DJIA 7938.14 -63.33 (-0.79%) S&P 500 994.88 -2.83 (-0.28%) Nasdaq 1509.45 -36.63 (-2.37%) Value Line ndx 738.20 -6.21 (-0.83%) 30-Year Bond 106 5/32 +11/32 5.09% Yield
In the latest wave of consolidation in the supermarket industry, Dominick's Supermarkets <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DFF)") else Response.Write("(NYSE: DFF)") end if %> jumped $6 7/8 to $48 1/4 after announcing it will be acquired by the nation's second-largest supermarket chain, Safeway Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SWY)") else Response.Write("(NYSE: SWY)") end if %>, for $49 a share in cash, or around $1.2 billion plus $646.2 million in assumed debt. The offer represents an 18.4% premium to Dominick's closing price yesterday of $41 3/8. Two major shareholders that own roughly 41% of Dominick's outstanding shares already have agreed to tender their shares to Pleasanton, Calif.-based Safeway. The merger will expand Safeway's presence to the Midwest, and in particular to Chicago -- most of Safeway's stores are now on the West Coast. Acquiring Dominick's, which has 112 stores, will increase the number of Safeway stores to more than 1,490 in the U.S. and western Canada, with estimated 1998 pro forma revenues in excess of $26.5 billion. The deal is expected to be neutral to Safeway earnings in the first year and accretive thereafter. In August, Safeway said it was buying Alaska's main food and drug retailer Carr-Gottstein Foods Co. for around $330 million in stock and debt. That same month, competitor Albertson's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABS)") else Response.Write("(NYSE: ABS)") end if %> announced it would buy American Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASC)") else Response.Write("(NYSE: ASC)") end if %> for $11.8 billion in stock and assumed debt.
Satellite-to-car radio broadcaster CD Radio <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CDRD)") else Response.Write("(Nasdaq: CDRD)") end if %> transmitted a $4 1/2 gain to $23 after this morning announcing that Prime 66 Partners L.P. will acquire a $100 million, or 20%, interest in the company. Prime 66 Partners is an investment vehicle of oil heir Sid Bass and friends. CD Radio is building a digital satellite radio system, scheduled to launch in early 2000, designed to broadcast 50 channels of commercial-free music and 50 channels of news, sports, and entertainment programming to motorists from coast to coast for a subscription fee of $9.95 a month. Initially, subscribers will receive transmissions through a satellite dish the size of a silver dollar mounted on the rear windshield, which will then relay the signal to an adapter in the car's cassette or CD player. CD Radio was granted one of two national satellite radio broadcast licenses by the Federal Communications Commission a year ago. The company's only competitor is American Mobile Radio Corp., a subsidiary of American Mobile Satellite Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SKYC)") else Response.Write("(Nasdaq: SKYC)") end if %>.
QUICK TAKES: Apple Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %> gained $1 5/16 to $38 3/4 in anticipation that the Macintosh computer maker will report better-than-expected fiscal Q4 earnings tomorrow on the back of strong sales of its new iMac computers... Merrill Lynch & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MER)") else Response.Write("(NYSE: MER)") end if %> advanced $1 3/8 to $45 1/4 after reporting Q3 EPS of $0.28 a share before charges, down from $1.24 last year and below the analysts' mean estimate of $0.45. The company took a $288 million after-tax ($430 million pre-tax) special provision to account for cutting 5% of its total workforce... Diversified manufacturer, NBC parent, and financial services company General Electric <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %> moved up $2 1/16 to $76 1/8 following yesterday's announcement that its acquisition-happy Capital Services unit will buy a Pitney Bowes <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PBI)") else Response.Write("(NYSE: PBI)") end if %> brokerage operation that specializes in equipment leasing for about $800 million.
Sterile medical devices maker Steris Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STRL)") else Response.Write("(Nasdaq: STRL)") end if %> jumped $2 1/2 to $21 after the company "expressed comfort" with analysts' EPS estimates for its fiscal second quarter that ended September 30 and for the year. The company stressed that it bears no relation to Schein Pharmaceutical's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SHP)") else Response.Write("(NYSE: SHP)") end if %> Steris Laboratories, which is facing FDA action... French telecommunications equipment giant Alcatel <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALA)") else Response.Write("(NYSE: ALA)") end if %> saw its American depositary shares pick up $1 to $18 5/8 after late yesterday announcing it will acquire wire-speed routing and gigabit Ethernet solutions company Packet Engines Inc. in a deal valued at $315 million... Client/server computing switching systems maker Apex PC Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APEX)") else Response.Write("(Nasdaq: APEX)") end if %> gained $3 5/8 to $18 3/4 after late yesterday reporting Q3 EPS of $0.29, compared with $0.22 a year ago and the mean estimate of $0.26 from two analysts.
