Join David and Tom Gardner on AOL tonight as they answer questions and sign books in a virtual booksigning. This innovative event takes place between 9:00 and 9:45 pm ET tonight and will be accessible from our AOL main screen. Today's Lunchtime News featured a look at retail sales figures released today. These numbers will appear in a Special Section on retail same-store sales later today or tomorrow.
MF Merlin, in his final daily Economic Indicators article, suggests the possibility of an oversupply of new single-family homes, and discusses the latest weekly report on new claims for state unemployment insurance. (Thanks for your great work, MF Merlin!) Making a guest appearance in the Evening News tonight is David Gardner, who pens our "Fool on the Hill" investment perspective, taking a look at Macromedia. 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. Enjoy!
CAMPBELL SOUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPB)") else Response.Write("(NYSE: CPB)") end if %> shareholders were smacking their lips at the news issuing from Camden, NJ today. The soup-maker detailed a many-pronged growth plan, and saw its shares bid up $4 3/8 to $71 7/8. Campbell plans to buy back roughly $2.5 billion in stock, $1.5 of which will be via a Dutch auction. In a Dutch auction, a company commits to buy a certain amount of shares, raising its bidding price until the bid is equal to or higher than a number of offers that they need to meet the full purchase amount. All shares are then bought at this price, despite the fact that offers were entered at a price less than the final one. Dutch auctions are more commonly used by companies selling shares to raise capital, but the concept is the same. In order to "break away from [its] competitors in the food industry," Campbell also spoke of brand-building, new product development, acquisitions, and organizational restructuring. It plans to purchase Germany's leading soup-maker, Erasco Group, from GRAND METROPOLITAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GRM)") else Response.Write("(NYSE: GRM)") end if %>. Lehman Brothers upgraded the company from "neutral" to "buy."
THE FINISH LINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FINL)") else Response.Write("(NASDAQ: FINL)") end if %>, retailer of athletic and leisure clothes and shoes, zoomed ahead $5 3/8 to $37 today, on strong numbers released today. The company reported record second-quarter sales of $91 million, up 41% over the year-ago quarter, and second-quarter same-store sales up 17% (footwear up 15% and apparel and accessories up 21%. Chairman and Chief Executive Officer (CEO) Alan C. Cohen elaborated that, "The infrastructure improvements made through personnel additions and system upgrades have contributed to this positive sales trend and provide a strong basis to continue our growth. In addition, merchandise inventories... have been reduced approximately 7% to 9% compared to one year ago... the company is right on plan to meet its goal of increasing store square footage by 25% this year... Our new store designs and `Large Format' stores are being well received by our customers and mall developers and we remain very encouraged as we enter the Fall/Holiday selling seasons."
Investors with visions of anticoagulants in their heads sent shares of CARDIOVASCULAR DIAGNOSTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CVDI)") else Response.Write("(NASDAQ: CVDI)") end if %> up $1 1/4 to $7 3/4 today. The company agreed to jointly develop with BAYER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BAYZY)") else Response.Write("(NASDAQ: BAYZY)") end if %> a rapid point-of-care (POC) test to monitor the anticoagulant protein Antithrombin. According to the arrangement, Cardiovascular Diagnostics will be able to use data from Bayer's clinical trials of its Thrombate III Antithrombin concentrate in order to put together requisite information for the Food and Drug Administration (FDA). With the test expected to get an FDA green light in 1997, Bayer will have the right of first refusal to co-market the test with Thrombate III. Thrombate III is a treatment for serious acquired coagulation disorders.
