DJIA 8154.41 +257.21 (+3.26%) S&P 500 1066.09 +36.46 (+3.54%) Nasdaq 1760.27 +62.47 (+3.68%) Value Line ndx 816.3 +19.17 (+2.40%) 30-Year Bond 105 -8/32 5.17% Yield
Bank stocks were boosted today by Federal Reserve Chairman Alan Greenspan's comments before Congress and the Fed's conditional approval of the mega-merger between Citicorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCI)") else Response.Write("(NYSE: CCI)") end if %> and insurance powerhouse and Salomon Smith Barney parent Travelers Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRV)") else Response.Write("(NYSE: TRV)") end if %>. Wall Street deciphered Greenspan's comment that economic slowdown will keep inflation at bay as a sign that the Fed likely will cut interest rates as early as Tuesday, when the Federal Open Market Committee (FOMC) next meets. Meanwhile, the Fed approved the Citicorp-Travelers merger on condition that the two sell or divest certain subsidiaries, representing less than 15% of the companies' combined assets, within two years after their merger. Citicorp jumped $10 3/8 to $105 1/2 and Travelers picked up $3 5/8 to $43. Merrill Lynch <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MER)") else Response.Write("(NYSE: MER)") end if %> added $4 5/16 to $58, Chase Manhattan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMB)") else Response.Write("(NYSE: CMB)") end if %> rose $4 to $50 1/8, BankAmerica <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %> advanced $4 7/8 to $65 1/4, BankAmerica merger partner NationsBank <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NB)") else Response.Write("(NYSE: NB)") end if %> was up $4 1/4 to $58 1/4, Morgan Stanley Dean Witter <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MWD)") else Response.Write("(NYSE: MWD)") end if %> climbed $3 3/4 to $57 1/4, J.P. Morgan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JPM)") else Response.Write("(NYSE: JPM)") end if %> leapt $5 1/16 to $93 1/8, BankBoston <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKB)") else Response.Write("(NYSE: BKB)") end if %> finished up $3 5/16 to $39 3/8, First Union <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FTU)") else Response.Write("(NYSE: FTU)") end if %> gained $2 13/16 to $57 7/16, and Bankers Trust <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BT)") else Response.Write("(NYSE: BT)") end if %> picked up $6 to $68 1/16.
Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> gained $4 5/16 to $64 3/8 as the PC maker and direct seller announced a new "ConnectDirect" initiative aimed at providing customers with easy, fast, and personalized access to the Internet. Under the new program, which will be available this week on Dell Dimension desktop PCs, customers will be able to connect to the Web using AT&T's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> WorldNet Service and will then be greeted by a personalized Excite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> home page at www.dell.excite.com. Excite CEO George Bell said the alliance with Dell is a "very significant distribution deal" for the Internet portal company. Investors thought so, too, bidding Excite shares up $9 3/8 to $37 3/4 on the announcement. Dell is also teaming up with SBC Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBC)") else Response.Write("(NYSE: SBC)") end if %> to provide Dell customers with Internet access over existing phone lines at speeds up to 50 times faster than today's traditional modems. The joint project will equip Dell Dimension PCs with high-speed modems and services starting early next year. SBC picked up $1 9/16 to $42 1/2.
Investment bank Lehman Brothers Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LEH)") else Response.Write("(NYSE: LEH)") end if %> reported fiscal third quarter earnings of $1.10 per share, down 15% from $1.30 in the same year-earlier period but in line with analysts' estimates, which had already been reduced following the company's recent earnings warning. Revenue after interest expense dropped 13% to $930 million from $1.07 billion a year ago. Return on shareholders' equity came in at 13%, substantially lower than last year's 20.5%. Still, the results were better than some investors had expected, and Lehman shares climbed $1 3/4 to $37 7/8. Like other investment banks, Lehman has been hurt by trading losses in Russia and other emerging markets. But Lehman's fiscal third quarter ended last month and therefore did not include September, which is expected to be killer for banks and brokerages. To soften the blow a bit, Lehman announced plans to buy back an additional 7.5 million shares, or 6.4% of its stock.
