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Communications Central <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CCIX)") else Response.Write("(Nasdaq: CCIX)") end if %> dialed up a $1 1/2 gain to $10 after the pay phone operator agreed to be acquired by Davel Communications Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DAVL)") else Response.Write("(Nasdaq: DAVL)") end if %> for $10.50 per share in cash. Communications Central owns over 20,000 pay telephones located in 31 states and the District of Columbia, which will more than double the size of Davel's pay telephone network and make it the number two independent pay phone provider in the U.S. The deal values Communications Central at roughly 0.65 times trailing sales (with debt, the value is even with sales). Davel claims that the transaction will be earnings neutral through the balance of 1998 but will boost earnings by 15% in 1999 and 30% in the year 2000. Back in early October, federal rules deregulating the pay telephone industry went into effect, with some states already ahead of the game. This move may further increase the gross margins at Davel, which have been on an upward march over the last two quarters.
Recreational vehicle and manufactured housing maker Fleetwood Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLE)") else Response.Write("(NYSE: FLE)") end if %> gained $3 3/4 to $34 3/4 after reporting Q2 EPS of $0.77, running over estimates of $0.61 a share. The company leads the manufactured housing industry with roughly a 20% market share and has labored hard to add capacity in 1997 in order to take advantage of some of the demand that it missed out on in 1996. The company's recreational vehicle revenues reached $366.6 million, 5% ahead of the prior year's $348.8 million. Shares of the company were raised from "neutral" to "buy" at Arnold and S. Bleichroeder Inc.
QUICK TAKES: Community bank operator Synovus Financial Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SNV)") else Response.Write("(NYSE: SNV)") end if %> gained $4 3/4 to $31 1/2 after it was announced that the company will be added to the S&P 500 index, replacing Salomon Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SB)") else Response.Write("(NYSE: SB)") end if %>... Telecom equipment company ECI Telecom <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ECILF)") else Response.Write("(Nasdaq: ECILF)") end if %> rose $1 15/16 to $26 7/8 after ING Barings reiterated its "buy" rating and raised its 1997 and 1998 EPS estimates... Canadian trucking and logistics firm Vitran Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VTNAF)") else Response.Write("(Nasdaq: VTNAF)") end if %> gained $15/32 to $6 3/32 after announcing yesterday morning a multi-year logistics contract worth $5.6 million... Horizon Pharmacies <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: HZP)") else Response.Write("(AMEX: HZP)") end if %> shot $7/8 higher to $13 1/4 after announcing that it had acquired Greenberg Drug, a 6,500 square foot retail pharmacy that had $3.1 million in annual sales in 1996... First Chicago NBD Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FCN)") else Response.Write("(NYSE: FCN)") end if %> rose $5 1/8 to $79 1/16 on rumors that the bank is being eyed by Banc One Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ONE)") else Response.Write("(NYSE: ONE)") end if %> as a possible acquisition.
Bear Stearns started coverage on The Learning Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TLC)") else Response.Write("(NYSE: TLC)") end if %> with an "attractive" rating, which boosted shares of the software company $7/8 to $17 1/4... Telephone accessory products company Dynatec International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DYNX)") else Response.Write("(Nasdaq: DYNX)") end if %> rose $1 to $8 3/4 after posting Q3 EPS of $0.26 versus earnings of $0.01 a share in the prior year period... Imperial Credit Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ICII)") else Response.Write("(Nasdaq: ICII)") end if %> gained $2 9/16 to $23 5/8 after the financial services company authorized the repurchase of 5% of its stock... J.P. Morgan raised fiscal 1998 third and fourth quarter earnings estimates for Arterial Vascular Engineering <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVEI)") else Response.Write("(Nasdaq: AVEI)") end if %>, boosting shares of the coronary stent maker $5 5/16 to $55 5/16... Applied Micro Circuits Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMCC)") else Response.Write("(Nasdaq: AMCC)") end if %> gained $3 3/4 to $11 3/4 after selling 5.553 million shares at $8, which was at the low end of the integrated circuit maker's IPO price range... Trammell Crow Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TCW)") else Response.Write("(NYSE: TCW)") end if %> rose $4 1/4 to $21 3/4 as the commercial real estate services company had its IPO today, selling 5 million shares at $17.50.
