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American Skiing Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SKI)") else Response.Write("(NYSE: SKI)") end if %> was lifted $1 1/8 to $14 9/16 after reporting fiscal Q2 earnings of $0.08 per share (including a $5.1 million charge to retire long-term debt) versus $0.39 per share a year ago. The results beat the First Call mean estimate of $0.06 per share. Last November, the company added two resorts in the western U.S. (Steamboat in Colorado and Heavenly near Lake Tahoe) to its East Coast slopes at Killington in Vermont, Attitash Bear Peak in New Hampshire, and Sunday River in Maine. The move, as it turned out, was a stroke of genius as crazy weather in the West offset even crazier weather in the East, and weak results in Maine were tempered by record snowfall at Heavenly. In addition, everyone's favorite amigo, El Nino, is continuing to dump a lot of snow on the West Coast resorts. American Skiing has also attempted to smooth over the earnings moguls created by weather and business seasonality by operating an enormous collection of golf school locations, a convention business, and real estate operations that focus on off-season packages.
Micron Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> gained $2 3/8 to $34 3/4 after its direct PC marketing subsidiary Micron Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MUEI)") else Response.Write("(Nasdaq: MUEI)") end if %> announced it will restructure its operations. The subsidiary rose $3/4 to $13 1/2 on the day. Under the reorganization, about 10% of Micron Electronics' workforce will be reassigned to Micron Technology, while its NetFRAME enterprise server operation will be moved from California to the firm's homebase of Nampa, Idaho. The restructuring will result in an unestimated one-time charge to Micron Electronics' fiscal Q2 earnings. Moreover, Micron Electronics said strong competition and "inventory issues" in the notebook computer market would result in a "significant" operating loss for that segment of the business in Q2. However, it expects the loss will be more than offset by a pretax gain of $150 million related to the sale of its custom manufacturing subsidiary. The company's president and COO, Joel Kocher, said the moves will result in a "leaner, more efficient" Micron Electronics.
Waste management firm Waste Management <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMX)") else Response.Write("(NYSE: WMX)") end if %> rose $1 1/4 to $24 3/4 despite reporting a Q4 net loss of $1.5 billion, or $3.30 per share, compared to a $179 million loss ($0.37 per share) a year ago. The company claims it can now move ahead with a clean slate after restating earnings back to 1992, reducing them by $2.9 billion. The restatement included a $1.5 billion charge against fourth quarter earnings. "There will be no more shoes to drop, no more uncertainty," acting chairman and CEO Steve Miller said. Now that the company has plowed through all the ledgers and made the necessary corrections, the SEC may take a more active role in determining how the "less than conservative" accounting prevailed. Investors intrigued by the fact that the company's assets are solid, that it trades at 6 times cash flow, and that it offers a 2.75% dividend may want to take a closer look.
QUICK TAKES: Semiconductor equipment stocks got a shot in the arm
today after analysts made optimistic comments about the sector in a Wall
Street Journal article. KLA-Tencor Corp. (Nasdq: KLAC) was up
$3 3/8 to $45 15/16, Lam Research Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LRCX)") else Response.Write("(Nasdaq: LRCX)") end if %> increased $1
13/16 to $29 11/16, Novellus Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NVLS)") else Response.Write("(Nasdaq: NVLS)") end if %> advanced $3 3/4
to $49, ETEC Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ETEC)") else Response.Write("(Nasdaq: ETEC)") end if %> tacked on $4 3/4 to $53 3/8, and
Teradyne Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TER)") else Response.Write("(NYSE: TER)") end if %> added $2 9/16 to $46 7/16... Some of the
large chipmakers were up as well, presumably on the same comments. Texas
Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %> finished $3 7/8 higher at $61 1/4,
National Semiconductor <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NSM)") else Response.Write("(NYSE: NSM)") end if %> gained $1 1/16 to $23 13/16,
and Advanced Micro Devices <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMD)") else Response.Write("(NYSE: AMD)") end if %> tacked on $1 1/16 to
$21 3/4.