QUICK TAKES: Internet companies can thank President Clinton, Monica Lewinsky, and Ken Starr for their resurgence today, as they shot up on optimism from record numbers of hits by users seeking the dirt on the White House scandal. Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> surged $16 15/16 to $105 1/8, Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> rocketed up $14 15/16 to $117 7/8, Broadcast.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BCST)") else Response.Write("(Nasdaq: BCST)") end if %> jumped $5 5/8 to $56 1/2, America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> gained $9 1/8 to $115 1/4, Lycos <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> added $5 3/8 to $33 1/4, Infoseek <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEK)") else Response.Write("(Nasdaq: SEEK)") end if %> moved up $1 5/8 to $24 5/16, Netscape Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> picked up $1 7/8 to $24 1/2, CMG Information Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMGI)") else Response.Write("(Nasdaq: CMGI)") end if %> shot up $12 3/8 to $58 1/2, and Inktomi Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INKT)") else Response.Write("(Nasdaq: INKT)") end if %> charged up $8 to $80.
Pharmaceutical company Schering-Plough <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGP)") else Response.Write("(NYSE: SGP)") end if %> added $3 7/16 to $105 1/16 after announcing a 2-for-1 stock split effective on Dec. 2. The company also said sales of its Intron A antiviral drug has increased significantly since the recent launch of a new combination treatment for hepatitis C that includes the drug. Also included in the treatment is a pill form of the antiviral drug Ribavirin licensed from ICN Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ICN)") else Response.Write("(NYSE: ICN)") end if %>, which was lifted $3 5/16 to $19... Drug developer Millennium Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MLNM)") else Response.Write("(Nasdaq: MLNM)") end if %> rose $1 7/16 to $18 11/16 on news that German drug maker Bayer AG <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BAYZY)") else Response.Write("(Nasdaq: BAYZY)") end if %> will pay $465 million to finance Millennium's research and in exchange for a 14% stake in the company... Myriad Genetics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MYGN)") else Response.Write("(Nasdaq: MYGN)") end if %> powered up $4 3/8 to $13 1/2 after Lehman Brothers made positive comments on the biotech company, calling it a buying opportunity.
Telecommunications equipment outfit Alcatel SA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALA)") else Response.Write("(NYSE: ALA)") end if %> American depositary receipts were lifted $2 to $20 as the company's CEO, Serge Tchuruk, plans further acquisitions in the U.S. to gain advanced technology despite last week's earnings warning... Soft drink giant Coca-Cola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> fizzed up $1 5/8 to $58 as Morgan Stanley Dean Witter reiterated its "outperform" rating on the company, citing a strong long-term outlook... Swedish wireless communications company Ericsson <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ERICY)") else Response.Write("(Nasdaq: ERICY)") end if %> American depositary receipts rang up $1 1/2 to $20 9/16 after introducing a GSM world phone that allows international travelers to use one phone wherever they travel... Internet domain name registrar Network Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSOL)") else Response.Write("(Nasdaq: NSOL)") end if %> added $4 3/16 to $41 9/16 as BancAmerica Robertson Stephens started coverage of the company with a "buy" rating, saying it believes it's "highly likely" that the company's government contract for registering domain names will be renewed.
Business software developer PeopleSoft Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSFT)") else Response.Write("(Nasdaq: PSFT)") end if %> gained $1 13/16 to $33 9/16 as CIBC Oppenheimer raised its rating on the company to "buy" from "hold"... Online lottery systems operator GTECH Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTK)") else Response.Write("(NYSE: GTK)") end if %> jumped $3 1/4 to $28 after reporting fiscal Q2 EPS of $0.53, up from $0.48 a year ago and higher than analysts' mean estimate of $0.51. The company said it expects to announce its decision regarding its previously announced examination of several "strategic alternatives" within 30 to 60 days... Flat-rolled stainless steel products maker J&L Specialty Steel <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JL)") else Response.Write("(NYSE: JL)") end if %> rolled up $2 3/8 to $5 9/16 after announcing that French corporation and 53% majority shareholder Usinor has proposed acquiring the remaining outstanding shares of the company for $5.75 a share.
