Ouch! You know the market hasn't had a good day when the word "aftermath" comes to mind. The Nasdaq, in particular, had a full several percentage points shaved off it today, as investors acted on jitters about upcoming earnings reports. Not helping matters were more companies warning of disappointing earnings, such as Applied Materials, which took many of the semiconductor-related companies down with it today. Tonight the Fool offers you a Special Section on the Nasdaq's fall; a look at Applied Materials; Conference Call Summaries for Genentech, Hutchinson and Madge; and an expanded Earnings Central collection.
MF Merlin's Economic News discusses today's report by the Census Bureau of the Department of Commerce on manufacturing and trade inventories and sales for May. You'll find the Economic News, as well as all our Special Sections, FoolWires, and earnings reports, on either the Evening News or Stock Research screens. In tonight's Fool on the Hill, MF Templar focuses on the hair salon merger between Regis and Supercuts. Enjoy!
07/15/96
BOISE CASCADE OFFICE PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BOP)") else Response.Write("(NYSE: BOP)") end if %> (est. $0.22)
11:00 a.m. EDT
1-800-633-8284 (code: 1819693) -- replay
07/16/96
ASSOCIATES FIRST CAPITAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AFS)") else Response.Write("(NYSE: AFS)") end if %>
2:00 p.m. EDT
1-800-633-8284 (code: 1774916) -- replay (3-6 pm)
07/16/96
INTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTC)") else Response.Write("(NASDAQ: INTC)") end if %>
5:30 p.m. EDT
1-800-289-0579 (code: 250151) -- live
1-402-222-9904 -- replay (6:30 pm)
RADISYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RSYS)") else Response.Write("(NASDAQ: RSYS)") end if %> rose $3 3/8 to $25 1/8 after exploding a full six points on the open following its announcement that it would exceed current second quarter estimates. The manufacturer of embedded computer components and subsystems said a higher-than-anticipated gross margin was the reason for the surprise.
TERRACE HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: THIS)") else Response.Write("(NASDAQ: THIS)") end if %> surged after signing a letter of intent to purchase Connecticut-based Yofarm, a manufacturer and distributor of yogurt-related products. Investors weren't soured by news of this deal, and they sent shares of Terrace up $1 1/8 to $4 1/8.
QUICK TAKES: ADCO TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ADCO)") else Response.Write("(NASDAQ: ADCO)") end if %> announced that it agreed to be acquired by ASTOR CORP. for $10.25, rising $1 to $9 5/8... Shares of NORTH SIDE SAVINGS BANK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NSBK)") else Response.Write("(NASDAQ: NSBK)") end if %> surged $3 1/4 to $38 1/2 when the company agreed to merge with NORTH FORK BANCORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NFB)") else Response.Write("(NYSE: NFB)") end if %> via a $120 million stock swap... Measuring and control device manufacturer MODERN CONTROLS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MOCO)") else Response.Write("(NASDAQ: MOCO)") end if %> said estimates of $0.68 per share are "in the ballpark", and popped up $1 5/8 to $12... Trucking and courier service LANDSTAR SYSTEM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LSTR)") else Response.Write("(NASDAQ: LSTR)") end if %> popped up $2 1/2 to $27 after a Salomon upgrade from "hold" to "buy" on valuation and expectations of 20% growth.
APPLIED MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMAT)") else Response.Write("(NASDAQ: AMAT)") end if %> had few investors exclaiming "Amo Amas Amat" today, as the semiconductor equipment company joined the club and warned that its third quarter revenue and earnings would disappoint, due to customers delaying deliveries and orders. Shares dropped $2 5/8 to $25 3/8. MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %>, which finally joined its semiconductor manufacturing peers to trade at below 1.0 times sales today, slipped $2 3/8 to $19. Also tumbling were HELIX TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HELX)") else Response.Write("(NASDAQ: HELX)") end if %>, which supplies cryogenic vacuum pumps to Applied, down $2 1/2 to $26 1/2 with Friday's profit warning still pressuring the stock. ETEC SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ETEC)") else Response.Write("(NASDAQ: ETEC)") end if %> tanked $3 1/2 to $17 1/2. Some of the cheaper companies perceived as competitors to Applied got whacked also: LAM RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LRCX)") else Response.Write("(NASDAQ: LRCX)") end if %> slumped $4 to $21 3/4 and KLA INSTRUMENTS (NASDAQ; KLAC) was off $1 1/2 to $18 3/4.
DELTA & PINE LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DLP)") else Response.Write("(NYSE: DLP)") end if %> had a bad share day, after reports emerged citing "partial insect infestation" in Texas cotton fields planted with Delta & Pine's genetically-based insect-resistant seeds. The company blamed climatic conditions for the problem, and has dispatched experts to examine the area, stating that no other areas have experienced problems. Shares were stung for $6 1/4 to $27 1/2.
QUICK CUTS: AUTODESK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ADSK)") else Response.Write("(NASDAQ: ADSK)") end if %> moved $3 1/4 to $21 after Morgan Stanley downgraded the computer-aided design (CAD) firm to "neutral" from "outperform"... Last week's profit warnings still weigh heavily on applications design consulting firm GRC INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GRH)") else Response.Write("(NYSE: GRH)") end if %>, which slumped $4 5/8 to $19 3/8... High-flying private managers of prisons are giving back gains today. WACKENHUT CORRECTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WHC)") else Response.Write("(NYSE: WHC)") end if %> was mashed for $4 3/4 to $23 while CORRECTIONS CORP. OF AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CXC)") else Response.Write("(NYSE: CXC)") end if %> slid $3 to $27 1/4. We could find no news to explain this drop... BOISE CASCADE OFFICE PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BOP)") else Response.Write("(NYSE: BOP)") end if %> was shredded $6 to $27 1/8 after reporting quarterly results in line with expectations and completing its conference call (see information on accessing the call, listed above).