PacifiCare Health Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PHSYA)") else Response.Write("(Nasdaq: PHSYA)") end if %> was smashed for a $13 7/8 loss to $51 1/8 after the managed care provider said higher than forecast losses at its Utah unit will take a $0.20 to $0.25 per share chunk of out earnings for the quarter. The Utah unit came as part of the company's acquisition of FHP International and has problems with its computer systems that are similar to the problems experienced by Oxford Health Plans <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OXHP)") else Response.Write("(Nasdaq: OXHP)") end if %>, according to an analyst interviewed today by Bloomberg. In a data-intensive business, if you lose track of the data, things can go awry, especially if the problem is allowed to fester. In this case, PacifiCare is taking more decisive action than Oxford did, and will discard its Utah operations. The company expects earnings to miss by a significant amount the current EPS estimate of $0.69 for the December quarter.
Electronics contract manufacturer Methode Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: METHA)") else Response.Write("(Nasdaq: METHA)") end if %> slid $3 5/8 to $16 3/8 after reporting Q2 EPS of $0.27, missing estimates of $0.30. EPS grew just under 4% on a 17% rise in revenues. The company said cost savings were not realized at its two connector divisions in Chicago and that those economies will now have to wait until the third and fourth quarters to be reflected on the income statement. The quarter was also hurt by softness in the disk drive industry, to which the company supplies components. Adding to problems, sales to the automotive industry were soft, causing a 2% year-to-date decline in auto-related revenues to be translated into a 20% decline in operating profits for that line of business. The company foresees a rebound in its auto-related businesses and expects that its investments in developing opto-electric converters for gigabit ethernet will bear fruit next year.
Medical device maker Boston Scientific <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BSX)") else Response.Write("(NYSE: BSX)") end if %> was cut down for a $5 1/2 loss to $44 1/2 after J.P. Morgan lowered its 1998 EPS estimate to $2.10 from $2.20 on worries that the company is not progressing as well as it hoped with its coronary stent device. Johnson & Johnson <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JNJ)") else Response.Write("(NYSE: JNJ)") end if %> currently rules that market, though Guidant <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GDT)") else Response.Write("(NYSE: GDT)") end if %> is also a large competitor while Medtronic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDT)") else Response.Write("(NYSE: MDT)") end if %> has been picking up speed. Morgan Stanley started coverage of Boston Scientific today with a "neutral" rating, estimating 1998 EPS of $2.20. Like J.P. Morgan's analyst, Morgan Stanley's Glenn Reicin mentioned near-term uncertainty about product issues.
QUICK CUTS: Offshore driller Atwood Oceanics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ATW)") else Response.Write("(NYSE: ATW)") end if %> lost another $3 to $48 1/2 after yesterday reporting Q4 EPS of $0.37, which beat the mean estimate of $0.36 but may have fallen short of some investor's expectations given Atwood's valuation relative to its peer group... Procom Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRCM)") else Response.Write("(Nasdaq: PRCM)") end if %> slipped $2 1/2 to $15 1/4 after the storage systems and software company reported flat Q1 EPS of $0.22 on a 26% increase in revenues, which beat the mean First Call estimate of $0.21... Commercial printer Merrill Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MRLL)") else Response.Write("(Nasdaq: MRLL)") end if %> lost $2 9/16 to $20 1/4 on reporting Q3 EPS of $0.32, which beat estimates of $0.29... FIRSTPLUS Financial Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FPFG)") else Response.Write("(Nasdaq: FPFG)") end if %> declined $3 7/8 to $37 5/8 a day after the company filed a shelf registration for securities worth $400 million despite completing an $843 million securitization of asset-backed securities last night.
CarpetMax floorcovering franchisor The Maxim Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MXG)") else Response.Write("(NYSE: MXG)") end if %> slipped $1 1/8 to $15 1/16 on reporting Q3 EPS of $0.31, up 48% over last year on a 20.3% increase in revenues. Analysts had expected EPS of $0.28, with a high estimate of $0.30... Semiconductor maker VLSI Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VLSI)") else Response.Write("(Nasdaq: VLSI)") end if %> lost another $1 7/8 to $21 1/4 following yesterday's Hambrecht & Quist 1998 EPS estimate adjustment to $1.90 from $1.97. Gruntal & Co. strongly disagreed, reiterating its "strong buy" rating on the company, while SoundView says "short-term buy" and "long-term hold"... Citicorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCI)") else Response.Write("(NYSE: CCI)") end if %> lost $2 13/16 to $119 1/4 after Sanford Bernstein cut its rating on the company from "outperform" to "underperform" based on analyst Ronald Mandle's outlook for the company's businesses in Latin America and Asia.
