Ups and Downs Plus Top News (QuickNews) December 17, 1999

Motley Fool QuickNews

Friday 12/17/99

Closing Market Numbers

DJIA          11257.43  +12.54    (+0.11%) 
S&P 500        1421.05   +2.27    (+0.16%)
Nasdaq         3753.06  +38.00    (+1.02%)
Russell 2000    466.21   +0.95    (+0.20%)
30-Year Bond  96 21/32   +5/32  6.38 Yield

Today's Market Movers:


Online greeting cards company Egreetings Network (Nasdaq: EGRT) delivered a $9/16 gain to $10 9/16 in its first day of trading after the company sold 6 million shares at a price of $10 per share. Meanwhile, e-business solutions firm C-bridge Internet Solutions (Nasdaq: CBIS) rose $24 1/16 to $40 1/16 in its debut, and e-business infrastructure applications firm OnDisplay (Nasdaq: ONDS) soared $49 to $77 in its first day of trading.

Hard disk drive supplier Maxtor Corp. (Nasdaq; MXTR) gained $1 1/16 to $6 19/32 after saying strong demand and higher prices for its drives will lead to fiscal Q4 results "significantly better" than previously anticipated. The company is expecting a loss of $0.18 per share for the period, which is not nearly as bad as the previous First Call mean estimate of a loss of $0.45 per share. Quantum Corp.'s Hard Disk Drive Group (NYSE: HDD) picked up $3/8 to $7 in sympathy.

Graphic and Web design software maker Adobe Systems (Nasdaq: ADBE) tacked on $3 3/4 to $67 1/2 after reporting fiscal Q4 EPS (excluding one-time items) of $0.46, beating the First Call mean estimate of $0.42. The company said it is shooting for 20% revenue growth and 30% operating profit growth in fiscal 2000.

Athletic footwear maker Nike Inc. (NYSE: NKE) jumped $6 3/4 to $52 7/16 after posting fiscal Q2 EPS of $0.38, up from $0.28 (excluding charges) a year ago and $0.04 ahead of the First Call mean estimate. Worldwide futures orders are 4% higher than a year ago, thanks to strength everywhere but in the U.S.

Surgical and neurological disorders treatment developer Gilatech (Nasdaq: GLIA) moved up $3 13/16 to $19 3/16 after the FDA lifted the company's European contract manufacturing firm from a detention list, allowing Gilatech to resume shipments of its ADCON-L anti-surgical scarring product in Q1 of 2000.


Video game software maker Electronic Arts (Nasdaq: ERTS) was pounded for a $27 15/16 loss to $81 1/2 today after analyst Tony Gikas at U.S. Bancorp Piper Jaffray cut his fiscal Q2 revenue estimate for the firm to $625 million from $670 million and his Q2 EPS estimate to $1.29 from $1.39, citing weak sales of Nintendo's N64 entertainment products. In a dissenting opinion, Warburg Dillon Read analyst Michael Wallace told Reuters that the fears are "completely overblown."

Analog, logic, and discrete power chip maker Fairchild Semiconductor (NYSE: FCS) dropped $2 15 /16 to $26 1/16 after filing a registration statement with the SEC for a follow-on public offering of Class A common shares, including 6 million newly issued shares and 17.5 million shares to be sold by existing stockholders.

Information technology services giant EDS (NYSE: EDS) slid $4 13/16 to $59 1/4 after nine former employees were brought up on federal charges today for conspiring to defraud three states out of $38 million in escheated funds, which are unclaimed funds that financial services firms turn over to states when the owners cannot be identified. The legal news disrupted the firm's announcement that it will set up a $1.5 billion fund for investing in Internet and business-to-business companies.

For-profit education provider Apollo Group (Nasdaq: APOL) was burned $4 3/4 to $20 5/8 after Credit Suisse First Boston and Thomas Weisel Partners both cut their ratings on the stock.