Network switching solutions and diagnostic systems manufacturer Tekelec <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TKLC)") else Response.Write("(Nasdaq: TKLC)") end if %> added $1 15/16 to $15 3/4 after announcing late yesterday that Sprint <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FON)") else Response.Write("(NYSE: FON)") end if %> will use its integrated EAGLE Signal Transfer Point (STP) and Local Number Portability (LNP) solution in the telecommunications company's Local Telecommunications Division and Long Distance Division... Telecommunications company Teleglobe Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TGO)") else Response.Write("(NYSE: TGO)") end if %> gained $1 3/16 to $20 5/8 and Excel Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECI)") else Response.Write("(NYSE: ECI)") end if %> was up $1 1/16 to $17 11/16 after yesterday's announcement that the SEC has approved their proposed merger... Software developer Cognizant Technology Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTSH)") else Response.Write("(Nasdaq: CTSH)") end if %> picked up $1 11/16 to $12 9/16 after saying it expects Q3 EPS will "increase more than five-fold" from EPS of $0.03 a year ago and "be at least 40% higher than current analysts' consensus estimates."
Telecommunications services company McLeodUSA Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCLD)") else Response.Write("(Nasdaq: MCLD)") end if %> moved up $3 3/8 to $29 1/4 after yesterday announcing it will gain more than 100 miles of fiber optic cable and conduit capacity in northern Illinois under a deal with MFS Network Technologies Inc. and the Illinois State Toll Highway Authority... Chicago banking firm Avondale Financial Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVND)") else Response.Write("(Nasdaq: AVND)") end if %> added $1 1/2 to $10 1/2 after announcing it will merge with privately held Coal City Corp., the holding company for Manufacturers Bank, to create MB Financial, with assets of about $1.4 billion... Network access solutions company Telco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TELC)") else Response.Write("(Nasdaq: TELC)") end if %> surged $3 1/2 to $9 7/8 after announcing it has amended its proposed merger agreement with World Access <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WAXS)") else Response.Write("(Nasdaq: WAXS)") end if %> to establish a minimum purchase price of $12 per Telco share to be paid either in stock or a combination of stock and cash. World Access jumped $1 11/16 to $15 5/16.
Commercial and consumer lender CIT Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CIT)") else Response.Write("(NYSE: CIT)") end if %> tacked on another $2 1/8 to $22 1/2 after yesterday's "Heard on the Street" column in The Wall Street Journal suggested that the firm may get more business if other financing companies start to cut back on lending over fears of a coming recession... Mexican construction company Bufete Industrial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GBI)") else Response.Write("(NYSE: GBI)") end if %> added $1 11/16, or 38.6%, to $6 1/16 after announcing it has received $101 million from the Federal Electricity Commission for work done on two power projects.
Earnings Movers
Associates First Capital <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AFS)") else Response.Write("(NYSE: AFS)") end if %> up $3 5/8 to $60 7/8; Q3 EPS: $0.91 vs. $0.78 last year; Estimate: $0.91
Capital One Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COF)") else Response.Write("(NYSE: COF)") end if %> up $1 3/4 to $73; Q3 EPS: $1.00 vs. $0.73 last year; Estimate: $1.00
Donaldson, Lufkin & Jenrette <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DLJ)") else Response.Write("(NYSE: DLJ)") end if %> up $3/8 to $25 7/8; Q3 EPS: $0.15 vs. $0.93 last year; Estimate: $0.23
Kellstrom Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KELL)") else Response.Write("(Nasdaq: KELL)") end if %> up $2 15/16 to $15 3/16, Q3 EPS: $0.42 vs. $0.25 last year; Estimate: $0.40
For more earnings announcements, see today's Breakfast With the Fool.
