<% ' AvantGo:MarketClose %>DJIA 9301.15 -73.12 (-0.78%) S&P 500 1182.99 -5.22 (-0.44%) Nasdaq 1965.88 -11.54 (-0.58%) Value Line ndx 898.98 -2.68 (-0.30%) 30-Year Bond 100 21/32 +20/32 5.21% Yield<% ' AvantGo:End %>
<% ' AvantGo:Heroes %>Paper and paperboard maker Union Camp Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UCC)") else Response.Write("(NYSE: UCC)") end if %> tore ahead today after competitor International Paper <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IP)") else Response.Write("(NYSE: IP)") end if %> agreed to buy the company for more than a 45% premium on Monday's closing price. The $6.6 billion stock swap values Union Camp at $71 per share, well above yesterday's day-end $48 15/16, and Union Camp shareholders were more than happy to watch their company's stock climb $16, or 32.7%, to $64 15/16 on the news. According to analysts, the deal will make International Paper tops in U.S. market share for uncoated paper used for photocopying and printing, and number two -- behind fellow hero-of-the-day Smurfit-Stone Container Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SSCC)") else Response.Write("(NYSE: SSCC)") end if %> -- among producers of container and linerboard. The pooling-of-interests merger is expected to provide $300 million in cost savings, boosting International's earnings in the combined company's first full year of operations. International's shareholders weren't so impressed, however, as that company's stock was chopped $1 13/16 to $44.
Newly formed paperboard and packaging manufacturer Smurfit-Stone Container Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SSCC)") else Response.Write("(Nasdaq: SSCC)") end if %> moved quickly to refocus itself after the $5.8 billion merger of Jefferson Smurfit Corp. and Stone Container closed Thursday. Smurfit-Stone wrapped up a gain of $1 5/8 to $14 3/16 today following its announcement of a restructuring that involves the shuttering of mills that make about 17% of its domestic heavy brown paper capacity, the cutting of as many as 3,600 jobs, and the sale of non-core assets to pay down debt. "Smurfit-Stone's strategy is to run our integrated container business more profitably with a smaller, more efficient mill system," said Chairman Dr. Michael Smurfit. "In addition, we plan to reduce our open-market position and focus our marketing on the most profitable containerboard segments." The company expects a one-time Q4 charge of between $300 million and $350 million for the restructuring, a sum it expects to recoup in savings within two years.
QUICK TAKES: Online retailer Cyberian Outpost <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COOL)") else Response.Write("(Nasdaq: COOL)") end if %> warmed up $12 5/8 to $37 5/8 after gaining $10 5/8 yesterday with the "grand opening" of its new online shopping emporium ShopperConnection, which takes aim at Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %>. Other publicly traded member companies also advanced again today: CDnow <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CDNW)") else Response.Write("(Nasdaq: CDNW)") end if %> gained $1 to $14 1/2 and Preview Travel <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PTVL)") else Response.Write("(Nasdaq: PTVL)") end if %> packed up $2 1/16 to $15 1/8... Meanwhile, online auctioneer Onsale Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ONSL)") else Response.Write("(Nasdaq: ONSL)") end if %> was bid up $14 7/8, or 51.3%, to $43 7/8 after opening a "holiday shopping store" on its site. Competitor eBay <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EBAY)") else Response.Write("(Nasdaq: EBAY)") end if %> rose $3 13/16 to $196 13/16.
Yesterday's reports of online services conglomerate America Online's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> pact to buy Internet portal and software firm Netscape Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> were confirmed this morning in the form of a $4.2 billion stock swap. AOL rose $2 51/8 to $91 3/8 today, but Netscape investors sent their company's shares down $2 1/16 to $39 7/8. AOL also signed a three-year development and marketing alliance with Sun Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %>, which rose $1 5/8 to $72 15/16. For more on the AOL-Netscape deal, see yesterday's article by Nico Detourn (TMF Nico)... Cable-based online services provider At Home Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATHM)") else Response.Write("(Nasdaq: ATHM)") end if %> plugged in $6 1/16 to $65 1/16 after it said four retailers -- Bluefly.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BFLY)") else Response.Write("(Nasdaq: BFLY)") end if %>, DVD EXPRESS, Eddie Bauer, and EveryCD -- chose At Home to create "rich media" advertisements, which use video, audio, and interactivity.