Today's Top Stories:

Tandy's Not-Quite-A-Warning
By Dave Marino-Nachison (TMF Braden)

In a somewhat surprising announcement, Radio Shack operator Tandy Corp. (NYSE: TAN) today said same-store sales at the 7,000-outlet chain for the first half of December were "slightly below" the company's 8%-10% goal.

Tandy didn't provide much in the way of explanation, though news reports said the company wasn't able to stock enough low-priced computers or digital portable phones to meet demand, sending shoppers elsewhere for the hot holiday items. Shares of the high-flying stock tumbled today, losing more than 20% of their market value as of mid-afternoon.

Chairman and CEO Len Roberts tried to lessen the blow with the following comments: "Our planned advertising programs strengthen as the month progresses," he said in a statement, "and the week after Christmas is always important for the company. In fact, historically 55-60% of our monthly sales normally occur over the remainder of the month."

And Tandy still expects Radio Shack to post a double-digit sales gain for the fourth quarter and full year, so it's not as if 1998 is going to be a total bummer. So why did the market punish Tandy so harshly today?

Perhaps it's because guidance the company gave earlier this month suggested that all was copacetic heading into December. "Our sales momentum this year extended into November," Roberts said earlier this month, "with very strong Thanksgiving weekend sales that continued through the end of the month. As we look ahead to the all-important month of December, we remain confident that we have exciting products and promotions in place."

It appears that wasn't the case, though, and it's disappointing since this holiday season was widely expected to be a huge one for consumer electronics retailers like Radio Shack, as well as Circuit City (NYSE: CC) -- which announced fiscal Q3 results and the eventual successor for CEO Richard Sharpe, COO Alan McCollough, who'll take over in June -- and Best Buy (NYSE: BBY), featured earlier this week in the Fool.

Given the brevity of the company's press release, it's difficult to quantify the effect today's news will have on Radio Shack's performance for the quarter. No specific earnings guidance was issued, but investors certainly treated the announcement like an earnings warning today. Today's report is doubly troubling since Radio Shack, as detailed in this August Foolish Double, has been moving aggressively of late to modernize its offerings and get more in step with consumer spending habits in large part to help snipe customers from the superstore.

Still, assuming the company is being on the level, today's disappointment is more a reflection of problems with its suppliers then an indication of demand of shoppers, and that's something more easily addressed. In news reports, company officials suggested an ever-extending December sales sweet-spot means monthly revenues could actually rebound and even surpass expectations. If that's the case, today may represent a sweet-spot for investors as well. Full-month results are slated for release Jan. 6.

Related Links:
Radio Shack
Tandy Message Board
Fool News, 12/14/99: "Best Buy... Disappoints?"
Daily Double, 8/16/99, Tandy

Drug Industry Awash in Talks, Turmoil

By Richard McCaffery (TMF Gibson)

If you think Santa's busy this time of year, check out the hailstorm of change in the pharmaceutical industry.

A new merger is being discussed, an old merger agreement was scrapped, and a proposed merger is under siege.

Life sciences company Monsanto (NYSE: MTC) and drug manufacturer Pharmacia & Upjohn (NYSE: PNU) are discussing a possible merger that would bring together two giant companies of equal size, The Wall Street Journal reported.

Pharmacia makes the hair loss drug Rogaine, diarrhea medication Kaopectate, and motion sickness pill Dramamine. Monsanto -- which makes NutraSweet, Equal, and arthritis drug Celebrex -- is also considering splitting up the company to unlock the value of its Searle pharmaceutical unit, the Journal reported earlier this week. Investors have pressured the company to do so because they think Monsanto's agricultural business is weighing it down.

Meanwhile, pharmaceutical firm Pfizer (NYSE: PFE) stepped up efforts yesterday to scuttle the $57 billion merger agreement between drug makers Warner-Lambert (NYSE: WLA) and American Home Products (NYSE: AHP). In an attempt to oust Warner-Lambert's board, Pfizer filed papers at the Securities and Exchange Commission claiming that its offer represents a 25% premium to Warner's price and there's no reason Warner shouldn't accept it.