QUICK TAKES: Help-desk software developer REMEDY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RMDY)") else Response.Write("(NASDAQ: RMDY)") end if %> surged $4 to $49 on speculation that it is about to announce a major new contract later today... NETVANTAGE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NETVA)") else Response.Write("(NASDAQ: NETVA)") end if %> shares advanced $1 1/4 to $11 5/8 as Hancock initiated coverage of the company with a "buy" rating, estimating that the Ethernet switching product supplier should lose $1.08 per share in 1996 and earn $0.47 in 1997... VIACOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: VIA)") else Response.Write("(AMEX: VIA)") end if %> shares were bid up $2 to $32 3/8 after Chairman Sumner Redstone and National Amusements, Inc, which he controls, announced a plan to buy back up to $500 million in Viacom stock, and after Salomon upped Viacom from "hold" to "buy"... GOLD RESERVE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GLDR)") else Response.Write("(NASDAQ: GLDR)") end if %> flashed up $1 1/8 to $10 1/8 on the discovery of "extensive gold mineralization in drill hole 464"... PHYSICIANS HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PHSV)") else Response.Write("(NASDAQ: PHSV)") end if %> rose $2 5/8 to $23 3/4 when Guardian Life Insurance said it had increased its stake in the firm to 23.65%...
MORE QUICK TAKES: Florida's FIDELITY FEDERAL SAVINGS BANK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FFFL)") else Response.Write("(NASDAQ: FFFL)") end if %> climbed $1 7/8 to $14 7/8 after declaring a 33% dividend increase... C-FON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CFON)") else Response.Write("(NASDAQ: CFON)") end if %> shares skyrocketed $1 1/2 to $5 after the company announced that its quarterly desktop videoconferencing product sales have more than doubled from the year-ago quarter... SCICLONE PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SCLN)") else Response.Write("(NASDAQ: SCLN)") end if %> shares surged $1 1/8 to $10 7/16 after receiving a license to market Zadaxin (R) thymosin alpha 1, a chronic hepatitis B treatment, in China... FEI CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FEIC)") else Response.Write("(NASDAQ: FEIC)") end if %> shares advanced $2 1/4 to $12 1/2 after the company agreed to purchase Philips Electron Optics BV, a unit of PHILIPS ELECTRONICS NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHG)") else Response.Write("(NYSE: PHG)") end if %> in a stock swap deal.
Integrated circuit maker ZILOG <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZLG)") else Response.Write("(NYSE: ZLG)") end if %> saw its shares disintegrate by over a third today, in a $8 3/8 to $15 1/2 freefall. The company, which earned $0.60 per share in its second quarter, expects to only net $0.05 to $0.15 in its third quarter. According to First Call, eight analysts had consensus estimates of $0.45 for the quarter. Alex. Brown cut the firm from "buy" to "neutral," while Robertson Stephens downgraded it from "buy" to "market performer" and Montgomery Securities lowered it from "buy" to "hold." Partly in sympathy with Zilog, memory product developer MICROCHIP TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MCHP)") else Response.Write("(NASDAQ: MCHP)") end if %> shares slumped $5 1/4 to $31 1/8 after Cowen & Co. downgraded the firm from "strong buy" to "buy". Microchip Chief Financial Officer (CFO) Phil Chapman noted that, ''Zilog tends to sell custom products to a relatively small set of customers worldwide, while we sell only standard products to a world-wide customer base of about 12,000... Their problem appears to be with one or a small number of customers in the modem business, which makes up about 30% of their business. We do not participate in the modem business to any measurable degree.''
PERCON INCORPORATED <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PRCN)") else Response.Write("(NASDAQ: PRCN)") end if %> lost over a quarter of its market-capitalization (share price times number of shares outstanding) today, falling $3 3/16 to $9 1/16 on over ten times normal volume. Percon specializes in automated data collection systems, such as bar-code readers. Its President and CEO, Mike Coughlin, noted that, "results for the third quarter of 1996 will fall short of expectations due in large part to traditionally slow business activity in July and August by Percon's French subsidiary, STI S.A. Input device sales into our distribution channels have also dropped off faster than anticipated." He added that, "For the fourth quarter of 1996 we expect revenues to be below analyst estimates... but the effect on earnings should be mitigated by decreases in operating expenses and increases in gross margin."
Mom is working, but apparently not fast enough. MOTHERS WORK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MWRK)") else Response.Write("(NASDAQ: MWRK)") end if %> reported total August sales up 28.7% over last August, and same-store sales up an impressive 14.7%. (Same-store numbers reflect stores which have been open at least a year and remove the effect of newly-opened outlets.) Despite this, the stock tumbled $4 to $16. Why? Because the retailer said that it expects to disappoint analyst estimates of $0.31 per share for its fourth quarter. President Rebecca Mathias explained that, "The newly acquired Episode chain is selling off the excess spring/summer inventory which came with the stores, and although the trend in comparable store performance at Episode is positive, sales results for this quarter so far have been below our plan."