Life sciences company Monsanto <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MTC)") else Response.Write("(NYSE: MTC)") end if %> grew $2 3/8 to $43 3/8 after it priced a 22.5 million share offering at $40 share and a public offering of 17.5 million adjustable conversion-rate equity security units at $40 a unit. The company is expected to net $1.55 billion from the two offerings to help pay for several seed company acquisitions and to refinance outstanding commercial paper... US Airways Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: U)") else Response.Write("(NYSE: U)") end if %> wafted up $5 1/16 to $51 1/2 after it announced plans to buy back up to $500 million in company common stock either on the open market or in private transactions. The company will commence the repurchase program after it completes two other buybacks authorized earlier this year... Heart and lung bypass surgery device maker Avecor Cardiovascular <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVEC)") else Response.Write("(Nasdaq: AVEC)") end if %> pumped up $3 to $12 5/8 after it announced an unsolicited offer to buy the company for $13 per share, better than the $11.125 offer from Medtronic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDT)") else Response.Write("(NYSE: MDT)") end if %> that the Federal Trade Commission is currently reviewing. Avecor "intends to consider its options," the company said.
Analog and mixed-signal semiconductor products maker Semtech Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMTC)") else Response.Write("(Nasdaq: SMTC)") end if %> earned $3 7/16 to $32 11/16 after reporting Q3 EPS of $0.22, a penny behind last year's number but $0.04 better than market estimates... Semiconductor test handling equipment maker Cohu Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COHU)") else Response.Write("(Nasdaq: COHU)") end if %> advanced $2 1/2 to $23 7/8 after Needham & Co. upgraded the company to "buy" from "hold"... Die-cast race cars and collectibles maker Action Performance <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACTN)") else Response.Write("(Nasdaq: ACTN)") end if %> raced ahead $3 1/8 to $34 1/8 on yesterday afternoon's news that it acquired privately held Tech 2000 Worldwide, operator of the Goracing.com site, in a stock swap valued at about $3.6 million... Remote-access and networking products maker Ascend Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %> connected for a gain of $2 1/4 to $57 1/8 following news that leading Malaysian telecommunications service provider Telekom Malaysia Berhad chose Ascend's signaling platform for its new nationwide prepaid calling-card program.
Electronic transaction services provider Concord EFS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CEFT)") else Response.Write("(Nasdaq: CEFT)") end if %> rang up a gain of $3 1/16 to $31 1/2 after it announced an agreement to acquire Electronic Payment Services from a consortium of banks in exchange for about $920.8 million in stock, or 32.3 million shares... Infomercial marketer National Media Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NM)") else Response.Write("(NYSE: NM)") end if %> advanced $2 7/8 to $10 15/16 after it announced a commitment with Japan's Mitsui & Co. to pursue online commerce in Japan... Consumer marketing information company NFO Worldwide <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NFO)") else Response.Write("(NYSE: NFO)") end if %> spun ahead $2 1/4 to $10 1/2 after PaineWebber Securities boosted its rating on the company to "buy" from "attractive"... Savings and loan holding company Fulton Bancorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FTNB)") else Response.Write("(Nasdaq: FTNB)") end if %> churned ahead $1 3/8 to $16 1/4 after it won regulatory approval for a planned repurchase of up to 170,205 shares, or 10%, of its common stock.
