Motley Fool QuickNews

Friday 9/10/99

Closing Market Numbers

DJIA          11028.43   -50.97    (-0.46%) 
S&P 500        1351.66    +4.00    (+0.30%)
Nasdaq         2887.03   +35.01    (+1.23%)
Russell 2000    441.19    +3.42    (+0.78%)
30-Year Bond  101 5/32   +22/32  6.04 Yield

Today's Market Movers:

UPS

Online garage sale eBay (Nasdaq: EBAY) was bid up $13 9/16 to $158 as Wachovia Securities started coverage of the company with a "long-term buy" rating. The brokerage set a $208 per share price target and projected full-year EPS of $0.10, $0.36, and $0.53 for 1999, 2000 and 2001, respectively. "We believe revenue and EPS growth should be at or above 50% for the foreseeable future," Wachovia said.

Quicken and TurboTax financial software developer Intuit (Nasdaq: INTU) jumped $5 15/16 to $103 after the company set a three-for-one stock split, payable Sept. 30. Click here for a recent Fool Plate Special about Intuit, and here for another from News World.

Systems integration and consulting company CGI Group (NYSE: GIB) wired up $1 3/16 to $18 15/16 after announcing plans to develop software solutions for government, telecommunications and financial services industries based on Microsoft's (Nasdaq: MSFT) enterprise platform. CGI expects to generate $500 million in revenue over the next three years from the products.

Telecommunications amplifier equipment maker Amplidyne (Nasdaq: AMPD) zipped $2 1/8 to $12 1/4 after introducing a new set of products that offer high speed Internet access.

Commercial and consumer products firm Premark International (NYSE: PMI) raced ahead $16 7/16, or 48%, to $50 11/16 after engineered components and industrial systems maker Illinois Tool Works (NYSE: ITW) agreed to buy the company in a stock swap valued at $3.4 billion. Illinois Tool Works expects the deal to be "modestly accretive" to its earnings; its shares fell $6 7/16 to $73 11/16.

Sportswear clothing company Cutter & Buck (Nasdaq: CBUK) knitted gains of $2 15/16 to $15 1/4 after reporting first quarter fiscal 2000 net income of $1 million, or $0.12 per diluted share, up from $0.09 per diluted share a year ago.

Electronic commerce software company Commerce One (Nasdaq: CMRC) jumped $6 25/32 to $67 3/8 after office equipment firm Pitney Bowes (NYSE: PBI) picked Commerce One to help automate its purchasing processes.

Regional airliner Atlantic Coast Airlines (Nasdaq: ACAI) lofted $11/16 to $20 7/16 after reaching a 10-year agreement with Delta (NYSE: DAL) to operate at least 45 new jet aircraft starting in April 2000. The agreement is part of the Delta Connection program, which focuses on service to regional markets.

DOWNS

Satellite video and terrestrial broadband equipment company California Amplifier (Nasdaq: CAMP) tuned out $3 3/4 to $15 5/16 after reporting fiscal Q2 EPS of $0.07, up from last year's $0.07 loss and a penny better than estimates. Sales rose 123% year-over-year on strong demand for digital broadcast satellite products, said CEO Fred Sturm, but "Wireless product shipments continue to be weak... and [we] do not currently expect any meaningful demand for two-way wireless products before our fiscal year 2001, which begins in March 2000.''

Air transportation company Comair Holdings (Nasdaq: COMR) dipped $3 1/16 to $18 after the company said fiscal Q2 earnings would likely come in around $0.35, a nickel shy of First Call mean estimates, because of price pressure and weaker-than-expected bookings for September. News of Delta's (NYSE: DAL) expanded partnership with Comair rival Atlantic Coast (Nasdaq: ACAI) also hurt the shares.

Fiber optic communications equipment company Metromedia (Nasdaq: MFNX) skidded $2 29/32 to $28 3/8 after the company announced its merger with AboveNet Communications (Nasdaq: ABOV) is nearly complete. Under the terms of the agreement, AboveNet shareholders will get 1.175 shares of MetroMedia for each share they own, or about 16.5% of all MetroMedia Class A and B shares on a fully diluted basis.

Office furniture maker Hon Industries (NYSE: HNI) splintered down $1 9/16 to $22 9/16 after saying it will miss Q3 estimates because of problems recruiting and training employees. The company expects earnings in the range of $0.45 to $0.50, missing the First Call mean estimate by at least a nickel.