QUICK CUTS: FOREST LABS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: FRX)") else Response.Write("(AMEX: FRX)") end if %> burned down $6 7/8 to $33 1/4 after warning of impending disappointing earnings, due to sales losses and pricing pressures... Former Fool Portfolio holding THE GAP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GPS)") else Response.Write("(NYSE: GPS)") end if %> reported flat same-store sales for this August, and was punished with a $4 7/8 to $29 sell-off... CITYSCAPE FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CTYS)") else Response.Write("(NASDAQ: CTYS)") end if %> is off $2 1/2 to $27 on questions about a company consultant's association with "stock Swindler" John Galanis as well as on significant short selling... Power semiconductor supplier INTERNATIONAL RECTIFIER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IRF)") else Response.Write("(NYSE: IRF)") end if %> gave up $3 3/8 to $14 5/8 after Smith Barney downgraded the firm from "buy" to "neutral"... Disk-drive assembly maker HUTCHINSON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HTCH)") else Response.Write("(NASDAQ: HTCH)") end if %> slumped $5 to $34 after warning that fourth quarter-to-date net earnings appear to be coming in at break-even levels. The company was expected to earn $0.85 in the fourth quarter.
An Investment Opinion
by Randy Befumo (MF Templar)
FOOL ON THE HILL
Macro-, or Micro-, Media?
I have the pleasure of filling in for Randy Befumo today. I can tell you, it's no easy task to crank out one "Fool on the Hill." And there Randy is, doin' it every day. Geez.
Okay. A monster stock since it came public in December of '93 has been MACROMEDIA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MACR)") else Response.Write("(NASDAQ: MACR)") end if %>, the premier provider of software tools for World Wide Web publishing, multimedia, and graphics. I enjoy watching monster stocks because we can learn a tremendous amount from the exercise. While much of today's media seems intent on bashing success -- always trying to be the great leveler -- at Fool HQ we find it more productive and instructive to focus on learning from success, and teaching our readers how to recognize it.
Macromedia presents an interesting case of big boom, to current bust, to... well, where are we going from here?
First, call the company at (415) 252-2000, and order up the financial packet. You'll receive perhaps the best, most informative packet I've ever received from an American company. First off, Macromedia investor relations sends out all current analyst reports in its package, in an age in which increasing numbers of companies are "wimping out" due to hyperanxious legal departments which don't want to get caught in shareholder lawsuits because of some supposed endorsement of analyst comments. Gimme a break. Companies that don't send out analyst reports to shareholders and prospective shareholders are failing to serve, are denying useful information to the reader, keeping it pent up (and hard to find) somewhere in a dusty corner of Wall Street. We're all adults, people... just because a company encloses analysts' reports does not mean people will be misled into thinking that a "Strong Buy" from some fella at Prudential Lynch Hambrecht means they should "strongly buy" it (whatever "strongly" buying means, anyway).
Enough ranting.
Macromedia also includes a compact disc which includes the annual report, product demos, and background educational material, all in an attractive multimedia format. The company's marketing savvy is unmistakable from start to finish, as one surveys these materials.
Fighting your way past the gloss, pop open the annual report for a quick look at the numbers. From 1993 through 1996 (on a March fiscal year), the company grew revenues thus:
1993: $31.5 million 1994: $37.5 million (up 19%) 1995: $55.9 million (up 49%) 1996: $116.7 million (up 109%) Earnings followed through. EPS over the period: 1993: $0.01 1994: $0.12 1995: $0.19 1996: $0.59
With the growth of multimedia and the Internet, which really began kicking in during 1994, Macromedia's numbers began accelerating, and the higher they got over that period, the faster they grew. Lesson #1: accelerating growth with increasing proportion to size makes for a great investment.
