<% ' AvantGo:MarketClose %>DJIA 9016.14 +136.46 (+1.54%) S&P 500 1176.74 +26.60 (+2.31%) Nasdaq 2003.16 +48.83 (+2.50%) Value Line Index 892.77 +10.45 (+1.18%) 30-Year Bond 103 6/32 -19/32 5.04 Yield<% ' AvantGo:End %>
<% ' AvantGo:Heroes %>Unbelievably, it's been an entire two months since online auction house eBay <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EBAY)") else Response.Write("(Nasdaq: EBAY)") end if %> burst on the scene with its $18 per share initial public offering. Since then, the company's shares have appreciated tenfold. Seeking to emulate eBay in more ways than one, online auctioneer uBid Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UBID)") else Response.Write("(Nasdaq: UBID)") end if %> gained $33 to $48 today after parent Creative Computers <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MALL)") else Response.Write("(Nasdaq: MALL)") end if %> sold a 18% stake in the company in an IPO at a price of $15 per share. While both uBid and eBay auction stuff online and have two-syllable names with oddly placed capital letters, the similarities end there. uBid sells close-out and refurbished consumer electronics and computing products from different vendors on its website, while eBay connects sellers of all kinds of merchandise with buyers through its homepage. Creative Computers lost $9 to $26 1/4 today.
Elsewhere on the IPO front today, high-end Chinese restaurant operator P.F. Chang's China Bistro <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PFCB)") else Response.Write("(Nasdaq: PFCB)") end if %> egg-rolled its way $6 1/2 higher to $18 1/2 after the company offered 4.15 million shares at a price of $12 per stub. In its original S-1 federal filing for the IPO in July, the Phoenix-based company said it operated 15 restaurants, primarily in Southeastern and Western states, with plans to open an additional 10 units in 1998 and 13 more in 1999. For the first half of this year, the firm posted earnings of $847,000 on $32.9 million in revenues. Amazingly, the company did not apply for a listing on the New York Stock Exchange or the American Stock Exchange, even though the three-letter ticker "MSG" appears to be available.
QUICK TAKES: Cancer drug developer Coulter Pharmaceutical <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLTR)") else Response.Write("(Nasdaq: CLTR)") end if %> picked up $2 3/4 to $31 3/8 after SmithKline Beecham <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBH)") else Response.Write("(NYSE: SBH)") end if %> agreed to commercialize the company's antibody for treating non-Hodgkin's lymphoma. Under the deal, Coulter will receive an up-front payment of $41.5 million, a $15 million credit line, and the potential for an additional $76 million in milestone payments from SmithKline... Healthcare products and drug firm Johnson & Johnson <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JNJ)") else Response.Write("(NYSE: JNJ)") end if %> rose $2 3/16 to $81 3/4 after the company announced it will take an $800 million after-tax charge in Q4 to cut 4.4% of its global workforce, streamline its manufacturing operations, account for charges from its recent acquisition of orthopedics products maker DePuy Inc., and write off underperforming assets. For more details, see this morning's Breakfast With the Fool.
Metals manufacturer and automotive underbody repair products maker Myers Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: MYE)") else Response.Write("(AMEX: MYE)") end if %> moved up $1 3/4 to $24 1/4 after agreeing to acquire the French-based plastic material handling division of Sommer Allibert for $130 million in cash. The deal is expected to be neutral to Myers' fiscal 1999 earnings but accretive thereafter... Biopharmaceutical company Chiron Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHIR)") else Response.Write("(Nasdaq: CHIR)") end if %> rose $1 1/8 to $24 1/16 after Deutsche Bank Securities raised its rating to "buy" from "accumulate"... Internet city guides and event tickets provider Ticketmaster Online-CitySearch <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TMCS)") else Response.Write("(Nasdaq: TMCS)") end if %> tacked on another $2 13/16 to $43 1/16 after jumping 187% yesterday in its first day of trading... Business transaction management technologies firm Interlinq Software Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INLQ)") else Response.Write("(Nasdaq: INLQ)") end if %> rose $1/2 to $8 1/8 on reports W.M. Hambrecht of Hambrecht & Quist <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HQ)") else Response.Write("(NYSE: HQ)") end if %> fame is discussing the possibility of taking a majority stake in the firm for $8.50 per share in cash.