Satellite maker and launcher Orbital Sciences Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ORB)") else Response.Write("(NYSE: ORB)") end if %> rocketed up $5 1/8 to $28 3/8 after announcing that it has successfully launched eight new communications satellites for the company's ORBCOMM Global LP affiliate, completing the space network for its worldwide data communications system... PMI Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PMA)") else Response.Write("(NYSE: PMA)") end if %> climbed $3 to $46 13/16 after PaineWebber raised its rating on the private-mortgage insurer to "buy" from "neutral," citing the company's strength in controlling credit quality and cautious approach to underwriting... Biopharmaceutical company OXiGENE Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OXGN)") else Response.Write("(Nasdaq: OXGN)") end if %> charged up $2 11/16 to $9 1/16 after announcing that pre-clinical data demonstrated that Combretastatin A-4 prodrug had a strikingly direct anti-tumor effect against a type of tumor in rats.
Specialty professional services company RCM Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RCMT)") else Response.Write("(Nasdaq: RCMT)") end if %> rallied $2 5/8 to $14 7/8 after announcing recent acquisitions of two information technology services providers, Systems Group Inc. and Integrity Systems Professionals Inc... Medical supplies distributor PSS World Medical <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSSI)") else Response.Write("(Nasdaq: PSSI)") end if %> jumped $2 9/32 to $20 1/2 as Salomon Smith Barney upgraded its rating on the company to "buy" from "outperform" with a 12-month price target of $26... Pratt & Whitney aircraft engines, Carrier air conditioners, and Otis elevators parent United Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UTX)") else Response.Write("(NYSE: UTX)") end if %> moved up $4 1/4 to $80 1/8 after saying it expects EPS this year to exceed estimates by $0.01 to $0.03.
Factory maintenance software maker Datastream Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DSTM)") else Response.Write("(Nasdaq: DSTM)") end if %> rose $3 11/16 to $15 1/8 after winning a contract with Platinum Software Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSQL)") else Response.Write("(Nasdaq: PSQL)") end if %>... Home builder Lennar Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LEN)") else Response.Write("(NYSE: LEN)") end if %> built up $2 1/4 to $21 3/4 after reporting Q3 EPS of $0.59, up from $0.39 a year ago and beating analysts' mean estimate of $0.55... Republic Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RSG)") else Response.Write("(NYSE: RSG)") end if %> surged $2 11/16 to $19 15/16 as Merrill Lynch named the waste collection and disposal services provider a "Focus One" stock.
Harrisburg, Pennsylvania-based Harsco Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HSC)") else Response.Write("(NYSE: HSC)") end if %> tumbled $12 15/16 to $24 5/16 after saying it has lowered its fiscal Q3 and Q4 earnings expectations, which will lead to fiscal 1998 operating income about $0.30 per share below the $2.65 per share currently expected by the Street. The company said the economic problems in Asia and Latin America are hurting demand for its industrial steel milling services, gas control and containment products, and infrastructure and construction businesses. With over 300 business locations in 31 countries, it was a foregone conclusion that Harsco was going to get hurt, to some extent, by the recent problems in emerging markets. In fiscal 1997, the company received 19% of its total revenues from Europe, 7% from Latin America, and 3% from the Asia-Pacific region.
Small household appliance maker Windmere-Durable Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WND)") else Response.Write("(NYSE: WND)") end if %> was toasted for $8 7/16 to $7 1/4 today after saying its fiscal Q3 and full-year sales and earnings results will come in below analysts' expectations. First Call had called for earnings of $0.56 per share in Q3 and $1.49 per share for the year. Most of the blame was set on the doorstep of its key Household Products unit, which was acquired from Black & Decker <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BDK)") else Response.Write("(NYSE: BDK)") end if %> in June. The division's sales in Latin America and Canada have sagged during the quarter, while its higher-end toasters and hairdryers haven't exactly been flying off U.S. retailer's shelves, either. Throw in higher-than-expected integration costs from the acquisition and the result is an estimated $30 million to $40 million sales shortfall for the unit in Q3. Michael Hoopis, who headed up the Household Products division, decided today was a good day to hand in his resignation letter and take a new job at Allegheny Teledyne <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALT)") else Response.Write("(NYSE: ALT)") end if %>.