Information technology (IT) firm Mastech (Nasdaq: MAST) slumped $1 7/8 to $14 5/16 after saying it will miss Q3 estimates because of a soft IT market and the near-completion of a big contract. The company expects diluted earnings (excluding a special charge) in the $0.18 to $0.22 range, at least $0.04 short of the First Call mean estimate.

Drugmaker IDEC Pharmaceuticals (Nasdaq: IDPH) plunged $18 11/32 to $105 7/16 -- the second consecutive day it has suffered big losses -- on news of weak Q3 sales for its cancer drug Rituxan.

Today's Top Stories:

Maytag Sags On Warning
By Brian Graney (TMF Panic)

Shareholders of appliance maker Maytag Corp. (NYSE: MYG) got a taste of the spin cycle today as the company's stock went down the drain for a more than 20% loss. This morning, the Newton, Iowa-based company announced that its second half profits will be hurt by lower unit volumes in its low-end and mid-range home appliance franchises, which principally include the Performa, Magic Chef, and Admiral brand names. Instead of the EPS of $0.99 in Q3 and $0.90 in Q4 forecasted by analysts surveyed by First Call, the company is now guiding investors to expect earnings to be flat with the $0.84 and $0.75 reported in the same periods last year.

The announcement was a real bummer for a company that has created significant value since the end of 1996 -- value that had been duly rewarded by the market with a 218% share price rise before today's drop. Many analysts -- this Fool included -- were expecting a strong U.S. economy and the successful launch of new and innovative high-end products to keep the earnings momentum going this year. Last year, Maytag's annual earnings rose 63% to $3.05 per share. Based on today's estimates, the company is looking at 1999 earnings of $3.51 per share, or 15% growth. That's still not shabby for an appliance maker, but it's nowhere near last year's excellent results.

What investors need to keep firmly at the front of their minds is that the profit shortfall is occurring in Maytag's low-end and mid-range appliances, or the roughly 30% of its appliance business not represented by the high-end Maytag and Jenn-Air lines. The high-end stuff continues to move smartly from the retail showroom floors and into consumers houses, thanks to the popularity of ingenious products like the Neptune front-loading washer, the Gemini twin range, and the Hoover WindTunnel upright vacuum.

The company's strategy for adding economic value has correctly stressed the high end, and that strategy is still intact despite the problems in the other product segments. However, the unit volume problems have ramifications throughout the company's operations, causing inventories to get out of whack and boosting operating costs and inefficiencies. Perhaps the best move for Maytag at this point would be to shed some of the assets associated with its lower-margin products and focus exclusively on the high-end.

Instead of that course, though, recently installed chairman and CEO Lloyd Ward is choosing another tack. "To create new breakout years in sales and earnings, we will get smarter, faster, and better at delivering innovation and operating excellence in every business and across every product line. That's the work we have in front of us," he stated.

Of course, the Street is leery of any more freezerburn after today's disappointment and Ward's lack of a track record as the firm's top dog. Maytag's new boss has gotten off on the wrong foot, but he is fortunate enough to have inherited the helm of a company that has demonstrated over the past two years that it has its value driving ducks in a row. Management execution from here on out will be key to restoring both the Street's faith in Maytag and keeping the value creation story going.


Reebok Lightens the Load
By Richard McCaffery (TMF Gibson)

Investors hoping to find quick appreciation in a down-on-its-luck company like Reebok (NYSE: RBK) better have diversified stock portfolios. It doesn't look like the Stoughton, Massachusetts sneaker company will be making tracks anytime soon.

Investors also should hope they know the ins and outs of getting around SEC filings (which is a must anyway) when researching Reebok, since its website promotes the company's sponsorship of the Argentine Football Association, but doesn't provide investor relations contacts, a list of financial reports, or an archive of press releases.

However, the company cut 120 jobs yesterday and plans to reduce its worldwide workforce of 6,480 by about 10% in the coming months to offset sales declines in virtually all of its businesses, Bloomberg and Reuters reported. (If the company issued a press release on the topic, good luck finding it.) These aren't the first cuts in a long-standing effort to improve operations. Reebok took a $24 million charge to cut 485 jobs in the first quarter of 1998.

Founded in 1979, Reebok is the number two sneaker maker in the United States. The company has four divisions: Reebok, the Greg Norman division, the Rockport Co., and Ralph Lauren Footwear. Almost all of its products are produced by independent manufacturers outside the United States.

