Volatility, thy name is stock market! The markets took another deep dive today, clawing their way back up by the close of trading. CompuServe warned of slowing growth and tanked, taking America Online with it. We've got this story covered in a Special Section, as well as offering a FoolWire on Office Depot. In addition, earnings reports are continuing to flow through the pipeline, and we'll have conference call summaries for Texas Instruments, Intel, Seagate and C-Cube Microsystems.
MF Merlin's Economic News today discusses the June reports on the Consumer Price Index, industrial production, and capacity utilization. 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 Intel. Enjoy!
07/16/96 (Tuesday)
ASSOCIATES FIRST CAPITAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASF)") else Response.Write("(NYSE: ASF)") end if %>
1-800-633-8284 (code: 1774916) -- replay (3-6 pm EDT)
07/16/96 (Tuesday)
INTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTC)") else Response.Write("(NASDAQ: INTC)") end if %>
1-402-222-9904 -- replay (6:30 pm EDT)
07/17/96 (Wednesday)
COMPUTER ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %>
1-800-839-3013 (passcode: 3276) -- replay (c. 9:20 am EDT)
Internet database specialist RED BRICK SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: REDB)") else Response.Write("(NASDAQ: REDB)") end if %> wowed the Street with its second quarter earnings today, reporting $0.05 EPS versus all of a penny a year ago. The stock rose $8 to $28 in glee. Revenues of $8 million were in record territory, up 60.9% from the year-ago quarter. The company noted that, "Revenue growth continued to be strong and was balanced between new and repeat customers. New customers represented 50% of revenue."
There's often a lot to be said for less-glamorous, boring stocks. Packaging giant CROWN, CORK & SEAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCK)") else Response.Write("(NYSE: CCK)") end if %> showed the wisdom of its acquisition of French packing concern CanardMetalBox when it reported earnings this morning, posting a gain of $0.77 EPS this year versus $0.58 EPS last year, a full six cents above consensus estimates. It ain't too often that you see a packaging company post 33% year-over -year EPS gains. So kick back and enjoy it if you are holding the shares. Crown Cork & Seal surged $2 1/8 to $44 1/8.
Some big Dow Industrial Average component stocks threw their weight around today, posting impressive earnings. EASTMAN KODAK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %> blew away estimates by eight cents per share today, posting earnings of $1.30 versus $1.11 in the year-ago quarter, and rising $3 to $70. Not to be outdone, CATERPILLAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAT)") else Response.Write("(NYSE: CAT)") end if %> beat estimates by $0.30 with second quarter earnings of $1.94 per share, compared with $1.62 in 1995's second quarter. Caterpillar's sales slipped 1%, but shares rose $2 5/8 to $66 3/8... Another big player, albeit not in the Dow 30, MERRILL LYNCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MER)") else Response.Write("(NYSE: MER)") end if %> posted earnings of $1.90 per share, a full 29 cents ahead of estimates, and rose $2 1/8 to $58 3/8.
QUICK TAKES: News that SEAGATE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> will manufacture removable Jaz drive cartridges for IOMEGA CORP.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %> Jaz drive pushed shares of Iomega up $1 3/4 to $23 3/4. Earnings for Iomega are released Thursday after the bell... A new chief financial officer and a private placement apparently convinced some investors that PANDA PROJECT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PNDA)") else Response.Write("(NASDAQ: PNDA)") end if %> would not go belly up, pushing the shares up $1 3/4 to $10 3/4... SMITHKLINE BEECHAM PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SHB)") else Response.Write("(NYSE: SHB)") end if %> has signed an agreement with MERCK KGaA of Germany to use HUMAN GENOME SCIENCES's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HGSI)") else Response.Write("(NASDAQ: HGSI)") end if %> genomic technology to develop "novel human pharmaceuticals." Human Genome rose $2 1/4 to $27 1/2... News that WORLDCOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WCOM)") else Response.Write("(NASDAQ: WCOM)") end if %> was going to redeem all of its convertible subordinated debt at 103.5% of principle buoyed shares of the telecommunications provider up $1 7/8 to $24 1/2... A day after EDMARK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: EDMK)") else Response.Write("(NASDAQ: EDMK)") end if %> released its new edu-tainment CD, "Mighty Math Number Heroes", shares surged $5 1/4 to $18 3/4... 4HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HHHH)") else Response.Write("(NASDAQ: HHHH)") end if %> shares popped up $3 3/4 to $16 1/4 after an agreement to merge with SURGICAL TECHNOLOGIES.
OFFICE DEPOT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ODP)") else Response.Write("(NYSE: ODP)") end if %> reported flat quarterly earnings in line with expectations, but apparently investors saw something deeper in the numbers when they sold shares of the specialty retailer this morning, dropping the stock $4 1/4 to $14 1/4. Prudential cut its rating from "buy" to "hold", while Smith Barney dropped it from "accumulate" to "neutral". Office Depot said that it expects to only grow revenues at 15% for the second half of the year.