QUICK CUTS: PhyCor Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PHYC)") else Response.Write("(Nasdaq: PHYC)") end if %> dropped $2 5/32 to $5 5/32 after warning that it expects EPS of $0.15 for the third quarter (before charges) and $0.16 for the fourth quarter, below analysts' expectations of $0.19 and $0.21, respectively... Nutritional supplements maker Weider Nutrition International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WNI)") else Response.Write("(NYSE: WNI)") end if %> was beat up for a $5 3/4 loss to $4 1/4 after reporting fiscal Q1 EPS of $0.07, flat with last year's results and half of what the Street had been expecting... Nursing care and rehabilitation therapies provider Sun Healthcare Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SHG)") else Response.Write("(NYSE: SHG)") end if %> dimmed $13/16 to $8 11/16 after Bear Stearns reduced its rating to "attractive" from "buy."
Cereal maker and ski resort operator Ralcorp Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RAH)") else Response.Write("(NYSE: RAH)") end if %> was crunched $7/8 to $15 7/16 after Salomon Smith Barney downgraded the firm to "neutral" from "buy"... Northland Cranberries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBRYA)") else Response.Write("(Nasdaq: CBRYA)") end if %> was squashed $2 to $11 after BT Alex. Brown downgraded the marketer and processor of cranberry products to "buy" from "strong buy"... Brand name apparel manufacturer Warnaco Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WAC)") else Response.Write("(NYSE: WAC)") end if %> fell $3 5/8 to $20 3/8 after Morgan Stanley Dean Witter lowered its rating to "outperform" from "strong buy" and cut the firm's fiscal 1998 and 1999 earnings estimates... TJ Maxx and Marshalls discount retail stores operator TJX Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TJX)") else Response.Write("(NYSE: TJX)") end if %> slipped $1/2 to $17 11/16 after The Boston Globe reported that the company's autumn sales may rise at a lower-than-expected rate due to warm weather in the U.S.
Hot Wheels and Barbie maker Mattel Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MAT)") else Response.Write("(NYSE: MAT)") end if %> was knocked down $2 7/16 to $28 3/4 on a Tucker Anthony downgrade to "market outperform" from "strong buy"... Office furniture and movable working environments maker SMED International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMEDF)") else Response.Write("(Nasdaq: SMEDF)") end if %> slid $3 1/2 to $6 1/8 after saying lower-than-expected sales and a "poor" product mix will result in an unspecified fiscal Q1 loss... Tools maker The Stanley Works <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SWK)") else Response.Write("(NYSE: SWK)") end if %> was hammered $4 1/4 to $28 after saying that its fiscal Q3 earnings (excluding charges) will be flat with the $0.54 per share earned a year ago, missing the $0.62 per share expected by the Street... Data networking equipment maker 3Com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %> slipped $13/16 to $31 9/16 despite reporting fiscal Q1 EPS of $0.24 (excluding a credit) last night, which was $0.04 more than the Street had been expecting. For more details, click here.
Business and consumer marketing information services provider InfoUSA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IUSAB)") else Response.Write("(Nasdaq: IUSAB)") end if %> sank $2 5/16 to $6 3/16 after saying its fiscal Q3 revenues will be below the $62.1 million in revenues posted in Q2 due to lower-than-expected retail sales of its consumer CD-ROM products and lower revenues at its large business consumer division... Semiconductor assembly and test equipment developer Aetrium Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATRM)") else Response.Write("(Nasdaq: ATRM)") end if %> slid $7/8 to $5 after saying it expects to report $21 million in revenues and a net loss of $0.21 per share in fiscal Q3 due to the continued slowdown in the chip industry. The Street had been expecting an $0.08 per share loss in the period... Digital media management and archiving services outsourcer Applied Graphics Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AGTX)") else Response.Write("(Nasdaq: AGTX)") end if %> dropped $3 to $13 after COO Melvin Ettinger resigned to "pursue other career interests."