FOOL ON THE HILL
An Investment Opinion by Jim Surowiecki
Softness in Tissue-paper
Profit growth in a commodity business is never easy, and few consumer products are more of a commodity than tissue paper, which helps explain why Kimberly-Clark <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KMB)") else Response.Write("(NYSE: KMB)") end if %> announced a major restructuring plan on Friday. The company said it will close 18 plants at home and abroad and eliminate 5,000 jobs, which is about 7% of its workforce. In February, the company set the ambitious goal of doubling annual earnings from 1995's $3.86 a share to $7.72 a share by the year 2000, and the pressure from that profit target played an important role in the retrenchment, which company execs hope will cut $200 million in costs by the end of the century.
In a more direct fashion, though, the plant closings are the result of global overcapacity in the tissue-products industry, which is exerting downward pressure on tissue-paper prices. This year tissue prices in the U.S. and Europe have dropped, and although Kimberly-Clark plans to raise prices by 3-4% on its industrial and business products (for airports, hotels, etc.) in the U.S., there's no indication that a rebound in consumer prices will come any time soon. Fifty-five percent of Kimberly-Clark's overall revenues come from tissue-product sales, which means that pricing pressures will end up cutting profits by as much as $250 million, or nearly a fourth of the company's annual earnings. The 18 plant closings will take offline two percent of the world's tissue-paper manufacturing capacity as a whole, assuming those plants are not sold to Kimberly-Clark competitors, and the savings should have a long-term beneficial impact on the bottom line, although the closings will obviously make it difficult for the company to respond to any upswing in demand. The company will take a $590 million charge in this fourth quarter to pay for the restructuring.
The softness in tissue-paper prices came at a particularly bad time for Kimberly-Clark, which this year announced that it would be exiting the pulp and paper business in order to concentrate exclusively on consumer products. While the paper business made up just 10% of the company's revenues in recent years and the cyclical nature of paper prices made it difficult for Kimberly-Clark to sustain quarter-over-quarter profit growth, the decision also made the company more vulnerable to the stable or even dropping prices that are now characteristic of so many consumer goods. Just before announcing the restructuring, in fact, Kimberly-Clark closed the door on its paper-and-pulp business, selling two Canadian mills to Harmac Pacific for $540 million in cash, cash that the company will likely use for new consumer products acquisitions or its ongoing share buyback program. While the company carries $1.7 billion in long-term debt and has just $90 million in the bank, it has operated with that exact ratio for two years now, and seems comfortable not paying down its debt.
Critics of "Chainsaw" Al Dunlap, the former CEO of Scott Paper and an executive renowned for the vigor with which he goes about slashing payrolls, seized on Kimberly-Clark's announcement as evidence that it had seriously overpaid when it acquired Scott two years ago for $9.4 billion. But while the merger with Scott has been difficult, particularly in terms of harmonizing pricing structures and in terms of what's called the "away-from-home" market, there's no real evidence that those problems are different from the ones caused by any merger. Indeed, it was that acquisition -- which boosted Kimberly-Clark's share of the bathroom tissue market to 31% and tripled its market share in paper towels -- that lay the groundwork for the company's transition out of the pulp business. More than that, Kimberly-Clark's gross margins and operating margins are noticeably higher since 1995. In this case, at least, pinning the company's problems on Dunlap is a dog that just won't hunt.
The most striking evidence of the merger's success is the fact that Kimberly-Clark's stock price has doubled to $52 in the last two years. The question for investors, though, is whether the company will be able to continue to improve earnings in the next two years. While the restructuring will hurt the numbers in the short term, in the long run the plant closings will allow Kimberly-Clark to do a better job of matching supply and demand. And if the industry as a whole moves to reduce overcapacity, that will help pricing in general. Still, in any commodity business profit margins are perennially under pressure. Over the last five quarters Kimberly-Clark has been remarkably consistent, with operating margins ranging between 15.8% and 16.8%, while its net profit margins have oscillated in a similarly narrow range. But while there's something to be said for consistency, in an age of slow revenue growth there is no recipe here for a dramatic increase in shareholder value, especially with a stock whose price has already doubled since 1995.
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Randy Befumo (TMF Templr), a Fool One
Dale Wettlaufer (TMF Ralegh), Fool Two
Alex Schay (TMF Nexus6), Fool Three
Jim Surowiecki (TMF Cinder), Fool Four
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