Fool Portfolio Report
Tuesday, January 28, 1997
by Jeff Fischer (MF BudFox)

ALEXANDRIA, VA., January 28, 1997 -- Hopefully you're not afraid of numbers, because this recap is... well, numbers. It's good numbers, though!

Today three Fool stocks announced earnings above consensus estimates. We'll cover the results and then run through some other news snippets -- "Hard Copy" style. (Ugh).

The Fool dropped 0.55% in a wild up and down market. The S&P ended flat and the Nasdaq gained one measly point, after being up more than seventeen points earlier in the day. Why so volatile? The market followed bonds. What did bonds follow? Loonies. That's how the French described American market traders: "They're a bunch of loonies."

As we enter the world of earnings reports, something to keep in mind, good Fool: these aren't just numbers. Each dollar in sales represents many months of sweat and labor, long hours, tired feet, bad coffee. Numbers alone can be dry, but consider what made these numbers: 3M employees inventing new products, working all night to prove them, shipping them around the world (over half of 3M's sales are international); Iomega piecing together Zip and Jaz drives, one at a time, hand-made, carving the wooden cases... err... something. General Motors making cars (that's easy -- I won't attempt to glamorize the process of building a car. We've all made our own cars at some point in our lives).

Now, breathe deep. Breathe deeper! We're entering the realm of numbers. Reading numbers you don't get a breath of air for about five minutes.

First up, 3M (NYSE: MMM) dilligently worked to achieve record fourth quarter and full-year results. Yes, 1996 was a year like no other for our Foolish Four holding. Fourth quarter sales reached $3.62 billion, up nearly 10% from last year's same quarter, while earnings per share from continuing operations equaled 90 cents, up 20% from 1995's fourth quarter of 63 cents. For the year, 3M's sales totaled $14.2 billion, up nearly 6% from 1995. (Without currency exchange rates, 1996 sales increased about nine percent). 3M earned $3.63 per share in 1996, 12.4% more than 1995.

The company stated, "1996 was a successful and important year for 3M. We achieved record sales and profits across our U.S. and International Operations...."

The market being the forward-looking creature that it is, what probably most helped 3M to rise was this statement: "We expect solid sales and earnings growth again in 1997.... We are meeting customer needs better than ever. We are extending our already wide global reach... and we are ... increasing our productivity and competitiveness." Bam! In other words, "We're in the groove! Get out of our way, little people!" (Not a true 3M quote).

3M is up 25% for the Fool since August of 1996.

Next up: IOMEGA (NYSE: IOM). Zippity-do-dah. Zippity.... day. The company posted earnings 18.75% above estimates, earning 19 cents per share while the consensus stood at 16 cents. This represents 111% sequental earnings growth over 9 cents earned in third quarter. Revenues were $397 million, and gross margins rose 3% to 29%.


1994 1995 1996 $141 million $326 million $1.212 billion

Sales in 1996 rose 760% compared to 1994, and 271% compared to 1995. The stock has risen about 650% since May of 1995, tracing closely with the quick ramp in sales. Last quarter's sales of $397 million tops ALL of sales for 1995 by $50 million, and the single quarter represents a 182% increase over sales ahieved in *all* four quarters of 1994.

The goal of the Foolish Four is to beat the S&P. The goal of investing in high-growth stocks is to beat the Foolish Four. Iomega is beating the Foolish Four -- by 600% -- with the gains wholly supported by sales and earnings growth. Iomega in Fooldom today holds the best thoughts from the message folder as of this evening, and you can listen to the conference call replay at (800) 633-8284 (reservation #2219792).

Tomorrow night at 9pm ET The Fool will host a discussion about Iomega earnings, which will be accessible from the Fool main-screen.

Iomega now trades at about 2 times trailing twelve month sales.

Next up to bat: the company my family was about to hand down to me, 95% ownership, until I woke up: GENERAL MOTORS (NYSE: GM). Obviously hard work is behind the strong numbers achieved at 3M and Iomega, but perhaps not so much work was at play with General Motors. Work stoppages and strikes hurt the company's performance.

Numbers. Did I not say numbers? Ahh... but numbers are good!

The car and truck behemoth reported fourth quarter earnings of 92 cents per share, a drop against the $1.95 earned in the same quarter of 1995. In 1996 the company earned $5 billion (not pocket change)($6.07) per share, compared to $6.0 billion ($7.14 per share) in 1995.

Earnings would have bettered 1995 results if work-stoppages in the U.S. and Canada hadn't cost the company roughly $1.2 billion in earnings (an additional $1.56 per share, up in smoke). GM's statement was not as uplifting as 3M's, as the words "significant challenges" stood out, though management did say they're well-positioned to follow the company strategy of competing globally, and the outlook for 1997 looks improved from 1996. Gross margins hovered around 15%, while net margins fell to 3.4% from 4.2%.

AMERICA ONLINE (NYSE: AOL) rose one dollar as it was reported that the company would work to pay disgruntled members on a case-by-case basis. The refunds would most likely be paid in free months of AOL service, rather than cash, but both were mentioned as possible remedies. Other news: Barnes and Noble is "opening shop" on AOL, offering books at up to 30% off cover price.

3COM (Nasdaq: COMS) was all over the map today, first up $4 to $68, then suddenly dropping to $61, down another $3 1/2 on the day. The stock has lost about $14 in the last three days of trading, dropping $2.5 billion in market cap. Why? The stock fell as Cisco announced price cuts on competing products. Margin worries set in immediately. This has happened before in the high margin business of networking: if margins looked threatened, the stocks take a tumble. In the past, the fears proved over-done. 3Com trades at 19 times estimates for the fiscal year ending May, 1998, and at less than 4 times sales.

Fool on.


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