HEROES

FEDERAL EXPRESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDX)") else Response.Write("(NYSE: FDX)") end if %> rose $4 1/2 to $75 3/4 after reporting a better than 100% increase in Q1 EPS of $1.22 that beat estimates of $0.75 for the world's largest "express" transportation company. The results were, of course, attributed to the fact that the company delivered more than 9.5 million "extra" packages during the UPS strike. The company estimates that approximately 15% of the 800,000 extra packages carried per day have been "retained," meaning that the balance ($0.25 to $0.30 per share) can be likened to a one-time gain for the quarter. FedEx receives approximately 625,000 package tracks per month through its Website and about half a million per day through all of its online media combined (Powership, FedEx Ship, and Internet). Many online retailers are leveraging FedEx's logistical abilities with their own direct-sales models, and that will only continue going forward. FedEx estimates that it is saving millions per year by conducting functions like tracking, invoice adjustments, and providing end users with shipping software downloads. In addition, the company will continue to benefit from economies of scale as its operations grow.

Direct selling powerhouse DELL COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> moved to an all-time high today, gaining $5 to $92 3/8, and commented that it was "likely to continue to deliver good profit growth for the rest of the 1997 fiscal year (February-January)." Dell said that "computer demand was still strong" and that much of the longer-term growth for the company is anticipated to come from developing markets, such as the Asia Pacific region. Reinforcing the strength anticipated for the PC industry as a whole, rival COMPAQ COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> also rose $5 1/6 to $69 3/8 today. Lehman Brothers raised its rating on Compaq to "outperform" from "neutral," largely as a result of accelerating "end demand" during July and August. Compaq's unit volume increased 84% and 60% year over year in July and August, respectively.

Brokerage CHARLES SCHWAB <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SCH)") else Response.Write("(NYSE: SCH)") end if %> moved up $2 1/8 to $32 13/16 after its newest fund, "OneSource Portfolios -- Small Company Fund," ended its subscription period with over $165 million in assets, making it Schwab's largest mutual fund launch ever and the largest retail-marketed U.S. mutual fund launch in 1997. Other financial services issues also gained today, moving in tandem with a strong rally in the bond market. MORGAN STANLEY DEAN WITTER DISCOVER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MWD)") else Response.Write("(NYSE: MWD)") end if %> gained $3 5/8 to $54 3/4, MERRILL LYNCH & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MER)") else Response.Write("(NYSE: MER)") end if %> climbed $3 3/4 to $68 1/2, and SALOMON INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SB)") else Response.Write("(NYSE: SB)") end if %> rose $4 1/4 to $65 5/8.

QUICK TAKES: DESIGNER HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DSH)") else Response.Write("(NYSE: DSH)") end if %> gained $1 3/16 to $9 3/8 after The Wall Street Journal said the maker of Calvin Klein apparel and outerwear is meeting with WARNACO GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WAC)") else Response.Write("(NYSE: WAC)") end if %> and may be acquired by them... Consumer electronics retailer BEST BUY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBY)") else Response.Write("(NYSE: BBY)") end if %> picked up $2 1/16 to $24 1/4 after reporting Q2 EPS of $0.15, up from $0.09 a year ago, with the gain in net income due almost entirely to a 33% reduction in net interest expense. The company sees its earnings improvement continuing... Top ten insurance company CNA FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNA)") else Response.Write("(NYSE: CNA)") end if %> rose $9 1/4 to $127 1/8 after it finalized a "strategic technology services" agreement with COMPUTER SCIENCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CSC)") else Response.Write("(NYSE: CSC)") end if %>. The agreement includes two components: creation of a new life insurance business processing service and a ten-year technology services contract... Smart card technology proponent SUNTRUST BANKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STI)") else Response.Write("(NYSE: STI)") end if %> burst $ 4 11/16 higher to $69 15/16 after it engaged in a pact with Visa USA to implement a stored-value card program in Celebration, Florida in the first quarter of 1998.