Monsanto Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MTC)") else Response.Write("(NYSE: MTC)") end if %> slid $13 3/8 to $37 after the company and proposed merger mate American Home Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHP)") else Response.Write("(NYSE: AHP)") end if %> scrapped their previously announced deal "by mutual consent," ending the planned combination of a cash-flow rich pharmaceutical company with a pipeline-rich global life sciences company. American Home Products ended the day down $5 to $45. While Wise and Foolish analysts alike tried to pinpoint exactly what caused the breakup, Monsanto spent the day trying to shore up financing for its recent spending spree. The company said Citibank will arrange an additional $2 billion credit facility to help the firm pay for its pending purchase of the 60% stake in DeKalb Genetics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DKB)") else Response.Write("(NYSE: DKB)") end if %> it doesn't already own. Monsanto also said it will selectively issue more equity and boost the size of a debt and stock shelf offering already filed with the SEC to $6 billion from $2 billion, just in case money gets tight in the months ahead.
Shares of skiing products maker K2 Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KTO)") else Response.Write("(NYSE: KTO)") end if %> went over a cliff today, tumbling $4 5/16 to $9 7/8 after the firm said its fiscal Q3 operating EPS will be $0.09, which is well below the $0.34 projected by the Street. That figure excludes results from its Simplex building products division, which the company is treating as a discontinued operation and intends to sell by early 1999. While K2's namesake alpine skis and new skateboarding shoes are doing well, its bike unit is in a freefall resembling the doomed ski jumper featured at the beginning of ABC's Wide World of Sports. Heavy discounting and lower sales are hurting the division's margins, especially for high-end bikes. About half of an estimated $14.5 million Q3 charge will be earmarked to "reposition" the bike biz, which will also have a negative impact on K2's Q4 results.
QUICK TAKES: Intel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> fell $1 7/8 to $83 9/16 ahead of its fiscal Q3 earnings report. After the bell, the chip giant announced fiscal Q3 EPS of $0.89 compared with $0.88 a year ago and beating the Street's mean estimate by $0.09... Photographic products maker Eastman Kodak <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %> dropped $11 3/16 to $72 3/8 despite reporting fiscal Q3 EPS of $1.21, beating analysts' estimates by a penny. However, revenues slid 10% during the quarter to $3.39 billion due in part to lower selling prices and volumes in the U.S. and the global financial uncertainty... Pfizer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFE)") else Response.Write("(NYSE: PFE)") end if %> fell $5 1/2 to $87 1/2 in after hours trading after reporting Q3 operating earnings of $0.51 a share, up from $0.45 but short of analysts' mean estimate of $0.57.
Number one PC maker Compaq Computer Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> dropped $2 13/16 to $24 1/2 after Piper Jaffray reduced its fiscal Q4 EPS estimate to $0.30 from $0.34. The brokerage firm also cut Compaq's Q4 revenue estimate to $10.5 billion from $11 billion... Online discount brokerage firm E*Trade Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGRP)") else Response.Write("(Nasdaq: EGRP)") end if %> traded down $1 3/16 to $13 after BancBoston Robertson Stephens lowered its rating to "buy" from "strong buy"... Satellite-based communication services provider PanAmSat Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPOT)") else Response.Write("(Nasdaq: SPOT)") end if %> slid $7 7/8 to $28 7/8 after Credit Suisse First Boston lowered its rating on the firm to "hold" from "buy" and Morgan Stanley Dean Witter lowered the firm's 12-month price target to $50 per share from $60 per share. Satellite maker Hughes Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GMH)") else Response.Write("(NYSE: GMH)") end if %>, which owns 81% of PanAmSat, also fell $3 3/4 to $33.
Interactive training software firm CBT Group PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBTSY)") else Response.Write("(Nasdaq: CBTSY)") end if %> slid $2 11/16 to $7 9/16 after reporting fiscal Q3 EPS of $0.06, missing the Street's downwardly revised estimate of $0.12... American Airlines parent AMR Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMR)") else Response.Write("(NYSE: AMR)") end if %> descended $3 3/4 to $48 following a Morgan Stanley Dean Witter downgrade to "outperform" from "strong buy"... Visual effects production products supplier Discreet Logic <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DSLGF)") else Response.Write("(Nasdaq: DSLGF)") end if %> was trampled for a $2 11/16 loss to $8 15/16 after pre-announcing fiscal Q1 revenues between $25 million and $27 million and EPS between $0.03 and $0.08, which is short of the $0.16 expected by the Street... Real estate investment trust (REIT) Associated Estates Realty Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AEC)") else Response.Write("(NYSE: AEC)") end if %> sank $3 to $12 15/16 after saying that its fiscal Q3 funds from operations will fall about $0.08 below analysts' expectations of $0.56 per share. The REIT's Q4 results are also expected to be about $0.08 below estimates due to lower-than-expected income from its development activities and higher operating expenses.
