Earnings season is here! For the next month or so, prepare to be bombarded with companies announcing their latest quarterly earnings or pre-announcing good or bad expectations. The Fool is here to help you -- in Special Sections, we plan to analyze the major announcements as they are made, beginning with Motorola, which announces after the bell today. Another Special Section scheduled to be available later this evening is one focusing on the semiconductor Book-to-Bill ratio, also to be released after the bell. Upcoming FoolWires are on conference calls for International Paper and Advanced Micro Devices.
MF Merlin's Economic News report today focuses on the Commerce Department's report on wholesale trade sales and inventories for February, and on the Mitsubishi Bank/Schroder-Wertheim report on retail sales for the week ending April 6. The Economic News, as well as special Sections and FoolWires, can be accessed from the Evening News screen in Fooldom.
Penederm <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DERM)") else Response.Write("(NASDAQ: DERM)") end if %> blistered ahead $1 5/8 to $14 3/4 today, on the heels of receiving an "approvable" letter from the FDA for its anti-athlete's foot cream, tradenamed Mentax. Once the FDA grants final approval, the company will market Mentax with its partner, Schering-Plough <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGP)") else Response.Write("(NYSE: SGP)") end if %>. Penederm called the event "a major milestone for Penederm in the commercialization our portfolio of prescription dermatological products." Volpe Welty reiterated its "strong buy" rating on the company.
Employee Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ESOL)") else Response.Write("(NASDAQ: ESOL)") end if %>, which is in the business of leasing employees, announced that it expected to meet or beat analyst estimates of $0.13 per share for the first quarter of 1996. The news promoted shares $4 1/4 to $36 1/4. The company also said that it is already ahead of expected earnings for fiscal 1996. Merrill Lynch, in response, raised its near-term rating for the company from "accumulate" to "buy" and maintained its long-term "buy" rating. (Don't you have to buy to accumulate? And if you buy, aren't you accumulating? And if you accumulate, aren't you buying more than once, suggesting that "accumulate" might be a stronger term than "buy"? Hmm. . . I'm sure the confusion is all mine, and that these terms really do make sense.)
SEVENTH LEVEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SEVL)") else Response.Write("(NASDAQ: SEVL)") end if %> jumped $1 to $10 1/4 today, after yesterday's announcement that the company will be collaborating with Disney Interactive to develop computer games tied to Disney's upcoming animation feature, "The Hunchback of Notre Dame". The companies have worked together before, on the Lion King-related "Timon & Pumbaa's Jungle Games." Donaldson, Lufkin and Jenrette reiterated its "outperform" rating. Skeptical investors might wonder how charmed kids will be by a hunchback, but then, Disney has sold a lot of warthog-related merchandise recently.
QUICK TAKES: APPLE COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AAPL)") else Response.Write("(NASDAQ: AAPL)") end if %> shares hopped up $1 5/8 to $26 on news that IBM was close to a deal to license Apple's operating system. . . Railroad equipment supplier GREENBRIER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GBX)") else Response.Write("(NYSE: GBX)") end if %> reported record revenues (up 65%) and more-than-doubled earnings today, as shares steamed ahead $1 7/8 to $14. . . IP TIMBERLANDS LTD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IPT)") else Response.Write("(NYSE: IPT)") end if %> rose $1 5/8 to $23 7/8 today, after announcing virtually flat revenues and increased net earnings. The company also announced a special distribution of $9.75 per class A Depository Unit. . . US ROBOTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: USRX)") else Response.Write("(NASDAQ: USRX)") end if %> today announced new integrated V.34 faxmodems intended for the small office/home office (SOHO) market, sending shares up $5 3/4 to $132. . . HBO & CO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HBOC)") else Response.Write("(NASDAQ: HBOC)") end if %> shot up $10 1/8 to $110 7/8 on a 46% increase in reported revenues. . . SEQUUS PHARMACEUTICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SEQU)") else Response.Write("(NASDAQ: SEQU)") end if %> rose $1 3/8 to $15 7/8 after reporting strong sales of its anti-cancer product, Doxil, and after Oppenheimer raised estimates for the company. . . DELL COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DELL)") else Response.Write("(NASDAQ: DELL)") end if %> was boosted $2 3/8 to $41 7/8 by a Bear Stearns upgrade from "attractive" to "buy". . .LANDRY'S SEAFOOD RESTAURANTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LDRY)") else Response.Write("(NASDAQ: LDRY)") end if %> sizzled up $1 3/4 to $20 1/4 on a Morgan Stanley upgrade to "strong buy". Whew!