For its part, Warner told shareholders to take no action, and that it will review the materials being submitted by Pfizer. Warner has hired Bear Stearns and Goldman Sachs (NYSE: GS) as financial advisers on the Pfizer proposal.

Finally, drug maker and drug delivery manufacturer Alza (NYSE: AZA) and healthcare products maker Abbott Laboratories (NYSE: ABT) called off their $7.3 billion merger, announced in June, after being unable to satisfy the Federal Trade Commission's antitrust concerns. Both said they're ready to go it alone.

Abbott makes the nutritional supplement Ensure, baby formula Similac, as well as a line of pharmaceutical products. Alza makes the delivery technology used in the Nicoderm patch and diet drug Acutrim. It also makes its own line of cancer-fighting drugs.

Alza said it will miss expectations in the fourth quarter because of activities related to the merger. The company will also take a $10 million to $15 million charge in the first quarter.

The consolidation craze in the pharmaceutical industry is being driven by the high cost of developing drugs and the need to have a broad array of drugs in the market as well as in development.

More of Today's Best:

FOOL ON THE HILL An Investment Opinion
Risk vs. Return
By Bill Mann (TMF Otter)
-- During rampaging bull markets, it's pretty easy to forget that one of the core reasons why certain companies fluctuate wildly is the uncertainty of their ability to make future profits. But why do some companies move like squirrels running across the street, while others have about as much volatility as a vat of pudding? The answer is that some companies, such as the electric utilities, have revenue bases and even profit margins that are the closest thing one can get to a guarantee in private industry, while others have market factors that one could most charitably describe as "fluid." What is it that makes VA Linux (Nasdaq: LNUX) swing more in a day than a Duke Energy (NYSE: DUK) has moved in a decade? The answer lies in the stability of their revenue bases.

FOOL PLATE SPECIALAn Investment Opinion
Coldwater Creek Hardly a Chilling Prospect
By Dave Marino-Nachison (TMF Braden)
-- Don't be fooled by the hype surrounding out-of-nowhere, mega-funded e-commerce start-ups that go from zero to $60 million in advertising costs in a matter of moments and wave away mounting losses as a matter of course on the road to eventual world dominance. It is possible to point-and-click your way to profits, and apparel and accessories catalog retailer Coldwater Creek (Nasdaq: CWTR) is just one example of how it's done. A July Daily Double on Coldwater Creek tells much of the story, and it's recommended re-reading. The stock, for the record, has risen another 30% since we last trailed our fingers through the company's stream.

Sinclair Clarifies Q4 Shortfall
By Brian Graney (TMF Panic)
-- Network affiliated TV and radio station operator Sinclair Broadcast Group (Nasdaq: SBGI) slid this morning after the company guided investors to expect poor results in the fourth quarter. Due to slumping ad sales from local and national advertisers, the Baltimore-based firm is expecting net broadcast revenues to be down 17% from last year's levels at $184 million. Broadcast cash flow will fall 26% to $91 million and after tax cash flow per share is seen coming in at $0.38, down sharply from last year's $0.66. All three of the above performance categories were up between 40% and 60% in Q4 of 1998, but the growth was skewed by major acquisitions made by the company during the year. This year, Sinclair has been mostly focused on operating its existing TV assets rather than acquiring new ones, making the company vulnerable to a tough comparison to last year's Q4 growth.

Station Casinos Rolling Lucky Sevens
By Richard McCaffery (TMF Gibson)
-- Gaming industry company Station Casinos (NYSE: STN) announced last night it expects even a better fourth quarter than investors hoped for as revenues at its Las Vegas and Missouri Casinos drive profits. Station expects earnings (excluding one-time charges) in the $0.32 to $0.34 per share range, ahead of estimates by at least $0.02. It also expects earnings before interest, taxes, depreciation, and amortization (EBITDA) to increase 30% over last year's mark. After falling almost 30% this month, the stock climbed about 3% in trading on the news. Apparently, the stock moved down on scares related to a Missouri Gaming Commission investigation into actions by the company's outside attorney in Missouri. Station officials said it's not aware of any improper actions.

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