Property and casualty insurance and reinsurance company The St. Paul Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SPC)") else Response.Write("(NYSE: SPC)") end if %> dropped $2 to $30 13/16 after saying it expects its fiscal Q3 pre-tax losses from catastrophes to total $175 million. The firm also said its Q3 and Q4 results will be negatively affected by the "continued deterioration" of the property/casualty market... Business software firm PeopleSoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSFT)") else Response.Write("(Nasdaq: PSFT)") end if %> slid $4 1/4 to $18 7/8 after the company reportedly cancelled its presentation at a BT Alex. Brown investment conference today, citing the "quiet period" ahead of its fiscal Q3 earnings report next week... Steel mini-mill operator Birmingham Steel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BIR)") else Response.Write("(NYSE: BIR)") end if %> was burned $1 1/2 to $5 after announcing fiscal Q1 EPS of $0.03 (including a gain), which missed the Street's mean estimate of $0.07.
Enterprise resource planning software firm Baan Co. NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BAANF)") else Response.Write("(Nasdaq: BAANF)") end if %> lost another $2 1/16 to $11 7/16 after falling 24% yesterday following a warning that it expects a fiscal Q3 loss between $0.13 and $0.16 per share... Computer software consultant and Year 2000 problem solver Analysts International Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ANLY)") else Response.Write("(Nasdaq: ANLY)") end if %> fell $5 29/32 to $17 5/8 after reporting fiscal Q1 EPS of $0.27, which was below the Street's mean estimate of $0.30... Year 2000 problem solver and information technology services provider Computer Task Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSK)") else Response.Write("(NYSE: TSK)") end if %> dipped $4 3/8 to $21 despite reporting fiscal Q3 EPS of $0.37, beating estimates by $0.02. However, Warburg Dillon Read was unimpressed and downgraded the firm to "hold" from "buy"... Milwaukee-based bank and thrift holding company Marshall & Ilsley Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MRIS)") else Response.Write("(Nasdaq: MRIS)") end if %> slipped $3 1/16 to $43 15/16 following a Salomon Smith Barney downgrade to "neutral" from "buy."
FOOL
ON THE HILL
An Investment Opinion
by
Dale Wettlaufer
Asset-Backed Carnage, Part 3
In this final installment of "Asset-Backed Carnage," I want to point out why so many companies that operate in niche lending markets have blown up. The relative crumbling of fixed-income markets for things other than Treasury obligations is the most readily ascertainable reason why, but that logic pre-supposes a knowledge of how some lenders work.
In the first part of this series, we showed how Criimi Mae <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMM)") else Response.Write("(NYSE: CMM)") end if %> retreated into Chapter 11 bankruptcy so quickly because of a bad balance sheet squeeze. What connects one balance sheet to the next are the income statement and the statement of cash flows. Depending on the methods of accounting, the income statement can be a reliable indicator of the change in a company's financial position. With some accounting regimes, though, the income statement doesn't tell you much. An insurance company, for instance, might under-reserve for losses and show a large amount of net income, but in subsequent years pay out large amounts of cash for insured losses. Lenders can show large amounts of net income on fast-growing asset bases, but if their estimates of future behavior by the their borrowers are off, then the income shown in one period can be overstated.
Such is the case with many companies in the specialty finance sector. The pattern of asset accumulation and big earnings has held true enough, but we can look at their cash flows to see that the earnings were predicated on accrual-heavy accounting that depended on a continual re-infusion of cash to show earnings growth. When the cash dried up last quarter, the share prices of these companies took a one-way ticket south.
Here's how Criimi Mae went so quickly:
For the six months ended, June 30:
Net cash provided by operating activities...$16,482,103
Net cash (used in) investing activities...($905,018,750)
Pretty heady negative free cash flow for a company starting the year with $445 million in shareholders' equity and $1.43 billion in liabilities.
Similarly, companies such as United Companies Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UC)") else Response.Write("(NYSE: UC)") end if %> have run large negative operating cash flows and negative free cash flows while reporting healthy earnings relative to shareholders' equity. In thousands of dollars:
DECEMBER 31, 1997 1996
Total assets..............$1,337,208 $925,273
Total liabilities............856,579 504,996
Total stockholders' equity...480,629 420,277
Net income...................$74,600 $81,660
Net cash used by continuing
operating activities........(242,787) (201,732)
Net cash provided (used) by
investing activities.........(22,715) 95,866
1997 1996
Net cash provided by
financing activities.....$257,557 $114,646
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
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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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