Used car superstore CIRCUIT CITY STORES CARMAX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KMX)") else Response.Write("(NYSE: KMX)") end if %> gained $13/16 to $13 13/16 after Circuit City commented that its subsidiary will begin producing a profit next fiscal year... Shares of water treatment company CULLIGAN WATER TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CUL)") else Response.Write("(NYSE: CUL)") end if %> were purified for a $3 1/16 gain to $50 5/8 after Credit Suisse First Boston analyst Michael Hoffman raised his estimate for Culligan's 1999 earnings... NATIONAL GAS & OIL <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: NLG)") else Response.Write("(AMEX: NLG)") end if %> was energized for a $3/4 gain to $10 7/8 after the reporting 1Q EPS of $0.24... "Personal Internet Guide" company LYCOS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> gained $6 1/2 to $39 after today's launch of an all new search service on its home page... OROAMERICA INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OROA)") else Response.Write("(Nasdaq: OROA)") end if %>, a gold-chain manufacturer, had the Midas touch today adding $3/4 to $5 1/2 after it said it reached a $7.2 million out-of-court settlement with 30 London-based insurance carriers for gold missing from the company's processing plants back in August.

SPYGLASS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPYG)") else Response.Write("(Nasdaq: SPYG)") end if %> moved up $1 1/8 to $9 3/4 as it entered an agreement with GTE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTE)") else Response.Write("(NYSE: GTE)") end if %> and M-Power Corp. under which the three companies will develop web-based services that utilize enhanced-display telephones... Impotence drug maker VIVUS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VVUS)") else Response.Write("(Nasdaq: VVUS)") end if %> rose $3 3/16 to $30 after the private investment fund run by former Fidelity Magellan fund manager Jeff Vinik and affiliates filed a 13-D statement revealing a 7.2% stake in the company... Telecom billing software company INTERNATIONAL TELECOM DATA SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ITDS)") else Response.Write("(Nasdaq: ITDS)") end if %> was boosted $2 1/4 to $29 1/4 after BT Alex. Brown raised its rating on the company to "strong buy" from "buy"... PREMENOS TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRMO)") else Response.Write("(Nasdaq: PRMO)") end if %> rose $1 3/8 to $15 3/8 on announcing a "data encryption extender" for the IBM DB2 Universal Database... Auto finance company MONEY STORE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MONE)") else Response.Write("(Nasdaq: MONE)") end if %> rode $1 15/16 higher to $32 1/8 after the company announced plans aimed at improving the performance of its non-prime auto finance division.

GOATS

Credit card transaction processor FIRST USA PAYMENTECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PTI)") else Response.Write("(NYSE: PTI)") end if %> fell $6 to $24 9/16 after Goldman Sachs rated the company "market perform," removing the shares from its recommended list. BANC ONE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ONE)") else Response.Write("(NYSE: ONE)") end if %> acquired parent First USA and, as a result, Paymentech will be operating more independently, which will slightly increase operating expenses. Investors fear that Paymentech is stuck in limbo right now and that Banc One will eventually sell off or spin off the entire company. If so, Paymentech stockholders would probably like to see that happen sooner rather than later. Paymentech has been a solid performer, with revenue and earnings growth keeping up with somewhat high expectations. As a free agent in the market, it would be able to act in its own best interests -- rather than being hamstrung waiting for Banc One to decide if it will sell or keep the business.

AMERICAN PAD & PAPER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AGP)") else Response.Write("(NYSE: AGP)") end if %>, the inventor of the legal pad, was crumpled up and shot down $10 5/16 to $13 7/8 after pre-announcing much worse-than-expected Q3 EPS of $0.05 to $0.06 versus the mean estimate of $0.45. The company's most recent numbers reveal that the acquisition of Shade/Allied didn't appear to hurt the business -- on the contrary, return on equity increased last quarter because of a slight uptick in asset turnover. In such cases, one would also look at financial leverage, but assets over owner's equity actually improved in the most recent quarter. The company explained the drop by saying that the inventory channel needs working down and that prices are very competitive. The latter is nothing new in this business. Investors who can stomach the operational leverage (the degree to which earnings fluctuate with revenues) are looking at a much cheaper business with no change in the business model today.

EASTMAN KODAK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %> wasn't the only company pre-announcing earnings disappointments today (see below), as companies are getting a pretty good handle on how the third quarter is shaping up. CARRIAGE SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CRSV)") else Response.Write("(Nasdaq: CRSV)") end if %> fell $4 5/8 to $17 after the deathcare services company said it expects third quarter earnings to fall substantially below analysts' estimates. A seasonal lull in business dropped revenues and margins more than expected and could also result in weak business next quarter. Wireless local area network equipment company PROXIM INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PROX)") else Response.Write("(Nasdaq: PROX)") end if %> fell $2 5/8 to $13 on warning that it expects to report Q2 earnings around the breakeven mark, below the mean estimate of $0.18 per share. A cutback in orders from the company's two largest customers has hurt business.