The Federal National Mortgage Association <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FNM)") else Response.Write("(NYSE: FNM)") end if %>, also known as "Fannie Mae", saw its shares drop $1 7/8 to $31 today, in the face of increasing interest rates. Higher interest rates will mean costlier mortgages for home-buyers, which is likely to lower demand for home financing. The housing industry, along with banks, brokerages, insurers, credit card-issuers, and other industries whose fortunes are closely tied to interest rates, has been under pressure ever since the government reported robust jobs numbers on Friday, as signs of a growing economy raise expectations for higher interest rates. Yesterday Fannie Mae reported interest rate yields which were higher than last week, but lower than last year at this time. Oppenheimer & Co. downgraded the company from "buy" to "market perform" today.
Oracle <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ORCL)") else Response.Write("(NASDAQ: ORCL)") end if %> released several positive announcements today, but despite them, the company was downgraded by two analysts, falling $1 3/4 to $41 1/2. The good news involved Oracle's strategy to deliver international versions of its automated payroll software, as well as its new partnership with Radley Corporation to deliver integrated software solutions for automotive manufacturers and suppliers. Alex Brown lowered Oracle significantly, from "strong buy" to "neutral", while Soundview analyst Jim Mendelson kept Oracle as a long-term buy but lowered his short-term view from "buy" to "hold". MF Templar has also expressed concerns about Oracle recently, worrying that the company might be following competitor Sybase's pattern of generating revenue by selling long-term contracts, thus limiting future growth prospects.
Bio-Technology General <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BTGC)") else Response.Write("(NASDAQ: BTGC)") end if %> suffered a legal setback late yesterday, when a U.S. Appeals Court upheld an injunction preventing the firm from continuing with its planned introduction of Bio-Tropin, a human growth hormone. The reason is a patent-infringement claim by Genentech <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GNE)") else Response.Write("(NYSE: GNE)") end if %> and the case is expected to go to trial in federal court. This news sent shares down $15/16 to $5 13/16. Bio-Technology General currently markets Bio-Tropin in 18 other countries.
QUICK CUTS: Earnings season is once more underway, and with it the expected warnings. . . HEALTH RISK MANAGEMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HRMI)") else Response.Write("(NASDAQ: HRMI)") end if %> hemorrhaged $5 1/2 to $12 today, after announcing yesterday that it anticipates lower-than-expected revenues. . . After yesterday's warning of disappointing earnings, SOFTWARE ARTISTRY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SWRT)") else Response.Write("(NASDAQ: SWRT)") end if %> was cut by Robertson Stephens from "buy" to "long-term attractive" and by Cowen & Co. from "strong buy" to "neutral". Shares plummeted $2 1/2 to $8. . . CORNERSTONE IMAGING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CRNR)") else Response.Write("(NASDAQ: CRNR)") end if %> warned of lower earnings yesterday, and suffered a $1 5/8 to $7 1/8 loss. . . SHERIDAN HEATH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SHCR)") else Response.Write("(NASDAQ: SHCR)") end if %> dropped $2 to $8 after a Smith Barney downgrade from "buy" to "outperform". . .KIMBERLY CLARK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KMB)") else Response.Write("(NYSE: KMB)") end if %> was down $2 3/8 to $72 5/8 after announcing substantial price cuts for many of its products.
INVESTMENT PERSPECTIVE:
In Search of Temporary Gains
Looking for a way to play the downsizing of America? Apparently, you are not alone. Since late December of 1995, a group of specialized companies serving the temporary service market have made double-digit gains. One of them, Uniforce Temporary Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: UNFR)") else Response.Write("(NASDAQ: UNFR)") end if %> could have been had for $9 or $10 a share in early February and has since surged, rising a cataclysmic $4 3/4 points today to $27 3/4, tripling inside of two months.
The story with Uniforce is really a story about the temporary service industry and the transformation it is undergoing. Once the home of menial and factory workers who were brought in to do the unpleasant jobs no one else wanted to do, now temporary services are sexy ways to reduce payroll costs and bring in specialists that would be extremely expensive to have on board full-time. Whether it is lab technicians, accountants or lawyers, there is a temporary service out there ready to fill the needs of the largest corporation in a heartbeat.
Temporary services have experienced double-digit growth in recent quarters as strapped companies begin to outsource as a way to maintain their own pace of earnings increase. Corporations are reluctant to take on permanent employees if they have recently downsized, fearing painful lay-offs and bad press. A fad in this spin-off-crazed era is to focus on your "core" business and outsource any non-core operations.