Bank holding company BNCCorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BNCC)") else Response.Write("(Nasdaq: BNCC)") end if %> slid $2 1/8 to $13 1/2 as Dain Rauscher Wessels cut its rating to "neutral" from "buy"... Industrial adhesives and sealants maker H.B. Fuller Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FULL)") else Response.Write("(Nasdaq: FULL)") end if %> was stuck with a $4 3/4 loss to $38 3/8 after reporting fiscal Q3 EPS of $0.61 (before charges), lower than the $0.78 earned a year ago. Last month, the company warned that its results would be "moderately below" last year's figures... Copper and copper alloy tube maker Wolverine Tube <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WLV)") else Response.Write("(NYSE: WLV)") end if %> was rolled for a $3 1/16 loss to $21 1/2 after saying it will report fiscal Q3 EPS between $0.54 and $0.58 per share, below the Street's expectation of $0.68 for the quarter, due to lower demand for its technical tubes.
FOOL
ON THE HILL
An Investment Opinion
by
Louis Corrigan
Disney: A Mickey Mouse Operation?
Shortly before major U.S. stock indexes peaked in July, Loews <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LTR)") else Response.Write("(NYSE: LTR)") end if %> Chair and CEO Laurence A. Tisch looked like an idiot. The man many blame for fumbling the ball at the CBS television network was apparently at it again -- shorting U.S. equities and making bets against the S&P 500 index by buying put options. Such bearishness had produced stunning trading losses amounting to $1.5 billion over the fifteen-month period ending March 31, including a $533 million loss during the March quarter alone.
Today, Tisch looks a little smarter, and one of his smartest moves was betting against Disney <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %>, the world's second-largest entertainment company with well-known theme parks, filmed entertainment, and broadcasting (ABC, ESPN, A&E) operations. During the June quarter, Tisch purchased Disney put options giving him the right to sell at a fixed price some 5.55 million shares. Though he hedged this bet with call options giving him the right to buy 2.25 million shares at a fixed price, Tisch clearly expected Disney's stock would fall.
And it did. During the June period, Disney traded between the mid-$30s and an all-time high of $42 3/8 hit in early May. At its recent low of $23 1/4, the stock had plunged 45% from its 52-week high, making Disney nearly the biggest loser in the Dow Jones Industrial Average (DJIA) of late. Even after rebounding to $26 13/16 today, Disney's shares (not including dividends) have badly underperformed the market, returning just 14.2% annually over the last three years and zilch over the last twelve months.
Known for delivering double-digit earnings growth, Disney has started to look more like a Mickey Mouse operation --and not in a good way. As the company announced September 11, earnings per share for FY98 are now expected to be a flattish $0.88 to $0.89 per share, excluding one-time charges, versus $0.86 per share last year. Fourth quarter earnings will miss Wall Street's previous consensus estimate of $0.21 per share, coming in at $0.15 or $0.16 per share versus $0.19 a year ago. The company blamed Asian-related weakness in its consumer products business, lower theatrical and international home video revenues, and increased expenses related to new initiatives.
Disney's empire may now be on sale, and there's no getting around the fact that the company has been hit from every angle. It's confronting increased competition in each of its core businesses and suffering from the international economic slowdown that's having a disproportional impact on branded multinational consumer companies. While banking on its eventual recovery may be a no-brainer, the competitive challenges seem likely to get worse, leaving Disney in the short term looking like a bet on Japan's recovery. And who wants to bet on Japan, which has now moved from stagnation to recession?
The creative content segment (films, television programming, video sales, the Disney Store) is the company's largest on a revenue basis. Despite recent hit films such as Armageddon, production and marketing costs have exploded, leading the company to combine the operations of its Walt Disney Pictures, Touchstone Pictures, and Hollywood Pictures. While Mulan performed respectably and should eventually enjoy strong video sales, the fourth quarter will look weak given the robust box office results last year from George of the Jungle and video sales of Sleeping Beauty.
