Boring Portfolio Report
Thursday, August 15, 1996

by Greg Markus (MF Boring)

PHOENIX, Ariz., August 15 -- Today was ideal for ignoring the market entirely and doing something fun, preferably outdoors. In the seventh slowest day of trading all year, the DJIA lost one point, the Nasdaq gained one point, and the S&P 500 was within a fraction of being absolutely unchanged for the session.

As for the Boring Portfolio, it did just fine, thanks: six stocks up, two small declines, and two holdings "unch," for a net gain of two-thirds of a percentage point.

Carlisle Companies added another half-point to yesterday's $1 1/8 gain. Meanwhile, Green Tree Financial rebounded $1 1/8 to sit atop its all-time high of $37 1/2 -- that despite a somewhat sloppy bond market today. TXI added two-bits and Oxford, $ 3/8.

The big Borefolio news today is the post-market earnings reports by Cisco Systems and Borders Group. Since ol' Boring can't listen to two conversations at once, I covered the Borders teleconference, while Randy Befumo (MF Templar) handled the duties with Cisco. Both of our full reports will be available in the "Earnings" area of Fooldom shortly -- Randy's probably sooner than mine, since he types a lot faster than I do (and probably thinks a lot faster, too). Meantime, I can hit the highlights here -- and highlights they are, indeed.

Cisco first. Analysts were expecting Cisco to make something like $0.40 per share in its 4Q, taking into account its purchase of Stratacom during the quarter. That acquisition will contribute mightily to the business in the long run but it cost a few bucks to pull off in the short run.

As it happens, Cisco made EPS of $0.41, on consolidated sales of $1.29 billion for the quarter -- a mere 84% improvement in sales and 71% gain in earnings on an apples-to-apples comparison basis with 4Q:95. For the full fiscal year, sales totalled $4.10 billion, versus last FY's $2.23 billion -- an 83% gain. EPS of $1.37 constituted a 90% improvement over last FY's $0.72.

Consider for a moment what's going on at Cisco. What you've got here is a company that did $2 billion in sales last year, making it easily the largest beast in its jungle -- and it managed to basically double that during FY96. As large as Cisco is, it is growing *faster* than the industry it already dominates. The word "awesome" was invented to describe accomplishments such as that.

Cisco's press release notes: "Some of our leading-edge customers are beginning to see the strategic advantages of aligning with a single networking vendor and its partners for a large portion of their network requirements. Choosing Cisco provides the benefits of one vendor with world-class service and support, leadership in numerous key market areas, global presence and Cisco IOS software as the consistent fabric of the network."

Indeed.

Borders Group also reported earnings this afternoon; and if anything, Borders may have managed to outshine even Cisco. The Street was looking for a loss of nine cents for the seasonally slow second quarter. What Borders produced was a nickel loss, easily surpassing the expectations of even the most bullish analyst.

Management attributed the feat to a combination of strong sales performance at both Borders and Waldenbooks as well as favorable gross margins and expense control. Quarterly sales of $414.3 million were up 13.9% over the year-ago quarter; $206.9 of that came from Borders stores, and $208.9 from Waldens. Gross margins grew from 22.3% of sales for 2Q:95 to 23.6% for 2Q:96.

The company added three Borders superstores during the quarter and plans to open 13 more in the current quarter, while continuing to close a number of less profitable Waldenbooks stores.

The balance sheet and cash position remain strong, the company's overall strategy is executing in line with its business model, and management noted in the teleconference that they are comfortable with EPS projections of $1.28 for the fiscal year -- assuming that the critical fourth quarter cooperates.

Cisco and Borders: two impressive, high quality companies producing two impressive, high quality quarterly performances.

Transmitted: 8/15/96