Philadelphia-based insurance giant CIGNA Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CI)") else Response.Write("(NYSE: CI)") end if %> climbed
$8 15/16 to $186 1/2 after the company's board announced a three-for-one
stock split and an increase in the stock's quarterly dividend to $0.86 per
share from the current $0.83 per share... Thrift holding company Long
Island Bancorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LISB)") else Response.Write("(Nasdaq: LISB)") end if %> gained $6 11/16 to $60 9/16 on rumors it
has the urge to merge with Astoria Financial Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASFC)") else Response.Write("(Nasdaq: ASFC)") end if %>... Maryland Federal Bancorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MFSL)") else Response.Write("(Nasdaq: MFSL)") end if %> jumped $4 to $35
3/4 after agreeing to be acquired by N.C.-based bank holding company
BB&T Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBK)") else Response.Write("(NYSE: BBK)") end if %> in a stock swap valued at $265.3 million,
or $37.05 per share of Maryland Federal stock... Television station owner
Sinclair Broadcast Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SBGI)") else Response.Write("(Nasdaq: SBGI)") end if %> picked up $2 1/4 to $57 1/2
after agreeing to buy Sullivan Broadcast Holdings, which operates 13 TV stations
nationwide, in a deal valued between $950 million and $1 billion.
SGS Thomson Microelectronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STM)") else Response.Write("(NYSE: STM)") end if %> tacked on $6 3/8 to $76 1/2
after the semiconductor company agreed to expand its cooperation with Mitsubishi
Electric Corp. to develop a new generation of 64 Mbit flash memory products...
Urological disorder testing equipment maker UroCor Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UCOR)") else Response.Write("(Nasdaq: UCOR)") end if %>
rose $1 7/16 to $7 3/16 after reporting Q4 EPS of $0.17, crushing the First
Call mean estimate of $0.09... Circus Circus Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CIR)") else Response.Write("(NYSE: CIR)") end if %>
added $1 3/16 to $22 3/8 after Bloomberg News reported that the casino operator
has cancelled several meetings with investors, fueling speculation that the
firm may be an acquisition target... Video game software developer THQ
Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: THQI)") else Response.Write("(Nasdaq: THQI)") end if %> jumped $5 1/2 to $29 1/2 after reporting Q4 EPS of
$0.84, which was far ahead of the street estimate of $0.48.
Shopping center real estate investment trust (REIT) FAC Realty Trust
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FAC)") else Response.Write("(NYSE: FAC)") end if %> rose $9/16 to $9 7/16 after an affiliate of Lazard Freres
agreed to acquire a 59% stake in the trust. The affiliate will buy newly
issued shares in the trust in stages through the end of 1999 for a total
price of $200 million, or $9.50 per share... Custom business printer
American Business Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABP)") else Response.Write("(NYSE: ABP)") end if %> gained $1 5/8 to $23 7/16 after
the company named former Beers Construction Co. chairman Larry Gellerstedt
as its new president and CEO... Saks Holding <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SKS)") else Response.Write("(NYSE: SKS)") end if %> advanced
$1 7/16 to $26 3/8 after the high-end retailer was added to the S&P MidCap
400 stock index... Shares of drug maker SmithKline Beecham <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBH)") else Response.Write("(NYSE: SBH)") end if %> bounced back $3 7/8 to $63 9/16 today on continued speculation that
the company will merge with another pharmaceutical firm. Yesterday, SmithKline
announced it had terminating its proposed merger with Glaxo Wellcome
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLX)") else Response.Write("(NYSE: GLX)") end if %>. Glaxo was also up, rising $1 3/4 to $57 1/4.
Another former prospective SmithKline merger partner, American Home Products
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHP)") else Response.Write("(NYSE: AHP)") end if %>, rose $4 1/8 to $93 13/16 after Goldman Sachs added the drug
company to its priority list... Rockwell International Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ROK)") else Response.Write("(NYSE: ROK)") end if %> soared $2 7/16 to $59 7/8 after Boeing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BA)") else Response.Write("(NYSE: BA)") end if %> selected the
electronic controls and communications company's Rockwell Collins unit to
provide the navigation, communication, collision avoidance, and weather radar
equipment for Boeing's
new business
jet... Low-pressure sewer system equipment provider Environment/One
Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EONE)") else Response.Write("(Nasdaq: EONE)") end if %> increased $2 1/8 to $15 1/8 after industrial metal
component manufacturer Precision Castparts Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PCP)") else Response.Write("(NYSE: PCP)") end if %>
agreed to buy all of the outstanding shares of the company at $15.25 per
share.