Trucking, air-freight, and logistics company CNF Transportation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNF)") else Response.Write("(NYSE: CNF)") end if %> motored ahead $2 1/16 to $34 5/16 after saying it remains "optimistic" about reports of a U.S. Postal Service expansion of its Priority Mail network involving new labor contracts. CNF's Emery Worldwide unit has a $1.7 billion, 5-year sorting and transportation contract with Priority Mail... Automated test equipment and electronic equipment backplane manufacturer Teradyne <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TER)") else Response.Write("(NYSE: TER)") end if %> jumped up $3 to $39 9/16 after SG Cowen started coverage with a "strong buy" rating and a price target of $60 per share... Full-motion "video libraries" producer Visual Data Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VDAT)") else Response.Write("(Nasdaq: VDAT)") end if %> surged $2 5/16 to $5 on no apparent news. After the close, President and CEO Randy Selman said there are "no unusual developments" to account for the rise in the company's shares.<% ' AvantGo:End %>
<% ' AvantGo:Goats %>As the frequency and volume of jewelry ads intensifies along with the holiday shopping season, one retailer is wondering whether its goods need an emergency polishing. Piercing Pagoda <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PGDA)") else Response.Write("(Nasdaq: PGDA)") end if %>, which sells gold and silver from mall-based kiosks, rusted $6 1/8, or 41.9%, to $8 1/2 today after it reported disappointing November sales results and warned that a continuation of the trend would hurt earnings for the key winter quarter. "Although the majority of the holiday shopping season is still ahead of us," said CEO John F. Eureyecko in a statement, "preliminary sales results indicate that the company may not meet its sales targets for the quarter.'' Same-store sales were 11% below last November's levels and are 7% off the mark for the first two months of the period. Piercing Pagoda's top brass is working to figure out what's going wrong, Eureyecko said, but if a solution isn't found, Q3 results will miss the First Call mean EPS estimate of $1.32.
Worries that enterprise resource planning (ERP) software developer J.D. Edwards & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JDEC)") else Response.Write("(Nasdaq: JDEC)") end if %> expects to see a slowdown in its high-margin services business offset positive earnings news today. J.D. Edwards slid $7 1/8 to $28 despite last night's announcement of fiscal Q4 EPS of $0.34, up from $0.23 last year and a penny above Wall Street's consensus estimate. According to reports, the company is expecting to see its service revenues slip to the mid 20% range in fiscal 1999 from 37% in 1998 as the company outsources more service functions. Total revenue growth is projected in the mid-30% range, short of this year's 44% figure. Slowing growth is not a new theme among ERP companies: Just ask the likes of such sales growth hampered business software companies such as PeopleSoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSFT)") else Response.Write("(Nasdaq: PSFT)") end if %> and Baan <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BAANF)") else Response.Write("(Nasdaq: BAANF)") end if %>.
QUICK CUTS: Digital telecommunications company PairGain Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAIR)") else Response.Write("(Nasdaq: PAIR)") end if %> lost $2 1/32 to $7 1/32 after it said it expects Q4 revenues and operating earnings to be "significantly below" market expectations due to continuing price competition in the T1 access sector and the loss of a primary supplier contract with a regional Bell phone company... Speech recognition software company Lernout & Hauspie <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LHSPF)") else Response.Write("(Nasdaq: LHSPF)") end if %> dropped another $1 3/4 to $33 this morning after The Wall Street Journal's "Heard on the Street" column spotlighted the scrutiny the company's accounting method for acquisitions has faced from the SEC. Head to today's Lunchtime News for a closer look... VCR Plus+ developer Gemstar International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GMSTF)") else Response.Write("(Nasdaq: GMSTF)") end if %>, a recent Daily Double, lost $6 1/4 to $60 1/4 after Scientific-Atlanta <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFA)") else Response.Write("(NYSE: SFA)") end if %> filed lawsuit against it in a U.S. district court in Georgia alleging violation of antitrust laws.
