departure of a veteran executive. Not too hot.

The Sears story is an American business classic. January's Foolish Duel over the company's prospects is recommended reading -- particularly some of the historical information in Warren Gump's bear argument -- as it tells the story of an aging company potentially beyond revival.

That Sears is apparently rededicating itself to the things that have paid off pretty lamely over the past two years isn't particularly encouraging.

The shares are trading at a 52-week low as of this writing, so you can be sure value investors will be taking a long look at Sears. Will Martinez' "new" team be able to, as Depeche Mode once said, shake the disease? Investors might want to wait for signs of more substantial change before counting on this one to make them much money.


Boeing's F-15 Flies into Cloudy Skies
By Richard McCaffery (TMF Gibson)

Despite a $225 million pretax charge in the third quarter because of weak demand for F-15 fighter planes, Boeing (NYSE: BA) management said it's on track to hit revenue and earnings forecasts for 1999 as a result of operations improvements.

The aerospace giant expects 1999 revenue around $58 billion and earnings in the $1.5 billion to $1.8 billion range, compared to revenue of $56.2 billion and earnings of $1.1 billion last year.

The F-15 program makes up a major portion of the company's Military Aircraft and Defense unit, one of Boeing's three main divisions. In 1998, Boeing delivered 39 F-15s, more than any other type of military aircraft. The military division generated $1.3 billion in operating earnings in 1999 -- that's more than the whole company netted for the full year. No question, F-15s are of major importance to the company. But investors shouldn't base their valuations on the fate of F-15s. Who knows what will happen to worldwide demand, market conditions, etc.?

More important to investors are the operational improvements the company has made across the board, especially in the commercial aircraft group, which ran into such trouble two years ago it had to stop production on two lines of aircraft during the fourth quarter.

For the second quarter, operating margins in the commercial aircraft division improved to 4.3%, up from negative 2.3% last year during the same period. Operating margins in the military group improved to 11.5% from 10.2%. Only margins in the space division slipped during the second quarter, falling to 5.4% from 6.9% because of a contract adjustment. The company plans to have fully implemented operational improvements by the end next year and it will be crucial for investors to see where margins stand at that point.

Other measures the company has taken to streamline operations include selling off non-core units. In July, Boeing sold its government information systems group for a pretax gain of $95 million. This follows the sale of its commercial helicopter unit (how many folks out there really need helicopters?), as well as the sale of a technical services unit and electronic warfare business.

Balance sheet improvements include paying down a smidgen of long-term debt. Total debt now represents 35% of shareholder's equity, pretty respectable for such a capital intensive company. In addition, Boeing has accumulated $2 billion in cash and short-term investments, and bought back 51.5 million shares worth $2 billion to sweeten earnings for those who kept the faith during the company's ugly 1997.

At $45 a share, Boeing is trading at a 1999 forward P/E of 21.8. This is assuming it can hit its numbers for the next two quarters and slide into January with fiscal 1999 earnings per share of $2.06, which is Zacks mean estimate. The P/E is a bit high for a company expected to grow about 16% annually over the next five years. But with two-thirds of the world's commercial jet market and steady government contracts, Boeing will be around for a long time. It's worth another look as a core holding for investors who accept it for what it is -- a company that could be expected to modestly beat the S&P 500 over the long haul.

More of Today's Best:

FOOL ON THE HILL An Investment Opinion
Capital One not the ONE
By Dale Wettlaufer (TMF Ralegh)
-- It's tough to beat the combination of really good companies with really volatile stock prices. One that has fit the bill over the last couple years is Capital One Financial (NYSE: COF). Having crashed in 1997 after the company reported that customers were taking down their revolving debt and generating fewer highly profitable over-limit and late fees, the former Crestar (a bank holding company acquired by SunTrust Banks) unit went on a rampage and shot up just about 500% in the next two years. When it did bottom out in 1997, it was cheap and widely misunderstood.
FULL STORY >>

Com21 Fails Certification Test... Again
By Dave Marino-Nachison (TMF Braden)
-- Investors in cable modem supplier Com21 Inc. (Nasdaq: CMTO) must be wondering what cable system operator organization CableLabs has against them.
FULL STORY >>

Campbell's Earnings Turnaround No Duck Soup
By Brian Graney (TMF Panic)
-- Shares of supermarket soup-erstar Campbell Soup Co. (NYSE: CPB) were watered down a bit this morning after the company reported its fiscal fourth quarter results. Net income from continuing operations for the quarter fell 30% from a year ago to $121 million, resulting in EPS of $0.28 (excluding restructuring charges). That was in line with an unexpected earnings warning from the company in June. Total sales in the period were flat year-over-year, or up 4% if the impact of currency fluctuations and divestitures are backed out. President and CEO Dale Morrison called the results "disappointing" and promised that better days are just down the next shopping aisle.
FULL STORY >>

FOOL PLATE SPECIAL An Investment Opinion
Fed Fear is Back... For No Good Reason
By Louis Corrigan (TMF Seymor)
-- Sometimes it's just clear that the broad stock market is trading on fear. And in the generally thin markets that you typically see going into a Labor Day weekend, stocks can prove especially volatile as the folks not smart enough to be on vacation already decide they are smart enough to act on those fears. Check the market averages today, and you see lots of red with only a handful of meaningful stories like -- big surprise -- Sears (NYSE: S) stumbling some more.
FULL STORY >>

BREAKFAST WITH THE FOOL
IBM Steals Intel's Networking Chip Thunder
By Brian Graney (TMF Panic)
-- Confirming reports from earlier this week, computing products and services company IBM (NYSE: IBM) followed up its recent networking deal with Cisco Systems (Nasdaq: CSCO) by officially unveiling a new line of programmable networking chips this morning in an effort to become "a major technology supplier to the communications industry."
FULL STORY >>