QUICK CUTS: Medical services firm STERILE RECOVERIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STRC)") else Response.Write("(Nasdaq: STRC)") end if %> lost $4 7/8 to $13 7/8 after warning that it expects to miss Q2 and fiscal 1997 earnings estimates because of a lower-than-expected level of revenues from customers starting new businesses... Data storage device manufacturer PROCOM TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRCM)") else Response.Write("(Nasdaq: PRCM)") end if %> lost $1 1/8 to $12 3/4 before reporting earnings after the market close this afternoon. EPS of $0.20 was on target with earnings estimates... NEWFIELD EXPLORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NFX)") else Response.Write("(NYSE: NFX)") end if %> fell $1 7/8 to $25 5/16 after reporting a 17% increase since the beginning of the year in its proved natural gas reserves... Film and camera maker POLAROID CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PRD)") else Response.Write("(NYSE: PRD)") end if %> fell $3 5/16 to $52 for some of the same reasons that Kodak slipped today... Commercial aerospace cabin interiors manufacturer BE AEROSPACE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BEAV)") else Response.Write("(Nasdaq: BEAV)") end if %> fell $6 1/2 to $34 1/4 after reporting estimate-beating Q2 EPS of $0.35, but said that backlog has been reduced by a change in in-flight entertainment system orders from British Airways.

BELL & HOWELL CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BHW)") else Response.Write("(NYSE: BHW)") end if %> lost $2 1/2 to $28 7/8 after the company said growth in its high-volume mail processing business will not be up to expectations and consequently expects to report 1997 EPS of $1.60 to $1.75. Analysts' estimates now stand at $1.75... Electronics contract manufacturing dreadnought SOLECTRON CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLR)") else Response.Write("(NYSE: SLR)") end if %> lost $2 5/8 to $41 1/4 after reporting Q4 EPS of $0.40, in line with estimates. Revenues were up 32.4% year over year... Aerospace components company ROHR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RHR)") else Response.Write("(NYSE: RHR)") end if %> declined $1 3/4 to $27 3/16 after saying that it has broken off talks to be acquired... DIAMOND OFFSHORE DRILLING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DO)") else Response.Write("(NYSE: DO)") end if %> lost $3 5/8 to $55 1/2 after former CBS controlling shareholder and renowned investor Larry Tish and his family sold $1 billion in debt convertible into Diamond Offshore common stock.

FOOL ON THE HILL
An Investment Opinion by Jim Surowiecki

Eastman Kodak Exposed

You might call EASTMAN KODAK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %> the boy who cried "Wolf!" -- but it would probably be more accurate to see it as the boy who cried "Lamb!" The company has made a habit of promising extravagant returns from restructuring while delivering very little. After market close yesterday, Kodak once again disappointed when it announced that it would miss third-quarter estimates by a significant margin. Sales and earnings for the quarter would actually be lower than they were a year ago. The company added that 1997 earnings could be as much as 25% below consensus earnings estimates of $4.50 a share. The surprise announcement sent investors overboard, with the stock dropping ten points from its Monday close.

Unsurprisingly, the announcement was accompanied by a statement from Kodak CEO George Fisher promising "a significant reduction in the company's cost structure." Kodak President David Carp told The New York Times that Kodak was considering divesting certain product lines and cutting jobs. Neither Fisher nor Carp provided any real specifics, which makes it difficult to avoid the conclusion that Kodak is once again committing itself to reinvention without a real sense of what it intends to do.

Some of the company's troubles in this quarter have been out of its control, most notably the impact of the strong dollar. Kodak said that sales in the first half of 1997 -- when the company reported earnings per share of $1.94 -- were cut by $200 million, and suggested that if the dollar remains strong throughout the rest of the year, it could cost the company as much as 45 cents a share in earnings. The strong dollar has had a similar impact on the earnings of other large U.S. multinationals, and has contributed to recent anxieties about the performance of consumer stalwarts like Gillette and Coca-Cola. By making American goods more expensive abroad and foreign goods cheaper at home, the strong dollar hits certain multinationals coming and going.

