Boring Portfolio

Atlas Boosts Profits
Monday, April 20, 1998
By Greg Markus (TMF Boring)

ANN ARBOR, Mich. (April 20, 1998) -- After sitting in negative territory for a good part of the day, the S&P 500 clawed its way into positive territory, if only barely, by the closing bell. On the Nasdaq side, heavy buying of technology issues ahead of this week's flood of earnings reports sent the Nazz up more than 20 points, or 1.10%.

The Boring Portfolio continues to perform well, gaining 0.64% thanks to strength in shares of Atlas Air (NYSE: CGO) and Cisco Systems (Nasdaq: CSCO).

Atlas soared $2 1/4 to a 52-week high of $38 11/16 following the release of the air-freight company's Street-beating quarterly earnings report this morning. Atlas earned $0.24 per share on revenues of $79.6 million in the March quarter, easily topping analysts' consensus forecast of $0.20. Operating margin as a percent of sales improved dramatically, to 27.0% versus 20.9% a year ago, now that Atlas is at last rid of the five flying lemons it had previously leased from FedEx (NYSE: FDX).

In Atlas's follow-up conference call, of which we have provided a summary, management said that air freight activity remains healthy in all geographic markets that the company serves and that delivery of five new 747-400s remains on track for later this year.

Two of those -400s are projected to enter Atlas's fleet during the third quarter, with the remaining three entering service during Q4. Atlas's management said they are in advanced stages of contract negotiations to place those aircraft with customers, and they expect to make announcements soon regarding such contracts.

As for the current quarter, Atlas expects to fulfill approximately 18,000 block hours for customers, which would constitute a 17% sequential increase over Q1's 15,338 block hours. Atlas will be able to fly those additional hours thanks to the return of two 747-200s that had been out on lease to Philippine Airlines and that are currently being converted back into cargo configuration after having been used to fly passengers. Earlier this year, Atlas signed contracts with China Air and Alitalia to fill that additional lift capacity.

As for Cisco, its stock jumped $1 13/16 to an all-time closing high of $72 1/4. The Kid and Ciena (Nasdaq: CIEN) announced today that they would cooperate to develop technologies to accelerate the deployment of optical networks for carrying voice, video, and data.

According to a press release, Cisco and Ciena will help enable service providers to build high-capacity IP backbones by interfacing Cisco's 12000 Gigabit Switch Router (GSR) directly to Ciena's long-haul, dense wavelength division multiplexing (DWDM) systems. Future activities will include integration of additional platforms and interfaces, including support for asynchronous transfer mode (ATM).


Well, the way I understand it, which is far from perfectly, is as follows. A recent industry report claims that Internet traffic is doubling every 100 days. Put the Compounding Clown to work on that growth rate and you'll run out of digits way quick. This rapid growth of data traffic has now swamped voice traffic in total volume, and this is forcing telecommunications service providers to re-evaluate the way they build their transmission infrastructure.

Those service providers are concluding -- or will, says Cisco -- that it makes more sense to upgrade their networks to transmit data optimally as well as carry voice than it does to upgrade them simply to carry more voice and, far less optimally, transmit data. A unified solution optimized for data (rather than voice) is also more economic than is investing in entirely separate networks for voice and data.

Cisco wants to position itself to help service providers building those unified networks. And the announced alliance with Ciena is another step toward that objective.

On the downside, shares of FelCor Suite Hotels (NYSE: FCH) eased $1/4 to $34 5/8 -- that despite the REIT announcing today that it had signed an agreement to purchase eight all-suite hotels from Starwood Hotels & Resorts (NYSE: HOT) for an aggregate cash purchase price of approximately $245 million.

The eight hotels to be acquired have a total of 1,898 suites. I've been in two of 'em -- the Embassy Suites near Arizona State University's campus and the Doubletree Guest Suites on Cypress Creek Rd. in Ft. Lauderdale. Looked like good properties to me.

My partner Mark Weaver and I frankly don't understand it: since we invested in FelCor last fall, its management has done everything right -- most notably FelCor's recently announced blockbuster merger with Bristol Hotel (NYSE: BH); but the stock gets no respect.

No matter. We'll wait.

FoolWatch -- It's what's going on at the Fool today.

Stock  Change    Bid 
 ANDW  +  9/16  23.50 
 CGO   +2 1/4   38.69 
 BGP   -1 1/8   32.31 
 CSL   +1 1/16  50.88 
 CSCO  +1 13/16 72.25 
 FCH   -  1/4   34.63 
 PNR   -  3/16  44.25 
                   Day   Month    Year  History 
         BORING   +0.64%   2.28%   3.38%  30.08% 
         S&P:     +0.08%   1.99%  15.79%  80.76% 
         NASDAQ:  +1.10%   2.80%  20.17%  81.29% 
     Rec'd   #  Security     In At       Now    Change 
   2/28/96  400 Borders Gr    11.26     32.31   187.06% 
   6/26/96  150 Cisco Syst    35.93     72.25   101.07% 
   8/13/96  200 Carlisle C    26.32     50.88    93.26% 
    3/5/97  150 Atlas Air     23.06     38.69    67.78% 
   4/14/98  100 Pentair       43.74     44.25     1.16% 
   11/6/97  200 FelCor Sui    37.59     34.63    -7.89% 
   1/21/98  200 Andrew Cor    26.09     23.50    -9.93% 
     Rec'd   #  Security     In At     Value    Change 
   2/28/96  400 Borders Gr  4502.49  12925.00  $8422.51 
   6/26/96  150 Cisco Syst  5389.99  10837.50  $5447.51 
   8/13/96  200 Carlisle C  5264.99  10175.00  $4910.01 
    3/5/97  150 Atlas Air   3458.74   5803.13  $2344.39 
   4/14/98  100 Pentair     4374.25   4425.00    $50.75 
   1/21/98  200 Andrew Cor  5218.00   4700.00  -$518.00 
   11/6/97  200 FelCor Sui  7518.00   6925.00  -$593.00 
                              CASH   $9251.26 
                             TOTAL  $65041.89