After finishing off one of the greatest comebacks in sports history, Red Sox outfielder Johnny Damon (two home runs and six RBI) must have stood on the mound at Yankee Stadium last night ready to shout, "I'm going to Disneyland!" Only then did he remember that the Sox actually still had a World Series to play. Red Sox Nation may still be pinching itself trying to wake up from a dream, but guess what? The dream has become reality. Congrats, Sox.

In today's Motley Fool Take:

eBay's Excellence Shines


Rick Aristotle Munarriz (TMF Edible)

I would love to lead this story by pointing out how eBay(Nasdaq: EBAY) trounced Wall Street's targets this past quarter and is raising its guidance for the next year, but would that even be newsworthy? It's not really that rare of a phenomenon when it comes to the world's leading auction site. In fact, it's practically a quarterly occurrence.

Yet why take eBay's excellence for granted? Besides, there are also some interesting nuggets worth exploring in the reported metrics, so let's dive in.

The company generated just over $200 million in free cash flow during its September quarter as revenues climbed by 52% to hit $805.9 million. If you're wondering how a company big enough to produce what may be as much as $3.25 billion in revenue this year can be nimble enough to grow so quickly, the secret sauce is in its global expansion. eBay's overseas transaction revenue soared by 82% (compared to a respectable 29% spurt stateside).

Something else worth noting is that while the tally of active users was 51.7 million -- or 38% higher than last year's head count -- the number of listings grew by 48%. While that last number was skewed favorably by a fivefold surge in eBay Stores listings (which have a longer shelf-life yet are clearly not as active as the traditional auction items), the company served as the intermediary in deals with a gross merchandise volume of $8.3 billion. That's a 44% improvement over the past year. So, ultimately, yes, it seems as if eBay continues to blossom even on a per capita basis!

The quarter also featured continued improvement at PayPal as well as some strategic global acquisitions, and is simply paving the way for even bigger and better results come 2005. eBay is looking to earn as much as $1.42 a share next year on just over $4 billion in revenue. If you're not overly impressed, keep in mind that eBay has a habit of underpromising and overdelivering. These aren't targets as much as the start of fiscal negotiations.

With the holidays rapidly approaching, eBay is ready for the spotlight. While it may not seem like a typical holiday shopping draw like Amazon(Nasdaq: AMZN) and Overstock(Nasdaq: OSTK), the company does flash a seasonal smile this time of year with folks hitting the site to find the perfect gift. With nearly 350 million listings this past quarter, there is no such thing as the person who truly has everything.

Longtime Fool contributor Rick Munarriz is a satisfied eBay user, but he has never bought the stock. He doesn't own shares in any of the companies mentioned in this story.

Discussion Board of the Day: XM Satellite Radio

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Lucent Is Back in Black


Rich Smith

Lucent (NYSE: LU) shareholders got some good news and some bad news yesterday. Or rather, outside shareholders did. For insiders, the news was good all around (this is what we call "foreshadowing").

First, the news that everyone can enjoy: For the first time since 2000, Lucent remained profitable for an entire fiscal year. Hooray! For fiscal 2004, the company raked in revenues of just over $9 billion, a 7% increase over its fiscal 2003 performance. Profits came in at $1.14 billion in total, or $0.25 per diluted share. The company even earned some cold, hard cash, collecting about $480 million in free cash flow. Finally, Lucent expects to continue its money-making ways in fiscal 2005, saying its growth should exceed the market average. (Until we hear projections from peers Ciena(Nasdaq: CIEN) and Cisco(Nasdaq: CSCO), Alcatel(NYSE: ALA) and Nortel(NYSE: NT), it will be hard to gauge the accuracy of that.)

In any case, Lucent projects revenue growth in the "mid-single digits."

Let's call it "5%." Then assume the company can maintain its 2004 margins next year (the company has made a marked improvement in both gross and net margins since 2003, with the former coming in at 42% and the latter at 12.7%), and apply those to 105% of this year's $9 billion in revenue. The result looks to be roughly $1.2 billion in net earnings for next fiscal year. That would equate to about $0.28 in per share profits for next year, or about 10% earnings growth -- quite respectable.

Except that it's not going to happen. For this, you can blame that old foe of the Fool -- stock dilution. In Lucent's case, looking at the company's weighted average diluted share count for 2004 as compared to 2003, the company has already increased its average fully diluted shares by 22% over the course of the past year. Next year, it gets worse. The most recent weighted average diluted number reported by Lucent is 5.2 billion shares.