Wrought iron furniture maker Meadowcraft Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MWI)") else Response.Write("(NYSE: MWI)") end if %> gained $1
11/16 to $12 after reporting fiscal Q2 earnings of $0.31 per share, 35% higher
than the $0.23 per share earned a year ago... Scientific and technical book
publisher Plenum Publishing Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PLEN)") else Response.Write("(Nasdaq: PLEN)") end if %> tacked on $11 3/8
to $57 7/8 after the firm said it has hired Salomon Smith Barney to explore
a possible sale of the company... Videotape rental company Hollywood
Entertainment Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HLYW)") else Response.Write("(Nasdaq: HLYW)") end if %> jumped $1 5/8 to $10 3/4 after Goldman
Sachs started coverage of the stock with a "trading buy" rating... Medical
devices maker Boston Scientific Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BSX)") else Response.Write("(NYSE: BSX)") end if %> rose $3 to $58 13/16
after the stock was upgraded to "outperform" from "neutral" by Morgan Stanley...
Altera Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALTR)") else Response.Write("(Nasdaq: ALTR)") end if %> picked up $5 3/16 to $42 7/8 after Salomon
Smith Barney raised its rating on the integrated circuit and development
software company to "buy" from "neutral."
Shares of management consultant firm Steven Myers & Associates
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WINS)") else Response.Write("(Nasdaq: WINS)") end if %> steamed ahead $1 13/16 to $13 13/16 after Lehman Brothers
started coverage with a "buy" rating... Yee ha! Barbeques Galore <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BBQZY)") else Response.Write("(Nasdaq: BBQZY)") end if %> sizzled $15/16 to $8 1/16 after SBC Warburg Dillon Read started coverage
of the retailer of barbeques and barbeque accessories with a "buy" rating...
STARTEC Global Communications Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STGC)") else Response.Write("(Nasdaq: STGC)") end if %> advanced $2 1/8
to $25 after Lehman Brothers started coverage of the international long-distance
telephone carrier with a "buy" rating... Outpatient surgery and rehabilitative
healthcare services provider HEALTHSOUTH Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HRC)") else Response.Write("(NYSE: HRC)") end if %> rose $1
1/16 to $25 3/4 after reporting Q4 EPS of $0.25, which was in line with the
First Call consensus estimate.
Allergy and asthma drug company Dura Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DURA)") else Response.Write("(Nasdaq: DURA)") end if %> lost $14 3/16 to $23 15/16 after announcing late yesterday that it anticipates lower-than-expected revenues and earnings for 1998. Dura estimates that 1998 earnings will drop by about $0.50 per share as a result of a revenue shortfall combined with the company's plans to accelerate its sales force expansion. Dura plans to boost its sales staff to increase the market penetration of Ceclor CD, a cefaclor-type antibiotic used to treat respiratory infections, and to prepare for the launch of Albuterol Spiros, a pulmonary drug delivery system still awaiting FDA approval. On news of lower earnings, several brokerages downgraded their ratings on Dura. Merrill Lynch lowered its near-term rating to "neutral" from "buy" while keeping it as a "long-term buy." UBS Securities cut its rating to "hold" from "buy," and Bankers Trust Alex. Brown downgraded the company to "buy" from "strong buy."
Computer Associates <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %> slipped $7/8 to $45 7/16 as the enterprise
software company turns up the heat in its hostile bid to acquire Computer
Sciences Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CSC)") else Response.Write("(NYSE: CSC)") end if %>. In a
letter to CSC
shareholders, CA Chairman and CEO Charles Wang said CSC management and directors
are interfering with the shareholders' rights to accept CA's $108 per share
cash offer. CA promised CSC shareholders the opportunity to decide whether
to accept the offer in a "fair" referendum. Not all CA shareholders are sure
that the acquisition would be a good combination for the company, though.
They feel that a contentious combination that chases away CSC talent and
jeopardizes CSC's ability to choose software packages that are right for
customers would diminish the value of CSC. Even without any of those problems,
a merger of such proportions is hardly ever a seamless fit. A friendly deal
always diverts management resources from business operations. A rancorous
merger just heightens that possibility.
Abitibi-Consolidated Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABY)") else Response.Write("(NYSE: ABY)") end if %> lost $3/8 to $13 1/2 after the
Canadian newsprint manufacturer announced that it intends to make an unsolicited
takeover bid to acquire Montreal-based rival Avenor Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ANR)") else Response.Write("(NYSE: ANR)") end if %>.
