The government notched up the nation's security alert level from yellow to orange today, indicating a "high" risk of a terrorist attack on U.S. interests either here or abroad. Stocks headed south on the news, and wound up with their fourth weekly decline despite improved unemployment numbers for January.
In today's Motley Fool Take:
- EDS Computes a Loss
- Quote of Note
- Safeway's Dangerous Buys
- Shameless Plug: Perfect Credit Can Be Yours
- Cisco's Comical Case Grows
- Discussion Board of the Day: Pixar
- Quick Takes: Scios , Johnson & Johnson , Corning , more
- On the Air: Money and Marriage
- And Finally...
Electronic Data Systems
Profits fell to $360 million, or $0.75 a share. Last year, EDS earned $405 million ($0.82 per share). Excluding certain one-time items, the company's income was $0.51 a share, versus $0.87 a year ago. On that basis, it topped analysts' estimates by three cents.
Revenues dropped to $5.5 billion from $5.8 billion. EDS signed contracts during the quarter worth $8.1 billion, including the 10-year, $4.5 billion deal with Bank of America
Looking ahead, the company faces a plethora of potential problems. First up is the ongoing Securities and Exchange Commission investigation into the company's $225 million purchase of forward contracts on its own stock back in September. EDS, not surprisingly, didn't comment on the investigation, except to say that it's fully cooperating.
Further, some of EDS's biggest customers are WorldCom and US Airways. 'Nuff said. Also, its big military contract with the Navy and Marine Corps isn't paying off yet. The company doesn't expect to generate cash from the multibillion-dollar deal until November or December.
Given the uncertainty of the market and its own business, EDS lowered its 2003 outlook. For the first quarter, it expects to only earn $0.30 to $0.35 a share. Analysts were looking for $0.43 a share. For all of 2002, EDS predicts its income per share will fall in the $1.80 to $2.00 range, a bit below analysts' expected $2.04. Both projections exclude the impact of discontinued operations.
Shares are up nearly 4% today on the news, but at about $16 a stub, they're still a far cry from the stock's 52-week high of $65.91.
"To err is human, but to really foul things up requires a computer." -- Farmers' Almanac, 1978
Careful what you wish for. Safeway
Today, Safeway announced a $1 billion fourth-quarter loss, or $2.37 per share, on $10 billion in sales. A $1.5 billion charge for problems at the acquired chains soaked up all gains. Without the charge, it would have earned $360 million, or $0.80 per share.
For all of 2002, the grocery chain went the wrong way, losing $828 million, or $1.75 per share, on sales of $32.4 billion. A year earlier, the company earned $1.25 billion, or $2.44 per share, on revenue of $31.8 billion.
Now, labor disputes and all, Safeway is looking to unload Dominick's, but it hasn't found a buyer. Other problems include a weaker economy, which drives more food shoppers to discounters such as Wal-Mart
We have two reminders.
First, retailing is a difficult, usually low-margin and competitive business. Over the long haul, retailers are typically saddled with discounted valuation multiples that are low multiples of earnings and a fraction of annual sales. Plus, mature retailers are usually slow growers.
The best way to buy retailers and beat the stock market averages is to buy younger, organically growing leaders expanding steadily and profitably. Often, you can ride a retailer's expansion wave for years -- witness Wal-Mart, Starbucks
Second, few acquisitions made in the late 1990s have paid off for the acquiring company. The next time the stock market soars, be leery of management that too readily buys companies at premium prices. Everyone now says Safeway overpaid for Dominick's and Randall's, exacerbating its problems.
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Huawei claims it's not backing down, though, and accuses Cisco of using the legal system to "enhance its market position." The Shenzhen, China-based company says it plans to "vigorously" defend itself against Cisco's claims.
Well, good luck to it. If Cisco's claims are true, the suit is comical. Not only does Cisco argue that Huawei's manuals are word-for-word copies of its own, but the networking giant even says Huawei copied its bugs.
Yes, supposedly Huawei's operating software contains the same bugs as Cisco's IOS code. Man, if you're going to pirate, at least squash the bugs to cover your tracks!
The allegations don't stop there, of course. Cisco's case goes far beyond bugs and verbatim manuals. But, still, those two parts of the suit have to be the most bizarre.
Cisco filed new court papers just this past Tuesday, too, claiming that Huawei has been attempting to "remove evidence" from the U.S. to prevent a ruling here. Cisco wants a court order requiring Huawei to preserve related evidence.
Huawei has messed with the wrong company, if Cisco's allegations are accurate. It's one thing to want to compete with an 800-pound gorilla. It's another entirely to tick one off.
"It could last six days, six weeks. I doubt six months," said Defense Secretary Donald Rumsfeld to U.S. troops on an Italian air base about the possible length of the near-certain war with Iraq.
Shares of Scios
Fiber-optic cable maker Corning
In local news, Kevin Calhoun awoke at 4:00 Thursday morning. The 53-year-old auto mechanic yawned, scratched his stomach, then rolled over and went back to sleep.
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Today on Fool.com:
- For updated stories throughout the day, bookmark our ever-changing News section.
- Pixar's Next Move: Will the animation giant dump Disney for a more profitable deal?
- Internet search specialist Overture navigates through choppy waters.
- Bill Mann reviews an open letter he suspects Nasdaq would like to have back.
- If you sell a house used for business purposes, will you have to pay taxes? Find out in our Tax Center.
- In Fool's School, don't let your portfolio fall prey to greed, ignorance, and overconfidence.
Bob Bobala, Robert Brokamp, Jeff Fischer, Tom Jacobs, LouAnn Lofton, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Matt Richey, Jackie Ross, Reggie Santiago, Dayana Yochim