Group and individual disability insurer Unum Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UNM)") else Response.Write("(NYSE: UNM)") end if %> gained $3 1/16 to $55 11/16 today; yesterday it jumped $4 1/2 after it said it will acquire rival Provident Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PVT)") else Response.Write("(NYSE: PVT)") end if %>, the nation's leader in individual disability insurance, in a stock swap valued at about $5 billion. Three brokerages upgraded Unum today. Provident rose $2 1/8 to $39 1/2... Manufactured housing and recreational vehicles maker Fleetwood Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLE)") else Response.Write("(NYSE: FLE)") end if %> hitched up $1 11/16 to $35 1/4 after it reported fiscal Q2 EPS of $0.84, up from $0.77 last year and $0.06 above the Street's mean estimate... Diamond substitute manufacturer C3 Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTHR)") else Response.Write("(Nasdaq: CTHR)") end if %> shone $7/8 to $9 on its announcement of 26 new retail agreements for the sale of its moissanite gemstones.<% ' AvantGo:End %>
<% ' AvantGo:Goats %>Parking lot operator Central Parking Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPC)") else Response.Write("(NYSE: CPC)") end if %> reversed $11 5/8 to $30 7/8 after saying lower-than-forecasted growth at parking lots acquired through its merger with Kinney Systems earlier this year will result in fiscal Q4 EPS of $0.23, missing analysts' estimates by a nickel. The company said the negative effects seen in Q4 may also carry over into fiscal 1999. The problems are an indication that the company's growth in future quarters may (ahem) stall if it cannot successfully integrate this year's acquisitions into the fold. After completing its purchase of Kinney in February, the company acquired the assets of privately held Sterling Parking Inc. and is currently in the midst of gobbling up its largest rival, Allright Holdings. Historically, the company has focused on adding individual parking facilities rather than buying out its competitors. With the new fiscal year just around the corner, perhaps the company will try to get its growth in gear by reverting to that old standby strategy.
Retailer J.C. Penney <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JCP)") else Response.Write("(NYSE: JCP)") end if %> was marked down $2 7/16 to $52 1/2 today after announcing that it will acquire regional drugstore operator Genovese Drug Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: GDX.A)") else Response.Write("(AMEX: GDX.A)") end if %> in a deal valued at approximately $432 million, plus the assumption of about $60 million in debt. The deal will add 141 drugstores in New York, New Jersey, and Connecticut, giving J.C. Penney's Eckerd subsidiary approximately 2,900 stores in 20 states across the Northeast, Midwest, and Sunbelt. Penney's expects the benefits from the Genovese deal will come from integrating systems and capturing buying synergies (with Eckerd now the largest volume drugstore chain in New York State). As stated in today's Fool Plate Special, the purchase may also herald more consolidation in the drugstore industry, with Duane Reade Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DRD)") else Response.Write("(NYSE: DRD)") end if %> and Longs Drug <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LDG)") else Response.Write("(NYSE: LDG)") end if %> topping the list of remaining attractive buyout targets.
QUICK CUTS: Anatomic pathology physician practice management firm AmeriPath Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PATH)") else Response.Write("(Nasdaq: PATH)") end if %> was trampled for a $4 3/32 loss to $5 after Medicare requested a $2.95 million refund in alleged overpayments following a recent review of the company's Medicare billing practices at one of its laboratory facilities in 1996. The company said it "vigorously disputes" the refund request... Recent IPO theglobe.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TGLO)") else Response.Write("(Nasdaq: TGLO)") end if %> was spun for a $4 3/16 loss to $40 5/16 after reporting a third quarter operating loss of $0.85 per share (before charges), wider than the loss of $0.27 in the year-earlier quarter and the loss of $0.58 in the preceding quarter... Young adults casual clothing retailer Pacific Sunwear of California <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSUN)") else Response.Write("(Nasdaq: PSUN)") end if %> was burned $7 13/16 to $16 1/2 after BT Alex. Brown cut its rating to "market perform" from "buy."
Pegasystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PEGA)") else Response.Write("(Nasdaq: PEGA)") end if %>, which provides software that streamlines a company's interactions with customers, was clipped $2 5/8 to $7 5/8 after saying it will delay the filing of its 10-Q quarterly financial report so that auditors can take a closer look at "certain revenue transactions." Adjustments to its operating results are "likely" to result, the company said, prompting new concerns about the firm's "accrual-rich" accounting policies... Payroll and benefits outsourcer and consulting firm StaffLeasing <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STFF)") else Response.Write("(Nasdaq: STFF)") end if %> was knocked down $3 15/16 to $8 15/16 after saying weakness in the workers' compensation market and other problems will result in fiscal 1999 earnings of $1.02 per share, which is below the First Call mean estimate of $1.13 per share... Toy maker Mattel <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MAT)") else Response.Write("(NYSE: MAT)") end if %> lost $3 to $36 after Merrill Lynch reduced its near-term rating on the stock to "accumulate" from "buy."
Business information technology and network integration services firm Norstan Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NRRD)") else Response.Write("(Nasdaq: NRRD)") end if %> slid $1 3/8 to $14 3/4 after reporting fiscal Q2 EPS of $0.35, which was in line with analysts' expectations. However, CFO Kenneth MacKenzie said the Street's full-year earnings estimate of $1.60 per share is "too high," even though the company plans to trim costs through a 7% workforce reduction... Personal finance and tax preparation software developer Intuit Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTU)") else Response.Write("(Nasdaq: INTU)") end if %> slid $4 1/4 to $59 7/8 in advance of its fiscal Q1 financial report. After the close of trading today, the company reported a loss of $0.45 per share in the quarter, which was in line with the Street's estimates... Notebook computer modems maker Xircom Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XIRC)") else Response.Write("(Nasdaq: XIRC)") end if %> slipped $2 31/32 to $28 15/16 after Morgan Stanley Dean Witter lowered its rating to "neutral" from "outperform," due in part to valuation concerns.
Vision care products retailer Cole National Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNJ)") else Response.Write("(NYSE: CNJ)") end if %> was blindsided for a $2 9/16 loss to $15 7/16 after reporting Q3 EPS of $0.23 (excluding gains), missing the Street's mean estimate by $0.11. The company said it will take a $25 million restructuring charge in Q4... PC and computing products electronic clearinghouse En Pointe Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENPT)") else Response.Write("(Nasdaq: ENPT)") end if %> slid $1 31/32 to $5 after reporting fiscal Q4 EPS of $0.03, down from $0.30 last year... Industrial and energy-related equipment maker Stewart & Stevenson Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SSSS)") else Response.Write("(Nasdaq: SSSS)") end if %> slipped $1 1/2 to $11 1/4 after reporting Q3 operating EPS of $0.20 (excluding charges), missing the First Call mean estimate of $0.32... Financial services giant American Express Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AXP)") else Response.Write("(NYSE: AXP)") end if %> lost $4 9/16 to $104 3/8 following a downgrade to "neutral" from "attractive" from PaineWebber, which cited a possible slowdown in earnings growth and higher business costs.
Vitamin maker and retailer NBTY Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NBTY)") else Response.Write("(Nasdaq: NBTY)") end if %> dissolved for a $1 5/16 loss to $6 after reporting fiscal Q4 EPS of $0.10 versus $0.08 a year ago, missing the Zacks mean estimate by $0.03... Digital animated feature film production firm Pixar Animation Studios <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PIXR)") else Response.Write("(Nasdaq: PIXR)") end if %> was picked apart for a $1 5/16 loss to $6 after Prudential Securities lowered its rating to "hold" from "strong buy." The company's newest film, A Bug's Life, is scheduled to open in theaters nationwide tomorrow... Digital wireless telecommunications network operator Sprint PCS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PCS)") else Response.Write("(NYSE: PCS)") end if %> slumped $1 5/8 to $16 15/16 in its first day of trading after being separated from parent company Sprint Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FON)") else Response.Write("(NYSE: FON)") end if %>.<% ' AvantGo:End %>
FOOL
ON THE HILL
An Investment Opinion
by
Warren Gump
Thanks, Steak 'N Shake!