So let's run those profit numbers once more: Assuming Lucent's stock dilution screeches to a halt right this instant, we're still looking at 5.2 billion shares, assuming full dilution from stock options, convertible preferred stock and so on. Divide the projected $1.2 billion in GAAP profits for next year and Lucent's owners can expect just $0.23 per diluted share in profits. Thus, through the magic of stock dilution, Lucent has in one instant proclaimed its return to profitability and declared its growth will exceed the industry average in fiscal 2005 -- then admitted to diluting itself into a probable decline in profits (for outside shareholders, at least) for next year.

Way to spoil the good news, Lucent.

For more Foolish musings on Lucent, read:

Fool contributor Rich Smith has no interest in any company mentioned in this article.

Quote of Note

"In all affairs it's a healthy thing now and then to hang a question mark on the things you have long taken for granted." -- Bertrand Russell

A Global Focus at UPS


Alyce Lomax (TMF Lomax)

United Parcel Service (NYSE: UPS) may have missed analysts' expectations by a few cents, but its earnings report still wasn't too shabby. UPS reported positive earnings and sales, with particular strength in the international segment.

Third-quarter net earnings at UPS increased 20.4% to $890 million, or $0.78 per diluted share, while total sales lifted by 7.7%. Adjusted to reflect some one-time gains, earnings were $0.70 per diluted share, which missed analysts' estimates by $0.02.

Total worldwide average daily volume increased 3.4% to 13.7 million, while international export package volume grew 13.2% and international package revenue grew 22%.

UPS earnings weren't as flashy as the first-quarter numbers archrival FedEx(NYSE: FDX) (a Motley Fool Stock Advisor pick) reported last month. If you recall, FedEx reported earnings that more than doubled, with sales that increased 23%. Its total average daily volume increased 6%. (Furthermore, FedEx also spoiled investors over the course of recent history with fairly regular upward guidance.)

Today, UPS talked up its strength in overseas markets, a metric many investors are watching in regard to worldwide economic strength as well as strength of the delivery companies. Of particular attention was the company's success in Asia, with export volume increasing 29% and volume out of China more than doubling (however, FedEx's last quarterly report showed similar success in that market).

One factor investors need to be wary of are the high prices for fuel, which of course affect the delivery firms. After all, high fuel prices have a way of putting a damper on economic growth, which is essential for both UPS and FedEx to grow their businesses. (Whether for economic reasons or good PR, it's probably not coincidental that FedEx recently announced its plans to build a solar-power system at its California hub and to integrate more gasoline-electric hybrid vehicles into its fleet.)

Meanwhile, both companies face a hungry underdog competitor, DHL, which has been aggressively advertising its services.

UPS is currently trading at a forward P/E of 26, which, given growth projections, the competitive and economic climate, and comparisons to a rival like FedEx, may sound like a pricey entry point for many investors.

Alyce Lomax does not own shares of any of the companies mentioned.

Merck's Down But Not Out


Brian Gorman

Merck (NYSE: MRK) is working hard to make the best of a bad situation. The pharmaceutical giant announced today that its profit in the third quarter came in at $0.60 per share, which includes the loss of $0.25 per share due to the withdrawal of its pain medication Vioxx. In the same period last year, Merck's per-share earnings were $0.82. That's painful.

As with many dark clouds, though, there may be a silver lining. Merck announced late last year that it would eliminate 4,400 positions to offset the loss of patent protections, including those for its cholesterol drug Zocor. Today the company disclosed that it has cut 4,500 jobs, reductions that are projected to lower payroll and benefit costs by $250 million to $300 million in 2005. The loss of the Vioxx cash cow is likely to continue to push Merck to do more with less, and in the long run this is a positive since all pharma companies will probably have to find ways to operate leaner and meaner.

In the meantime, Merck is pushing hard to fill the black hole in its earnings. In the first nine months of the year, the company was involved with 41 transactions with outside parties to try to pump up its pipeline. In addition, the firm is pushing ahead with a number of in-house, late-stage experimental medicines. While none of these opportunities alone is set to replace Vioxx, this also may be a positive, since it could mean Merck will be less blockbuster-dependent.

Of course, there are plenty of reasons for caution as well. The fate of the Cox-2 inhibitor drug class remains an open question, so Merck's Arcoxia could be in danger, although this situation could also affect Pfizer's(NYSE: PFE) Celebrex and Bextra. In addition, liability costs related to Vioxx could put a significant damper on earnings for quite a while.

As the Fool's Mathew Emmert has written, though, for now the company's investors might want to sit tight. After all, a company that is projected to generate $6 billion in free cash flow has the wherewithal to recover. It's been said before, but Merck finally may have put the worst behind it.

Fool contributor Brian Gorman is a freelance writer living in Chicago. He does not own shares of any companies mentioned here.

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For a list of all our stories from today, see our Today's Headlines page.