Continuing consolidation of the 5,000-plus temporary services outfits -- seen most recently when Interim Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTM)") else Response.Write("(NASDAQ: INTM)") end if %> bought Brandon Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: BRA)") else Response.Write("(AMEX: BRA)") end if %> -- has also served to propel the valuations onward and upward. Buying offices that do business in a geographically-fixed area, larger players can leverage the fixed costs of billing and payroll and gobble their way to growth.
Temporary service companies are local, regional and national, with a handful of these companies being large enough to trade publicly. The small, private firms have been being gobbled up by the likes of Accustaff <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASTF)") else Response.Write("(NASDAQ: ASTF)") end if %> and Career Horizons <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CARH)") else Response.Write("(NASDAQ: CARH)") end if %> to keep up their growth. Accustaff alone made ten acquisitions in 1995 and nine acquisitions in the fiscal first quarter.
Regional giants like Norrell <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NRL)") else Response.Write("(NYSE: NRL)") end if %> have benefited from the growing needs of large companies in their backyard -- Microsoft recently hired a slew of Norrell staffers to run help lines for Windows95. The practice of large companies contracting with one temporary service firm for all of their temporary services needs as a way to control costs has allowed the larger players in the industry like Manpower <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MAN)") else Response.Write("(NYSE: MAN)") end if %> and Olsten <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLS)") else Response.Write("(NYSE: OLS)") end if %> to continue their growth as well.
Some temporary services concerns have also been inventive, offering new packages of services in an increasingly-networked workplace. Manpower <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MAN)") else Response.Write("(NYSE: MAN)") end if %> has seen a huge influx from its information technology temporary employees as companies attempt to rapidly expand their network capacity. With the purchase of Bradon, which specialized in computer temporary personnel, Interim Services looks to be the biggest player here. But even the conventional can be re-packaged in a more salable way. Robert Half <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RHI)") else Response.Write("(NYSE: RHI)") end if %>, for instance, has its "Office Team" operation that provides high-level executive assistants to corporate executives and has generated 50%-plus growth.
A March 22nd update of Value Line's report seems to have started some of the recent interest in Uniforce, although a positive piece in Barron's on March 25th for the industry in general could not have hurt. In the report, Value Line analyst Marilyn Royce marked the company a "2" for Timeliness and stated that she believes it can become a major player in what is a highly-fragmented sector. The company repurchased 30% of its outstanding shares recently, using debt, powering earnings per share up to $0.27 EPS in the most recent quarter compared to $0.17 EPS in the year-ago period.
The biggest news for Uniforce is a move away from its traditional light industrial work like janitorial, maintenance and security services. This represents less than 25% of Uniforce's revenues, down from 50% two to three years ago. The reason this is so helpful is because the payroll, billing, laboratory, medical and technical employees command much higher premiums and increase margins exponentially. Royce predicted that Uniforce would enjoy some leverage as revenues rise higher than the company's fixed costs, sustaining 20%-plus earnings growth.
The story for Uniforce and for the industry at large is not all sweetness and light, however. The "on-site" contracts big players have been getting squeeze out smaller temporary service concerns because they simply do not have the leverage to cut prices enough. Even the big guys, like Kelly Temporary <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KELYA)") else Response.Write("(NASDAQ: KELYA)") end if %>, can miss out on a lot of the "on-site" contracts by failing to transform themselves fast enough and maintaining an over-dependence on low-margin secret"arial, helvetica" and light industrial work.
For its part, Uniforce's repurchase of 30% of its outstanding shares boosts future earnings but also makes the company more volatile. The PEG stands at a shocking 1.65, although it will likely be upgraded higher, suggesting that much of the gains could unravel with a bit of bad news. Longer term, the company is trading about 25 times next year's earnings, at a premium to its growth rate that could be justified by the acquisitive ways of its peers.
Other highly-valued temporary companies based on expected earnings relative to growth rate include Accustaff, Alternative Resources, On Assignment <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASGN)") else Response.Write("(NASDAQ: ASGN)") end if %> and Robert Half. Based solely on the multiple-growth metric, Volt Information Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VOLT)") else Response.Write("(NASDAQ: VOLT)") end if %>, Manpower and Barrett Business Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BBSI)") else Response.Write("(NASDAQ: BBSI)") end if %> appear to be the cheapest.
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Byline: Randy Befumo (MF Templar)