In the C$3 billion (U.S. $2.1 billion) transaction, Abitibi-Consolidated
is offering to pay Avenor shareholders either C$28 (about $19.67) in cash
or 1.425 Abitibi-Consolidated shares for each Avenor share, provided that
Abitibi will not have to pay more than 2/3 of the total purchase price (roughly
C$1.335 billion, or $938 million) in cash nor more than 1/3 of it in
Abitibi-Consolidated shares. Avenor rejected the offer, calling it
"opportunistic, underwhelming, and grossly inadequate." Abitibi-Consolidated
argues that a merger between the two companies would yield annual total cost
savings of about C$430 million ($302 million). It has only been about nine
months since Abitibi-Price joined with Stone-Consolidated Inc. to become
the world's largest newsprint maker. Avenor jumped $4 31/32 to $21 11/32
as market participants expect a sweeter offer or a white knight to enter
the fray.
Student loan services company SLM Holding Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLM)") else Response.Write("(NYSE: SLM)") end if %> was pounded for a $3 13/16 loss to $41 3/4 after the market reacted negatively to a White House proposal for a change in the formula that determines interest rates charged on student loans. A change was already set to go into effect in July, but lenders expected that change would be altered to maintain something closer to the status quo. To avoid a situation in which lenders would receive an uneconomic return under the new rules (according to a Department of Treasury report), Vice-President Al Gore today proposed a continuation of linking student loans rates to 91-day Treasury bills. The spread on student loans would fall to the t-bill rate +1.7% for students in school and t-bill +2.3% for out-of-school students from the current mandated t-bill +2.5% and t-bill +3.1%. SLM shareholders will do much better under this proposal than under the damaging formula that was awaiting them, but as the market indicated today, they weren't expecting the White House to propose such a large reduction in the interest rates student lenders can charge to students.
QUICK CUTS: Fila Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLH)") else Response.Write("(NYSE: FLH)") end if %> also lost $1 11/16 to
$21 on the Nike news... Towing equipment and services provider Miller
Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MLR)") else Response.Write("(NYSE: MLR)") end if %> crashed $3 to $6 15/16 after announcing that its
third quarter earnings will fall between $0.04 to $0.06 per share, below
analysts' expectations of $0.13 per share, due to lower-than-expected demand
and increased costs and price competition.
Transportation company Yellow Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YELL)") else Response.Write("(Nasdaq: YELL)") end if %> skidded $5 5/8
to $20 1/2 after announcing that it expects to report operating results below
expectations for the quarter ending March 31. Shippers' concerns about the
possibility of a strike (prior to the recent tentative labor settlement)
have adversely affected January and February business levels... Healthcare
management company Oxford Health Plans <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OXHP)") else Response.Write("(Nasdaq: OXHP)") end if %> continued its
downward spiral, falling $1 1/8 to $17 5/16 after yesterday reporting a fourth
quarter loss of $3.58 per share. The company said the loss resulted primarily
from approximately $239 million added to reserves for payment of medical
costs and about $75 million in write-offs of accounts receivable and additions
to valuation reserves... Ansoft Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ANST)") else Response.Write("(Nasdaq: ANST)") end if %>, which develops
electronic design automation software used by design engineers, fell $1 1/4
to $11 3/4 after announcing the public offering of 2 million shares of its
common stock at $12 a share.
Avis Rent A Car <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AVI)") else Response.Write("(NYSE: AVI)") end if %> slid $1 1/2 to $28 1/2 after Hertz
Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HRZ)") else Response.Write("(NYSE: HRZ)") end if %> yesterday announced a new promotion with sharp price
breaks yesterday... BG PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BRG)") else Response.Write("(NYSE: BRG)") end if %> was hosed for $1 1/18 to $25
3/4 after the British gas supply and exploration company reported a sharp
downturn in its fourth quarter results. The company said unseasonably mild
weather cut 244 million pounds sterling ($401 million) from its operating
profits... Cotelligent Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CGZ)") else Response.Write("(NYSE: CGZ)") end if %> tumbled $1 1/4 to $22 7/16
after announcing late yesterday that it will offer for sale 3 million shares
of its common stock... Toy maker Equity Marketing <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EMAK)") else Response.Write("(Nasdaq: EMAK)") end if %> slumped
$4 9/16 to $20 11/16 after announcing that it expects revenue in the first
half of 1998 to be about the same as 1997, while earnings per share will
be down significantly, primarily due to the planned build-up in staff. The
company estimates first quarter EPS will be between $0.08 and $0.10 compared
with the First Call mean estimate of $0.19.