Apparently, COMPUSERVE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSRV)") else Response.Write("(NASDAQ: CSRV)") end if %> is not moving fast enough to keep up with a changing online services marketplace. The online service provider dropped $3 to $12 1/2 when it said it would report a loss of $0.15 EPS to $0.20 EPS in the current quarter due to flat subscriber growth. H&R BLOCK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HRB)") else Response.Write("(NYSE: HRB)") end if %>, which owns 80.1% of CompuServe will spin off its stake and buy back up to 10 million of its own shares with the proceeds from the sale of the first 20% of CompuServe. H&R Block also mentioned that it was cutting its quarterly dividend, which was $0.32 last quarter, to $0.20, and slid $5/8 to $26 1/4 today.
To say that analysts and investors were disappointed might be an understatement. FRANKLIN ELECTRONIC PUBLISHING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FEP)") else Response.Write("(NYSE: FEP)") end if %> reported first quarter earnings of $0.08 per share, compared with $0.17 in the year-ago period and $0.16 estimated by analysts. Shares dropped $2 3/4 to $14 1/2 as a result. Meanwhile, WONDERWARE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WNDR)") else Response.Write("(NASDAQ: WNDR)") end if %> reported a loss of $0.09 per share when $0.09 was expected and sank $3 to $8 1/2. What gives? Well, analysts expected a gain of nine cents.
QUICK CUTS: QUINTEL ENTERTAINMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: QTEL)") else Response.Write("(NASDAQ: QTEL)") end if %> shed $1 1/4 to $6 7/8 this morning after reporting dramatically lower earnings for its fiscal second quarter yesterday, netting only $0.04 EPS versus $0.17 EPS a year ago... AMERICAN BUSINESS INFO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ABII)") else Response.Write("(NASDAQ: ABII)") end if %> reported flat earnings of $0.21 EPS, three cents below consensus expectations. The stock plunged $3 3/4 to $11 3/4... BROADBAND TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BBTK)") else Response.Write("(NASDAQ: BBTK)") end if %> slid $3 1/4 to $26 1/4 after being downgraded from "buy" to "hold" by UBS Securities... Measuring and controlling device company FEI CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FEIC)") else Response.Write("(NASDAQ: FEIC)") end if %> warned of disappointing earnings and tumbled $2 5/8 to $8.
An Investment Perspective
by Randy Befumo (MF Templar)
FOOL ON THE HILL
Bad News Has Its Limits, Too
INTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTC)") else Response.Write("(NASDAQ: INTC)") end if %> came charging in to attempt to single-handedly save the Nasdaq Composite this evening, right after the market closed. The central-processing unit and motherboard monster reported earnings of $1.17 per share (EPS) versus $0.99 EPS a year ago -- a full eight cents higher than consensus expectations. Year-over-year revenue growth was an impressive 19%, although flat when compared to the first quarter of fiscal 1996. Gross margins improved a whopping 5.5% over the first quarter to 53.5% -- most of the reason why the company blew past consensus estimates. All in all, this was a good piece of news, and one that the bullet-riddled Nasdaq Composite sorely needed.
Intel reported solid unit volume in its CPU and flash memory product lines and maintained a book-to-bill above 1.0 during the quarter. Given the shape of business in the quarter, Intel furthermore expects revenues for the third quarter consistent with the fiscal second quarter's $4.62 billion. Gross margins for the third quarter should be around the 50% that it has as part of its optimum financial model, plus or minus a couple of points. The gross margin fluctuation comes as the product mix changes from CPUs to motherboards to flash memory to networking equipment.
Intel hedged all of this positive news by pointing out how difficult it was to gauge demand for its products. Its orders consist mainly of "turns," or orders that need to be filled immediately. Because so many orders streaming in need to be "turned" around quickly, the company could see demand dry up at some point, causing the above forecast to prove incorrect. Intel also reminded investors of potential slowness in Europe over the quarter and pointed out that much of the quarter's success hinged on the month of September.
As for the rest of the income statement, Intel gave some guidance there as well. The company should be taxed at about 35% -- right in line with the current quarter's tax rate. Intel is fine-tuning its capital expansion budget, pulling back to $3.6 billion from the previously-expected $4.0 million. It estimated its depreciation for the quarter to be less than $2.0 billion. The company anticipates research and development rising 3% to 4% from this quarter, which will cost it an additional $13 to $18 million. Intel anticipates interest and other income to total somewhere between $85 to $90 million -- in line with this quarter's $86 million. It is important to note that when Intel gave guidance last quarter, it said that it would only have $65 to $70 million in other income.
This means that this oversight accounted for about five to six cents on 488 million shares -- or most of the margin by which it beat its earnings estimates. Intel is renowned for some pretty tricky financial wrangling. If the company turns its cash balances into an additional income source using derivatives and other complicated financial instruments, it could conceivably have this all blow up in its face one day. It estimates about a 2.0% yield for the quarter on its cash -- about 7.8% annualized, one heck of a short-term yield. I don't want to play this up too much, but it is important to realize that however much of a reaction this stock gets tomorrow, one way or the other, is due to high returns on cash sitting in the bank as opposed to the core business. The fact that $26 to $31 million in extra cash meant more than 5.5% on the gross margin line gives you an idea of the magnitude of Intel's cash management.
Heck, maybe Intel's treasurer should take over the Fool 401-K.