Great investment, indeed. A look at the company's historical share performance reveals a stock that zoomed from a low of $6 1/2 to a high of $63 3/4 in two years. The company grew through internal ramp-up, and acquisition (there were three acquisitions in fiscal '96, following a merger with Altsys in January '95). Its products (Authorware, Director, Extreme 3D, Fontographer, FreeHand, xRes, SoundEdit16, DECK II, and Backstage) are mainly purchased by design professionals, domestically and internationally, to produce multimedia demonstration, entertainment, and advertising packages. There's a lot of that happening these days, and Macromedia dominates the market.
So anyway, growth rates were up, the company (like many strong software companies) was cash-rich and very cash-flow positive, profit margins reached a whopping 20%, and everything was just generally cheery.
Then came 1996. With today's $3+ drop, the stock has touched back down to $19, off an Iomega-like 70% from its 52-week high. And like Iomega, this is a fine company... in some ways, more impressive than Iomega (profit margins, multi-year pedigree of success, revolutionizing the Web, etc.). So what happened?
That leads to Lesson #2: don't develop products for the Macintosh platform.
Because that's essentially what's slowed up this gravy train, what mixed some "Micro" into the "Macro" of Media. The first quarter of this year, ended June 30, brought sales increases of 47 percent and net income up 61 percent, but these were below initial expectations. When the company announced this ahead of its reporting date, the stock dropped from the mid-$40s to the low $20s. "Revenue did not meet our expectations due to softness in the Macintosh market," said CEO Bud Colligan. We learned the same lesson ourselves with the Fool Portfolio's 1994 selection of Sonic Solutions, the sound system developer mainly for (eeeesh) Macintosh. We lost half our money on Sonic.
The company then announced that it expected flat quarter-over-quarter 2Q revenue growth, concomitantly with that report.
Fast forward to yesterday. It's time for the company's annual meeting for analysts. "Welcome Mary Meeker, of Morgan Stanley, and Michael Wallace of UBS Securities, welcome to you all. And... oh yeah... you're all a little high with your growth estimates this year." CEO Colligan is reported to have said that the company's revenues this year could be as low as $145 million overall (24% growth over last year). And then further, the CEO announced the company had no intention of cutting spending during this key phase of company growth when it's hoping to blow out its business.
Terror. The sell orders arrive. Macromedia drops $3 11/16 on 3.3 million shares.
Now, fast forward to the future. What lies ahead? Lesson #3: Tend to favor the notion that past performance indicates future results. One of the duller, sillier platitudes out there -- which has reached legal disclaimer status in recent years -- is that "Past performance is no guarantee of future results." Blah blah blah. Tell that to Warren Buffett or Peter Lynch. Tell that to Microsoft. Tell that, for that matter, to the Chicago Cubs or the Boston Red Sox. In my book, there is generally no better future indicator than past results, unless you're talking about sector mutual funds. It's a joke that this phrase has reached such rote, institutionalized status.
My own expectations are that MACR stock will beat the market over the next 12 months. Things could be extremely dicey in the short term, as we see a September quarter with flat revenue and perhaps even a loss in earnings. (I have no idea; the company invited only analysts to its meeting.) But how did MACR get to where it was in the first place? Smarts. What industry is it in? The Internet... rather a high-growth affair, I anticipate. And has the company been well-managed financially? You betcha. That $115 million in cash on the balance sheet equals about 3 bucks a share, and it's not about to disappear anytime soon.
Beat this stock down enough and it's a takeover candidate.
No guarantees, of course. At its present earnings per share of 64 cents, you have a P/E of 30. Fiscal '98 revenues, seven quarters ahead, have been slashed to 90 cents per share by the UBS analyst. That annualized growth rate is 22%. That puts the current PEG at 1.39... a main reason you're not seeing the Fool Portfolio suddenly perk up and add these shares at these prices. Why buy into uncertainty when you can find more certainty out there? (Read: 3Com.) But my own sense is that these shares will beat the market, since the market has shown a willingness to pump up Fool Ratios of Internet companies. I also think management can turn its problems into solutions soon.
So mark this down on your computer calendar, for one year from today: "Check to see if MACR @ 19 1/8 has beaten the market (S&P 500 at 649.44 on that date); e-mail David Gardner to congratulate or condemn." That's accountability. That's Foolishness. And that's the longer-term mentality we're doing our best to inculcate.