Kodak's real problems have more to do with a price war at home and what appears to be a profound level of institutional inertia. Kodak now controls somewhere between 65-70% of the wholesale film market in North America, down from 75% just three years ago. The company is losing 1% to 2% of its market share every year to its only real competitor, FUJI PHOTO FILM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FUJIY)") else Response.Write("(Nasdaq: FUJIY)") end if %>, and those losses may be accelerating as a result of Fuji's recent price cuts. Just last month, Fuji's Ted McGrath told analysts that the company was not embarking on a price war, insisting that the price reductions had occurred were the result of retailers getting rid of excess inventory. But in many places Fuji's prices, traditionally 10% to 15% below Kodak's, were discounted as much as 30% to Kodak, which suggests that something like a concerted scheme to garner market share was in effect. Fuji has also been assisted by the strong dollar that today buys more yen than it has, on average, in the last two years. In terms of dollar prices, the company can sell at a lower price point, convert those dollars back to yen, and not experience a falloff in revenues.

At the time, Kodak seemed more than content to accept McGrath's denials. But yesterday the company said the price cuts had put a major dent in quarterly earnings. More troubling, though, Kodak gave no hint of a real strategy to compete with Fuji. Carp said simply that he didn't believe Fuji could sustain the price cuts on a long-term basis and that Kodak could maintain market share by offering more value. Carp's comments can be seen as emblematic of Kodak's fundamental attitude toward the film market, which is one that emphasizes the authority of its brand name over more mundane matters like cost control or manufacturing efficiency. Earlier this summer, for example, Fisher dismissed the possibility that HEWLETT-PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> could command a sizable portion of the nascent digital photography market by saying, "People know what a Kodak moment is, but an HP moment? I don't think so."

Fisher's reliance on the aura of the Kodak moment, though, has undoubtedly hindered his attempts to reinvigorate the company. When Fisher first took over Kodak, he did a solid job of ridding it of the non-core businesses that had been acquired during the period of "diworsification," spinning off Eastman Chemical and selling Sterling Winthrop Drug to SmithKline Beecham. Initially, the results were impressive. Where earnings had been just 4% of sales in 1992 and 1993, they rose to 6.1% in 1994 and were above 8% in 1995. Investors responded as well, and Kodak's stock enjoyed solid returns in both 1995 and 1996. Nonetheless, the paring away of the non-photography businesses did not translate into a clear focus for the company as a whole, nor did it provide a simple recipe for tapping what may very well be a mature market. Like most consumer multinationals, Kodak has looked abroad for future earnings growth, but it's not clear that the "one extra Coke for every person in China" strategy has a clear equivalent in the photography market.

The company has invested heavily in digital photography, but so far the results have not been overly impressive. More importantly, the Kodak name does not -- Fisher's comments notwithstanding -- have the same power in the digital market as in the traditional film market. And all indications are that Hewlett-Packard and CANON <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CANNY)") else Response.Write("(Nasdaq: CANNY)") end if %> will be fierce competitors. Although having an established brand certainly makes it easier to enter into new, related markets, assuming that the clout of that brand will completely unseat any rival is irrational.

Kodak's balance sheet does remain strong, with a low debt-to-equity ratio and $1.8 billion in cash on hand. However, this is the third straight quarter that Kodak has announced disappointing earnings, and if the projections of $3.38 EPS in 1997 are accurate, the second half of the year will see Kodak's income decline by 18%. The company has been promising $4.00 in EPS for years now, and investors are beginning to wonder if it can be done with this management team. Ironically, Goldman Sachs raised its recommendation on the company to a "buy" just two weeks ago and projected 1998 earnings at $4.90 per share. But unless Fisher is able to pull a rabbit out of his hat, Kodak will be lucky to turn in earnings of $4.00 a share next year. Given the fact that the company trades at a multiple of 17 times trailing earnings and that it has proven more adept at promising change than making it happen, this is one Dog of the Dow that should be allowed to keep barking.

CONFERENCE CALLS

EASTMAN KODAK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %>
Earnings shortfall pre-announcement
(402) 398-4725 -- replay through 9/22

MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %>
Regarding Pre-earnings announcements (402) 220-4826 -- replay

AMERICAN GENERAL CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AGC)") else Response.Write("(NYSE: AGC)") end if %>
Regarding acquisition of Western National Corporation
(800) 642-1687 (code: 615008) -- replay

WASHINGTON HOMES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WHI)") else Response.Write("(NYSE: WHI)") end if %>
(800) 696-1588 (code: 228931) -- replay through 9/16

THIS WEEK'S CONFERENCE CALL SYNOPSES

MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> Call

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