SpecTran Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPTR)") else Response.Write("(Nasdaq: SPTR)") end if %>, which makes glass optical fibers and
value-added fiber optic products, was shattered for $1 7/8 to $8 3/4 after
announcing that the combination of significantly increased development costs
and lower selling prices could result in an 1998 earnings decline of as much
as 30% compared with 1997... DepoMed Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DPMD)") else Response.Write("(Nasdaq: DPMD)") end if %> fell $1 1/2
to $12 1/4 after the drug developer announced late yesterday that it has
completed an $8 million private placement of common stock with net proceeds
of approximately $7.5 million... TransAct Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TACT)") else Response.Write("(Nasdaq: TACT)") end if %>
dipped $7/8 to $10 after announcing that the company may lose $5 million
in revenues this year if South Carolina enacts a proposal to ban video poker
in the state. The company, which manufactures transaction-based printers,
was hired to upgrade the state's video poker terminals.
Toys R Us <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TOY)") else Response.Write("(NYSE: TOY)") end if %> dropped $1 15/16 to $27 in after-hours trading
after the toy retailer announced lower-than-expected preliminary earnings
for 1997. The company said the shortfall resulted from higher costs related
to its holiday promotional selling program, additional distribution and handling
costs, and higher than historical inventory shortages... Pet supply superstore
operator PETsMART Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PETM)") else Response.Write("(Nasdaq: PETM)") end if %> slipped $5/16 to $6 7/8 after
yesterday posting fourth quarter earnings of $0.02 per share, below the First
Call estimate of $0.08.
FOOL
ON THE HILL
An Investment Opinion
by Louis Corrigan
Intuit-ing the Internet
Shares of Intuit <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTU)") else Response.Write("(Nasdaq: INTU)") end if %>, the maker of Quicken personal finance
software and TurboTax tax software, sank $3 1/8 to $46 3/4 today, continuing
a sell-off that began yesterday in anticipation of the company's second quarter
results. The earnings themselves were not bad. On a pro forma basis that
excludes a number of one-time gains and charges, the company said revenues
sank 3% from last year's Q2 to $237.5 million. That pushed pro forma EPS
to $0.95, down 11% from last year but a penny ahead of estimates. The firm
reported GAAP results of $0.85 per share, and the discrepancy between the
EPS figures was due primarily to the fact that there were no "one-time gains"
to net-out for the quarter, just roughly $5.5 million in amortization
expenses.
On an apples-to-apples basis, the quarter was even better than it might appear.
Intuit benefited from a special $10 million royalty payment in the year-ago
period. Its small business division also launched its popular QuickBook 5.0
series last year, with the next version not due until the July quarter. Even
with these handicaps, Intuit would have beaten year-ago numbers had it not
been required to defer some revenues from sales of TurboTax because it's
now offering software customers one-time free income tax filing online.
Net margins during this seasonally strong period did fall to 19.8% from 20.9%
even though the company's gross margins improved thanks partly to strong
sales of higher-end Quicken and TurboTax CD-ROM products. The company's
profitability was weighed down by selling and marketing costs, which increased
to 19.8% of revenue from 17.8%, and hefty R&D spending, which soared
from 8.5% of revenues to 11.2%. Although falling revenues and declining
profitability aren't usually the stuff of investor fantasy, the second quarter
results confirm that the company is indeed "on track," as Chair and founder
Scott Cook said yesterday.
Intuit is a company in transit. In 1995, Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %>
made a play for the company, hoping to grab Quicken for its own software
suite. The Justice Department foiled that deal due to antitrust concerns,
but the offer spotlighted Intuit's strengths and sent the shares to an all-time
high of $89 1/4 even after Microsoft backed off. Yet over the next fifteen
months, Intuit shares were crushed, falling to a February 1997 low of $20
7/8. Quicken sales began sinking due to increased competition from Microsoft's
Money software and from H&R Block's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HRB)") else Response.Write("(NYSE: HRB)") end if %> aggressive attempts
to claim market share in the tax software area.