Apple Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %> wormed its way down $15/16 to $32 3/4 after it said it licensed its FireWire multimedia connection technology to Matsushita Electric Industrial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MC)") else Response.Write("(NYSE: MC)") end if %>... Networking products company Osicom Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FIBR)") else Response.Write("(Nasdaq: FIBR)") end if %> dropped $1 3/16 to $7 13/16 after the company turned in a Q3 loss of $0.47 per share, better than last year's $0.85 loss. The company said revenues were hurt by Asian weakness and a delay of key components in the NETsilicon business... Enterprise application software developer BMC Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BMCS)") else Response.Write("(Nasdaq: BMCS)") end if %> fell $3 13/16 to $47 3/16 after Morgan Stanley Dean Witter downgraded it to "neutral" from "outperform"... Enterprise software developer New Era of Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NEON)") else Response.Write("(Nasdaq: NEON)") end if %> dimmed $1 1/8 to $34 1/8 after it sold 4.4 million shares of common stock at $34 per share to fund acquisitions and new technology.
Online casino operator GLC Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GLCCF)") else Response.Write("(Nasdaq: GLCCF)") end if %> wasted $3 1/2 to $5 1/4 after CFO Larry Weltman reportedly told CNBC that the company's casino site is off limits to U.S. citizens. St. Kitts-based GLC is working to change that, according to Weltman... Drug developer Immune Response Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IMNR)") else Response.Write("(Nasdaq: IMNR)") end if %> fell $3/4 to $12 on yesterday afternoon's reports that CFO Charles Cashion left to take the same position with Quidel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QDEL)") else Response.Write("(Nasdaq: QDEL)") end if %>... Technology consulting and training company Aris Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ARSC)") else Response.Write("(Nasdaq: ARSC)") end if %> dumped $1 3/16 to $11 7/16 after it said it anticipates a one-time Q4 charge of $1 to $2 million for a restructuring of its education division expected to produce $2 million in annual cost savings starting in 1999... Hotel manager Promus Hotel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PRH)") else Response.Write("(NYSE: PRH)") end if %> crumbled $1 to $32 1/16 after Lehman Bros. downgraded the company to "outperform" from "buy."
Outsourcing and consulting firm CDI Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDI)") else Response.Write("(NYSE: CDI)") end if %> retreated $1 3/4 to $23 13/16 after PaineWebber lowered its rating on the stock to "neutral" from "attractive"... Dulles, Virginia-based United Express carrier Atlantic Coast Airlines <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACAI)") else Response.Write("(Nasdaq: ACAI)") end if %> drooped $5 3/4 to $24 3/4 after it said it will incur unexpectedly high pilot training expenses in Q4. The company said it believes it can meet Wall Street's $0.39 estimate, not counting the impact of the training costs... Telecommunications services provider Atlantic Tele-Network <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: ANK)") else Response.Write("(AMEX: ANK)") end if %> hung up $3/4 to $8 3/4 after it said it received a notice from AT&T Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> terminating an agreement between AT&T and Atlantic subsidiary Guyana Telephone & Telegraph on Dec. 31, 1999.<% ' AvantGo:End %>
FOOL
ON THE HILL
An Investment Opinion
by
Warren Gump
Will Cash Flow at U.S. Filter?
<% ' AvantGo:FOTH %>A tidal wave of an opportunity could be rising for companies associated with water. As the global population continues to grow and concerns about water quality increase worldwide, enormous investments will undoubtedly be made in the worldwide water infrastructure. Just this week, President Clinton released almost $1 billion in grants for states to invest in improving water treatment facilities and protecting watershed areas. The companies serving this market have been consolidating rapidly, with one of the main acquirers being Palm Desert, California-based U.S. Filter <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: USF)") else Response.Write("(NYSE: USF)") end if %>. You gotta give management some credit simply for putting their headquarters there.
Never heard of U.S. Filter? That could be because only 2% of the company's 1997 revenue came from retail and consumer customers. Most of the company's business has been (and will continue to be) for industrial and municipal customers. Services offered include the design and manufacture of customized industrial water treatment systems, the operation of outsourced municipal water systems, and selling equipment such as water pipes and fire hydrants.
In June of this year, however, the company made a big splash into the consumer segment with the $1.5 billion stock purchase of Culligan. Yup, you know them for the Culligan man. They've installed about 3 million water treatment systems in the U.S. homes. In addition, they sell products and services to well known consumer firms like Coca-Cola, Nabisco, and Colgate-Palmolive. This acquisition jump-started the consumer segment with arguably the most powerful brand in the business.
