FOOL PLATE SPECIAL

Hewlett-Packard <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> met with an unkind fate this morning after the company failed to meet Wall Street expectations for its fiscal second quarter. Hewlett reported profits of $1.37 per share, eight cents shy of the $1.45 expectations that many had been looking for. Overall, orders were up 24.7%, revenues rose 33.8% and earnings per share were 24.5% up in the quarter.

The company stressed that its line of premium personal computers continues to take market share, with the Vectra and Pavillion lines showing particularly high demand. Inkjet and laser printers continued to increase their market share. Servers and enterprise software products were strong while the disk-drive business was weak and workstations leveled off in anticipation of coming product introductions in June. H-P saw particularly slower growth in its test and measurement segment, not surprising in light of the current weakness in the North American semiconductor equipment market.

The nasty bit in the earnings was the blip in gross margins, decreasing to 34.2% from 37.3% in the first quarter of fiscal 1996. Product delays in the workstation and disk-drive area, a higher proportion of lower-margin PCs and printers in the product mix, and competitive pricing pressures all contributed to this drop in gross margin. It was probably this number that caused Cowan & Co. analyst Richard Chu to cut Hewlett-Packard to "buy" from "strong buy" this morning. The stock's reaction to all this? H-P was down $9 1/4 to $104 1/2.

UPGRADES & DOWNGRADES

Alex Brown & Sons upped Mesa Airlines <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MESA)") else Response.Write("(NASDAQ: MESA)") end if %> to "strong buy" from "buy", moving the company's shares up $15/16 to $12. Analyst William Wrightson thinks the company's fundamentals are stronger than the market currently believes.

Lehman Brothers cut PairGain <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PAIR)") else Response.Write("(NASDAQ: PAIR)") end if %> from "outperform" to "neutral", dropping the shares $6 1/2 to $107 1/4. Analyst Tim Luke cited the valuation, careful to call the company's core business strong.

Goldman Sachs added drug store chain Thrifty Payless <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TPD)") else Response.Write("(NYSE: TPD)") end if %> to its "priority list" based on the company's ability to gain market share on the West coast and establish a presence on the East coast. Shares rose $7/8 to $15 3/8 in response.

EARNINGS SURPRISES

Mail-order retailer Land's End <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LE)") else Response.Write("(NYSE: LE)") end if %> reported earnings of $0.12 EPS, far and away above the expectations of $0.05 EPS and rewarding the shares with a $1 to $20 gain.

Children's Comprehensive <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KIDS)") else Response.Write("(NASDAQ: KIDS)") end if %> popped up $7/8 to $16 1/4 after the company reported earnings of $0.18 EPS compared to expectations of only $0.13 EPS.

Paragon Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PAO)") else Response.Write("(NYSE: PAO)") end if %> dropped $1 3/4 to $15 3/8 after reporting a disappointing $0.38 EPS operating result for the quarter, compared to $0.40 EPS last year.

Turnaround Harvard Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HAVA)") else Response.Write("(NASDAQ: HAVA)") end if %> dropped $4 to $14 1/2 after the automotive component manufacturer predicted lower third quarter results than had previously been expected.

Data storage device developer Network Appliance <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NTAP)") else Response.Write("(NASDAQ: NTAP)") end if %> dropped $4 1/4 to $34 1/2 in spite of the fact that it reported earnings of $0.17 EPS compared to estimates of about $0.12 according to Zacks Analyst Watch.

ODDS & ENDS

A+ Network <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ACOM)") else Response.Write("(NASDAQ: ACOM)") end if %> soared $4 1/4 to $19 3/4 after Metrocall <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MCLL)") else Response.Write("(NASDAQ: MCLL)") end if %> signed a definitive agreement to acquire the paging and telemessaging concern in a two-step transaction, initially buying 40% for $21.10 a share.

Diversified holding company Mercer International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MERCS)") else Response.Write("(NASDAQ: MERCS)") end if %> got a $1 1/4 to $20 1/2 boost after it announced it would distribute its Arbatax International subsidiary in a special dividend to shareholders.

TCSI Corporation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TCSI)") else Response.Write("(NASDAQ: TCSI)") end if %> announced a 3-for-2 stock split this morning. The shares rallied $1 5/8 to $32 1/2 after this vote of confidence from the board of directors.

Recent initial public offering (IPO) FemRX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FMRX)") else Response.Write("(NASDAQ: FMRX)") end if %> retreated a little, down $1 1/2 to $15 1/4, after yesterday's news that the Food & Drug Administration had cleared the company's Flo-Stat fluid management product for marketing.

Shares of ValuJet <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VJET)") else Response.Write("(NASDAQ: VJET)") end if %> remained in turmoil, down $1 25/32 to $12 17/32, as more information about the devastating Florida crash continues to hit the news media.

Randy Befumo (MF Templar), a Fool
Selena Maranjian (MF Selena), another Fool