Intuit was also flailing about looking for an Internet strategy. In January
1997, it finally sold its online banking and bill payment processing business
to Checkfree <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CKFR)") else Response.Write("(Nasdaq: CKFR)") end if %> -- an admission that this business wasn't
working for the firm given that many banks were chilly about sending proprietary
data through Intuit's system. Instead, Intuit created OFX, middleware that
permits basic financial information, such as biller name and payment amount,
to be transmitted between consumers and banks over the Internet. OFX strengthens
Intuit's position as a consumer-focused intermediary for online banking while
allowing it to proceed even if some would-be partners are uncooperative.
Intuit is now reclaiming market share in its traditional software business
even as it is moving aggressively to become a leading online player. Quicken
98 recently accounted for 80% of retail unit sales in the personal finance
space, according to PC Data. Despite flat unit sales, Quicken revenues jumped
18% as more customers picked up pricier Quicken Deluxe products. On a dollar
basis, Quicken holds 88% of the market, making advertising claims by Microsoft
just so much noise. Meanwhile, despite a competitor's launch of a new accounting
product, Intuit's Quick Books claimed 80% of retail dollars for January,
indicating a 5% share gain in that market. Plus, an early December launch
of TurboTax has boosted Intuit's market share in this area by 3%, with its
ProTax software for professional tax advisers seeing an 8% increase.
Regaining lost ground in these traditional businesses while making them more
profitable is great. Better yet, Intuit has shown skill at positioning its
Internet business. The Quicken.com
website generated 44 million page views in January. MediaMetrix shows
that 4% of all Web users visited the site during the month, up from 3.2%
in the first quarter and 2.4% in the fourth quarter of FY97. As a result,
Internet revenues from advertising and transaction fees rose by 200% year
over year and 40% sequentially. Though the company still gets less than 5%
of annual revenues from its websites, that number will rise.
The reason is simple: Intuit is leasing prime online real estate while enhancing
its online offerings. On February 17, the company agreed to pay America
Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> $30 million, including $16 million up front, to become
the primary source of personal finance content for AOL's website. Intuit
also becomes the primary tax, insurance, and mortgage information source
for AOL subscribers. On December 2, Intuit announced a co-branded personal
finance area with CNNfn that brings together CNN's financial news content
and Quicken's personal finance tools. Intuit will split the revenues with
CNN just as it does on its joint finance site with Excite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %>. Not only has that site been a hit, but Intuit's 2.9 million share
investment in Excite has tripled in value since last summer. Intuit also
has a new deal with Yahoo <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %>.
The company is buying eyeballs for its own online offerings, including TurboTax
Online
(www.turbotax.com),
which now allows consumers to work with its top-rated tax software online
and send in their returns electronically for $9.95. More important, though,
Intuit hopes to leverage its well-known and well-trusted brand name to offer
new products, including mortgages and home, life, and auto insurance. Its
QuickenMortgage site went online in early November and has already seen a
million visitors. New software coming in April will allow Intuit not only
to prequalify consumers for mortgages, but also actually close the deal with
one of the participating lenders (the site initially included six of the
nation's top 25 lenders). With low interest rates sparking refinancings,
mortgage activity could swell from the average $500 billion per year to perhaps
$700 billion this year. Intuit is looking for part of the $1,000 or more
per mortgage that goes to pay sales commissions.
The company also aims to become a middleman in the insurance business, recently
launching a test version of Quicken InsureMarket, which offers car insurance
to Alabama residents as the first step in a national rollout.
Travelers <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRV)") else Response.Write("(NYSE: TRV)") end if %> is one early participant. Annual insurance premiums
in the U.S. run around $200 billion, with sales commissions accounting for
10% of that. Intuit thinks it can help insurers reduce customer service costs
while expanding their reach to new customers, allowing the software maker
to pick up some sweet transaction fees in the process.
Investors have not missed Intuit's promising Internet efforts. At Tuesday's
high, the stock was up 29% for the year, suggesting that this sell-off is
truly profit taking. Plus, Intuit is not an obvious bargain trading now at
39 times high-side earnings estimates for the July '99 fiscal year. Yet Intuit
has the brand recognition, the customer base, the partnerships, and the strong
balance sheet to be a major Internet contender. It's worth watching.
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
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