Culligan isn't US. Filter's only takeover. Since 1991, over 150 acquisitions have been brought into its portfolio, with several major ones over the past year. Last December, the company picked up two important acquisitions, Kinetics and Memtec. Kinetics makes high-purity process piping systems that handle gases, water, and chemicals used in the microelectronics, pharmaceutical, and biotech industries; it posted fiscal 1997 revenues of almost $400 million. Memtec, an Australian company with $244 million in fiscal 1997 revenues, designs and manufactures membrane-based systems that filter gas and liquids using proprietary microfiltration technology.
U.S. Filter's reported operating earnings have been very strong over the past three years, rising from $0.54 in fiscal 1996 (ended March) to $1.20 in fiscal 1998. These figures, reported by First Call, exclude the numerous acquisition and other "one-time" charges. The future looks bright as well, with First Call estimates of $1.44 and $1.61 for fiscal 1999 and 2000, respectively. These kinds of numbers really peaked my interest. A company in a field where I could envision tremendous growth over the next couple of decades and strong reporting profits to boot!
I then Foolishly took a look at the company's cash flow statement. That's right, I wasn't going to listen only to what the Wise had to say about earnings. I wanted to see how much of the green stuff was making it out of the income statement and into the company's coffers. It is especially important to do this when investing in acquisitive companies, as special charges have a way of not being considered by analysts, although they can help boost future earnings. The picture on the cash flow front hasn't been very pretty. In fact, it was U-G-L-Y. A company without strong cash flows can be likened to kid not eating vegetables... somewhat unhealthy.
In 1996 (all data is for fiscal years and has been restated for pooling-of-interest acquisitions through March 31, 1998), the company posted revenues of $1.1 billion. Reported net income was $31 million, but cash flow from operations was only $7 million. Results in 1997 were even worse. Sales jumped to $1.8 billion, net income nudged upward to $33 million, yet cash flow from operations was a negative $16 million. Cash flow for 1998, although improved, was still lackluster as sales jumped to $3.2 billion, net income (adding back the non-cash portion of write-offs) was $52 million and operating cash flow was $36 million. What's the alibi for these low cash flows numbers? Increases in several balance sheet accounts: prepaid expenses and other assets, costs in excess of billings on long-term contracts, and inventories.
It is understandable that these accounts would rise some due to the company's rapid growth, but I'm not enamored with companies with working capital increases so big that operating cash flow is really low (or negative). Call me a member of the old school (you know, those folks who worry about cash flow and valuation when looking at stocks), but $3.2 billion in 1997 sales and operating cash flow of only $36 million? Doesn't sound too appetizing to me. Perhaps investors recognition of these poor underlying economics, accompanied by concern over international turmoil, explain the stock's decline from $30 last December 31 to $11 7/16 at its low point in early October. (The stock has since rebounded sharply to $23 5/8.)
Could the cash-flow draught be ending? Yesterday, Dow Jones Newswire ran an article on a meeting between U.S. Filter management and the Wise of Wall Street. A CS First Boston research report was quoted as noting that U.S. Filter "set the stage for a permanent transition to a cash-flow orientation... USF emphasized that growth would be supported by cash flow." Those words are music to my ears. Poor cash flow has been the missing link that made it difficult to invest in the company unless the stock became ridiculously cheap. You can't, of course, get too excited the moment a company's management discusses a new initiative. There are many examples where goals and objectives have never been met. On the other hand, if the company's management gets large amounts of green flowing through net income down to operating cash flow, the outlook for company shareholders will be much more nourishing.<% ' AvantGo:End %>
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
WE
DELIVER - Get The Evening News delivered
to your e-mailbox every evening!
See something moving a stock that we didn't cover?
E-mail the
Fool
News Team
and we will start working on the story.
Unfortunately, we cannot answer every e-mail
or respond to individual questions.
|
Contributing Writers Yi-Hsin Chang (TMF Puck), a Fool Brian Graney (TMF Panic), another Fool David Marino-Nachison (TMF Braden), a new Fool
Editing |