Also, DreamWorks' computer-animated Antz, featuring the voices of Woody Allen and Sharon Stone, will debut October 8, beating Disney's A Bug's Life to the theatres by two months in a move that has Steve Jobs, Chair of Disney collaborator Pixar <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PIXR)") else Response.Write("(Nasdaq: PIXR)") end if %>, in a hissy. DreamWorks also hopes to make a splash with an animated story of the life of Moses called Prince of Egypt set for a December release. Last year saw 20th Century Fox release Anastasia, its first in-house animated feature. While Disney's animation business still appears strong (I personally loved Mulan), it is now just the leading brand in an increasingly crowded field. Given that creative content fuels merchandising and theme park revenues, that's something to worry about.
Another curveball comes from the Financial Accounting Standards Board, which just tentatively approved new rules that could affect reported earnings of filmmakers beginning in 2000. Hollywood's accounting has always been suspect, offering plenty of room for creative license. The proposed rules would clamp down on some questionable practices. While marketing and advertising costs for a film can now be spread over several years, the new rules require expenses to be declared within the first three months of a movie's release. Similarly, film production expenses will have to be written off over 10 years rather than 20 years. Even as such costs hit the income statement faster, revenues from syndicating movie rights to television would have to be spread out over the term of the contract rather than booked when the deal is signed. These and other changes will affect all the film entertainment companies and create a little more uncertainty about at least the reported earnings (though the real economic impact should be minimal).
Looking at Disney's broadcasting segment, operating results for FY98 are expected to be down in the fourth quarter and flat for the year, despite surging profits earlier in FY98 from World Cup soccer and solid gains in advertising rates and subscriber growth at the cable networks. ESPN has become increasingly valuable even as wannabes like Fox Sports gain ground. But ABC, now #3 among broadcast TV networks, has seen its ratings slide. Even the once dominant ABC News is stuck in the muck. Meanwhile, the cost of programming has gone up with ABC and ESPN having to pay a staggering $9 billion to win eight-year rights to NFL football.
Finally, Disney's high-margin theme park and resorts business saw revenues jump 8% and operating profit increase 14% for the first nine months of FY98. This segment accounted for 23.8% of revenues but 30.2% of operating income thanks to 24.6% operating margins. Management singled it out as a fourth quarter bright spot due to increased attendance and guest spending. Yet on Monday, an article in the Wall Street Journal raised questions about even the health of this division.
The Orlando market is looking saturated, with Disney's new Animal Kingdom cannibalizing more of Disney World's customers than expected (and disappointing some visitors) and Universal Studios Florida expected to make a major push to promote its new $2 billion Islands of Adventure theme park. Meanwhile, Asian tourists reportedly account for 8% of visitors to Disneyland in southern California, where attendance was apparently flat to down slightly for the summer. Occupancy rates do remain at around 90% at Disney World. However, higher profits have come from boosting prices at the theme parks, a trend that may not go over well in a world where all other prices seem to be dropping and where demand appears to be slackening due to an international economic slowdown.
Of course, Disney is Disney, a consummate marketer with some of the strongest franchises and brands in the world. The company has also made recent moves to beef up its Internet presence. In June, it took a 43% stake in search engine/portal company Infoseek <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEK)") else Response.Write("(Nasdaq: SEEK)") end if %> with warrants that could give it majority control. Disney will soon relaunch Infoseek's portal service as Go Network (go.com) and market the service via ABC and ESPN. The arrangement has the added benefit of keeping some of Disney's Internet losses off its income statement. Still, such a burgeoning empire requires skilled managers, and the company continues to see high profile defections. While none seems likely to bite the company back as badly as Dreamworks' Jeffrey Katzenberg has, Disney CEO Michael Eisner certainly faces some challenges.
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Contributing Writers Yi-Hsin Chang (TMF Puck), a Fool Brian Graney (TMF Panic), Fool Two Alex Schay (TMF Nexus6), Fool, too Dale Wettlaufer (TMF Ralegh), Final Fool
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