Reebok's sales have slid from $3.6 billion in 1997 to $3.2 billion in 1998. Net income dropped from $254 million in 1994 to $24 million last year. The company has lost market share to number one sneaker maker Nike (NYSE: NKE), and results from efforts to capitalize on the "brown shoe" trend, which has Americans buying more casual shoes, haven't produced much in the way of sales growth.

Reebok has reduced its long-term debt from a high of $854 million in 1996 to $554 million at the end of last year. Shareholder's equity is on the rise again and the company has improved its margins. For the quarter ended June 30, the company trimmed receivables and inventory from the year-earlier period by 5.6% and 15.9%, respectively. A look at the company's cash flow statement shows it was cash flow positive for the first six months of the year.

Reebok deserves credit for streamlining operations. But it doesn't amount to much if the company can't halt declining sales. That's not an easy trick in a fashion sensitive, mature industry, especially with competitors like Nike. Until management gets the company's feet moving, investors should find another ride.

More of Today's Best:

FOOL PLATE SPECIAL An Investment Opinion
Coca-Cola -- At What Price?
By Matt Richey (TMF Verve)
-- Yesterday afternoon, Coca-Cola (NYSE: KO) CEO Douglas Ivester participated in a conference call for Schwab Signature Services clients. With his genteel Georgian accent, Mr. Ivester reiterated the beverage giant's strong fundamental business position and noted that the company takes a very long-term view of the business. International operations now make up 75% of the company's business -- and that number is growing. Even so, Coke's business occupies only a tiny fraction -- 2% -- of the total worldwide beverage market. In other words, around the world, each person drinks only one Coca-Cola product per week. Not surprisingly then, according to Ivester, "Opportunities are tremendous... for the most global business on earth."
FULL STORY >>

HEALTHSOUTH Sent to the E.R.
By Brian Graney (TMF Panic)
-- Shares of outpatient surgery and rehabilitative services provider HEALTHSOUTH Corp. (NYSE: HRC) headed south in a hurry this morning after the company decided to let a proposal from earlier this summer to split its inpatient and outpatient operations into two separate companies sit tight in the waiting room for a while. The split was intended to renew investor confidence in the company's stock, which has been in the sick ward for more than a year now and was down 49% year-to-date prior to last night's announcement. That figure swelled dramatically this morning as investors and analysts alike didn't take to kindly to the spin-off blow off.
FULL STORY >>

BREAKFAST WITH THE FOOL
National Semiconductor Back in the Black
By Brian Graney (TMF Panic)
-- What a difference a quarter makes. After reporting five consecutive quarters of operating losses, analog chipmaker National Semiconductor (NYSE: NSM) signaled that it is on the road to consistent profitability last night by reporting a fiscal Q1 pretax profit of $1.2 million. Analysts surveyed by First Call had expected another quarterly loss from the firm to the tune of $0.14 per share. The results excluded a one-time $48.4 million gain related to the company's sale of Fairchild Semiconductor (NYSE: FCS) stock during the period.
FULL STORY >>

FOOL ON THE HILL An Investment Opinion
When Morals Come to Bear
By Bill Mann (TMF Otter)
-- Over the last decade we have seen a tremendous rise in the concept of moral investing. The gist is that one should not put money into a company providing products or services in which one has some sort of ethical problem. One of the most cited companies is Philip Morris (NYSE: MO), the largest producer of tobacco products in the U.S., but other companies in almost any industry can rub SOMEONE the wrong way. Still, tobacco, alcoholic beverages, oil, insurance companies (providing coverage for services contrary to certain beliefs), adult entertainment -- since Playboy (NYSE: PLA) is a publicly traded company -- and military contractors are listed as companies many tend to stay away from. For each person who uses "values based" investing, there is a unique subset of companies to avoid.
FULL STORY >>

St. Jude to Buy Vascular Science
By Dave Marino-Nachison (TMF Braden)
-- Pacemaker and cardiovascular medical device maker St. Jude Medical (NYSE: STJ) today said it will buy privately held medical technology company Vascular Science, which is developing devices for coronary artery bypass grafting (CABG), for $80 million in cash and $20 million in milestone payments. Certainly investors should note that Vascular isn't about to start contributing to St. Jude's bottom line in the immediate or even near future, as its products are in the developmental stage -- initial noncommercial human implants of its first VSI product are currently underway in Europe. As such, the deal is expected to dilute earnings in Q4 and 2000.
FULL STORY >>