MORE QUICK CUTS: News that the chairman, president and chief executive officer (CEO) of GT BICYCLES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GTBX)") else Response.Write("(NASDAQ: GTBX)") end if %>, Richard Long, was killed in a traffic accident over the weekend sent the stock down $1 1/8 to $11 3/4... A hedge fund manager apparently made a pretty compelling case for shorting ISIS PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ISIP)") else Response.Write("(NASDAQ: ISIP)") end if %> in this weekend's Barron's. The stock slumped $2 1/2 to $12 3/4 this morning... Aren't stocks supposed to rise in anticipation of earnings, bemused IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %> followers asked this morning. The removable storage drive manufacturer tumbled $4 1/4 to $22 after a shortseller made negative comments on CNBC's Squawk Box.
An Investment Perspective
by Randy Befumo (MF Templar)
FOOL ON THE HILL
Shave and a Haircut -- $6 and Two Bits
REGIS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RGIS)") else Response.Write("(NASDAQ: RGIS)") end if %> bailed out shareholders of SUPERCUTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CUTS)") else Response.Write("(NASDAQ: CUTS)") end if %> to the tune of $118.6 million when the market closed. So why is my number of $118.6 so much lower than the $150 million the financial press was quoting all day? Because Regis had the temerity to sell off $6 41/64 to $26 23/64, knocking roughly 20% off of the price of the stock-for-stock deal between the two chains of hair salons. Unfortunately for Regis, Supercuts's $25 million in long-term debt remained constant, meaning the deal was actually costing them $43.6 million. Supercuts had a slightly better day, closing up all of $1 to $9 3/4 after being up as high as $11 3/8 during the day.
The reaction to this "strategic merger" goes beyond just the general market downdraft today. Many investors are pretty skeptical about the actual value that this deal confers upon shareholders of Regis, given Supercuts's checkered history. Regis is getting Supercuts for 0.40 shares of its own common stock for each outstanding share of Supercuts, essentially extricating management from its terrible situation. The deal is being done with 4.6 million newly issued shares -- pretty substantial dilution for a company with only 17.8 million shares outstanding.
Looking strictly at the numbers, it seems to be that Regis overpaid. They issued 25.8% more shares in order to add Supercuts's $103 million in trailing revenues to their own $473.3 million -- only a 21.7% notch upward. If you look at units, it may appear that Regis made out well, adding 1,168 stores to Regis's 1,950 stores. However, these units do significantly lower revenues per square foot with a similar cost structure, making this apparent positive actually appear negative.
It would be okay to pay a slight premium for high quality revenues or great locations, but Supercuts represents anything but high quality. The company has completely blown its own internal projections the last two times at bat, reporting $0.11 EPS versus consensus expectations of $0.20 EPS last quarter and $0.09 EPS versus consensus estimates of $0.20 EPS the quarter before. Supercuts is highly concentrated in the New York metropolitan area where the company has been completely unable to make any headway in restructuring the company-owned operations there. Things got so bad a few months ago that Supercuts franchisees almost rebelled, although this mess was quieted down.
The fact remains that the majority of the Supercuts store base has failed to generate positive cash-flow, piling up operating losses that the company called "significant." The chain expanded too fast, drained its working capital, and consequently was unable to push through this resistance in the New York area. The company announced it had maxxed-out its credit line in January and caused many investors to wonder whether it might have a run-in with the bankruptcy courts back in April when this was all hitting the fan, causing the stock to trade down to the $5-range on the news.
So what does this deal do for Regis? It immediately puts it in strip malls across the country. Supercuts is skewed toward men looking for low price haircuts, a very different client-base than the women who come to Regis and pay $20 a head. Supercuts is also mainly a franchise set-up, although it has been the company's main weak spot. Regis has 1,583 company-owned stores and only 71 franchised, as opposed to Supercuts's 369 company units and 800 franchisees. Does the Regis management have the experience to manage this many franchise units when they have obviously done very little of this up until now? It does not look like they have much experience and the anecdotal evidence suggests that this is not Supercuts's strength, either. Basically, the $143 million deal gives Regis a troubled chain saddled with significant debt and $11 million in negative cash flow, all at a premium price.
Looking forward, what could happen? The company will have about 22.4 million shares outstanding. Analysts were looking for about $10.1 million from Supercuts next year -- if it can turn itself around -- and Regis should pull in $19.94 million over the same period if they analysts are right there. This suggests that the company will have $1.34 in trailing EPS in three quarters, implying that it is being valued at 20 times what it can earn in three quarters. Given the degree of uncertainty in this merger, if Supercuts can only deliver $5.0 to $7.5 million of the $10.1 million analysts are looking for they could come up anywhere between $0.11 EPS to $0.22 EPS short. This would put them trading at 21.4 to 23.7 times forward earnings -- pretty rich for a company that has been growing combined revenues in the 10% to 20% range if you consolidated them over the past year or so. It appears that Regis's urge to build an empire may have led to a rash purchase of a troubled rival.