<% ' AvantGo:FOTH %>As Thanksgiving approaches, I want to take a moment to thank the folks at Consolidated Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COP)") else Response.Write("(NYSE: COP)") end if %> for all they've done to improve my life. My introduction to the company was during college, when I ran over to the company's Steak 'N Shake units for lunch or dinner at least once a week. Ah, the taste of their bacon cheese double, ultra-thin and delicious fries (with cheese sauce), and the Very Berry Cobbler. To placate my sense of nutritional well being (in my mind, at least), I also threw in a side salad. My fondness for the chain led to an initial investment in the company several years ago. What a pleasant ride it's been.
Let's fast forward and see what this company has done over the past five years. Diluted earnings per share have risen impressively, growing from $0.33 in fiscal 1993 (which ends in September) to $0.93 in fiscal 1998. Annually, the EPS increase has been 27%, 29%, 24%, 21%, and 15%, respectively, since 1994. Revenues have grown from $134 million in fiscal 1993 (which ends in September) to $313 million in 1998. Year-by-year, the increases were 20%, 18%, 21%,17%, and 17% over the past five years.
Not surprisingly, the stock has been an excellent performer since the end of 1993, rising at an annualized rate of about 30%, from a split adjusted $5.46 to $19 7/8. Despite these strong returns, the company is still selling at fairly reasonable multiples of 21x trailing earnings and 18x estimates for next year.
For those of you who haven't experienced Steak 'N Shake, it is a hybrid of a fast food restaurant and a casual dining chain. The restaurants offer table service to customers, but also provide the option of a drive thru for folks on the run. The menu includes items such as steakburgers (a.k.a. hamburgers), a mix of sandwiches, chile, soups, and a selection of deserts including hand-dipped shakes. Meals are served on china, not on disposable tableware. Despite the fact that you actually sit down and are served your meal, prices are quite reasonable with the check average for lunch or dinner between $5.50 and $6.00. Many of the chain's restaurants are open 24 hours a day.
What is the company doing correctly? It is using fast, controlled growth to expand its geographical presence. The company has been steadily growing its unit base at about 20% per year, with a total of 233 owned Steak 'N Shakes operating at the end of September. Most of the units are located in Florida, Indiana, Missouri, and Illinois. Current plans call for the addition of 43 units in fiscal 1999. While a few of these openings will be in new markets such as Madison, Wisconsin; Detroit, Michigan, and Cleveland, Ohio, most of them are in existing markets where the company is attempting to develop a critical mass of units. Those markets include Miami, Kansas City, Chicago, Columbus, Ohio; and Nashville, Tennessee.
Clustering a large number of stores in the same market has worked well for the company because it allows the new restaurants to benefit from the brand's strong name recognition, as well as making it more efficient to purchase advertising. The fact that St. Louis supports 45 units and Indianapolis has 38 demonstrates that there should be plenty of room for expansion in the rest of the country. Just because there is significant growth potential, however, don't expect the company to haphazardly increase its unit growth rate above 20%. Management seems to believe that this pace is best for the company's long-term success.
From a financial perspective, the company is doing pretty well. Operating margin in the last year slipped 0.2 percentage points to 10.7%. This decrease was caused by higher restaurant operating costs (primarily labor), offset by lower food costs and better leverage of general and administrative expenses. Same-store sales, which started the year in slightly negative territory due to the cannibalization of old restaurants by newer openings, improved every quarter of the past year. For Q4, same-store sales growth was 2.7%, while the number for the fiscal year was 0.9%. Management indicated that it expects comp-store growth for all of 1999 will be in the 2%-3% range based on current trends.
Why am I so fond of Consolidated Products? More important than my affection for its products is its financial predictability. I have been able to count on the company to post 15%-20% earnings growth year after year. While there are periods where quarterly results are a little better or worse than trend, Consolidated has produced consistent and steadily improving results. All the while, it has been possible to invest in the company at what, relative to the market, appear to be quite reasonable multiples. While there are certainly faster growing and more exciting companies out there, I'm quite content finding little gems like Consolidated Products. Now, if it would only add Alexandria, Virginia to its expansion plans!<% ' AvantGo:End %>
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