CONFERENCE CALLS
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FOOL PLATE SPECIAL
Manpower, Olsten & Temping
Analyst downgrades and estimate trimming at two of the larger companies in the temporary help industry have caused the entire group some headaches this week. The carnage began on Tuesday when Judith Scott at Robert Baird revised her estimates for Milwaukee-based MANPOWER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MAN)") else Response.Write("(NYSE: MAN)") end if %>. Scott now only sees earnings per share (EPS) of $1.78 for this fiscal year, down from previous estimates of $1.85 EPS. Fiscal 1997 took an even bigger hit, getting notched down to $2.15 EPS from $2.30 EPS previously. Scott's reason? Apparently, Manpower had a little heart-to-heart on Monday with the sell-side analysts who cover the company, explaining that the business climate in France was not improving as fast as previously expected. The company was kind enough to hit the wires later that day with an interviewer telling investors that Manpower had told analysts it was looking for $1.80 EPS this year instead of $1.85 EPS. There was no mention of how management saw fiscal 1997 shaping up, although as of last week, First Call had consensus estimates at $2.31 EPS.
Scott was not finished with just Manpower, though, as OLSTEN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLS)") else Response.Write("(NYSE: OLS)") end if %> discovered to its horror yesterday. The firm was beaten down to "moderately attractive" from "aggressive buy," although estimates for this fiscal year were only reduced by a nickel to $1.55 EPS. One would think a move of that verbal magnitude would amount to more than a 3% change in annual earnings per share. Melville, New York-based Olsten ranks as the third-largest temporary services company in the United States but lacks significant operations overseas. Why was the company downgraded so soon after Manpower's announcement of problems at its French subsidiary when Olsten apparently does not have a French subsidiary? The markets did not ask, taking the downgrade as information enough and thoroughly trouncing the shares yesterday. Unlike Manpower, which made a blanket announcement to the press that its upcoming earnings looked to be lower, Olsten was silent on its future prospects. First Call estimates for Olsten are for $1.60 EPS this year and $1.87 EPS next year.
Temporary services firms have had an incredible run over the past twelve to eighteen months as the general economic picture has remained solid. With unemployment at record low levels and the desire to outsource functions accelerating, temporary services firms have stepped in to fill a critical niche. Due partly to the cyclical peak in the economy and partly to the secular shift in the way companies are doing business, temporary services firms have gone from supplying secretaries to providing mission-critical medical, research, accounting and other skilled professional services on an immediate basis. Manpower and Olsten are two of the most prominent firms in the world in this line of business. Along with ROBERT HALF <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RHI)") else Response.Write("(NYSE: RHI)") end if %> and INTERIM SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IS)") else Response.Write("(NYSE: IS)") end if %>, they represent some of the largest publicly-traded players in this global industry. Along with these names are some of the more speculative smaller growth vehicles like ACCUSTAFF <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASTF)") else Response.Write("(Nasdaq: ASTF)") end if %> and ON ASSIGNMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASGN)") else Response.Write("(Nasdaq: ASGN)") end if %>.
In a previous article on the sector, the focus was the secular business shift that has occurred in the past five years, emphasizing outsourcing over in-house capabilities. Although this trend is intact, investors must remember the reason why companies want to outsource functions -- beyond the fact that temps are cheaper because they get no benefits, it is plain easier to fire them. Any sign of a slowdown in the aging economic cycle and investors will be out of these temporary services names faster than you can say "business cycle." But as investors in CDI CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDI)") else Response.Write("(NYSE: CDI)") end if %> discovered over the past year, a company lagging because of a down-cycle at $13 and change can go as high as $37 when the tide shifts. That tide can push these companies right back when it starts to turn. The good news is that this is the time you can start to find the bargains in quality companies in the industry in order to participate in the ten-year growth story that is outsourcing -- without worrying about three- to five-year swings in the economy. Manpower sits at 14 times *revised* estimates for next year while Olsten is at 12 times next year's current estimates. Both companies have shown sustained growth in the 15% range for the past few years and are significant players in the industry. Beginning to examine these companies while Wall Street panics might be a good idea for investors looking for an entree into this sector.
UPS
ETHAN ALLEN INTERIORS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ETH)") else Response.Write("(NYSE: ETH)") end if %> moved up $3 3/4 to $31 1/4 on earnings guidance from the company. First Call indicates a mean EPS estimate of $0.43, with a high estimate of $0.45, while the company is now telling investors to expect $0.52 to 0.55.
Continuing its recent strength, VIASOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VIAS)") else Response.Write("(Nasdaq: VIAS)") end if %> is trading higher, advancing $3 1/4 to $45. Viasoft has announced a number of deals lately but also may be moving in tandem with fellow year-2000 software solutions company DATA DIMENSIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DDIM)") else Response.Write("(Nasdaq: DDIM)") end if %>. For its part, Data Dimensions is also continuing a run today, moving up $2 3/8 to $36 1/2.
PEERLESS MANUFACTURING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMFG)") else Response.Write("(Nasdaq: PMFG)") end if %> is moving up to $11 1/2 from yesterday's close of $10 1/4. Peerless reported a 58% increase in fourth quarter earnings and disclosed that it has over six months of revenues in its backlog.
Watch-maker and distributor MOVADO GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MOVA)") else Response.Write("(Nasdaq: MOVA)") end if %> keeps on moving after beating earnings estimates by two cents last week, reporting net income up 16.6% from the year-ago quarter. Movado has risen $1 5/8 to $22 1/4 so far this morning.
Elsewhere in the "timepiece sector," FOSSIL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FOSL)") else Response.Write("(Nasdaq: FOSL)") end if %> is ticking up $1 1/2 to $11 1/4 on positive earnings guidance for the coming two quarters.
SUMMA FOUR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUMA)") else Response.Write("(Nasdaq: SUMA)") end if %> signed a contract to supply its switches to WESTINGHOUSE<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WX)") else Response.Write("(NYSE: WX)") end if %> and is trading up $1 at $14 1/2 on the news.
INTERSTATE BAKERIES CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBC)") else Response.Write("(NYSE: IBC)") end if %>, the baker of Wonder Bread and Twinkies and former leveraged-buyout baby, reported much higher earnings and revenues in its quarter just ended. IBC stock rose this morning to $35 1/8 from $33.
QUARTERDECK <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QDEK)") else Response.Write("(Nasdaq: QDEK)") end if %> is surging on news of two new software releases for Windows 95, one of which it is calling MagnaRam 97. The stock is up 27%, or $1 5/8, to $7 5/8.
Shares of semiconductor concern MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> advanced $1 1/2 to $26 7/8 after the company filed a request that the U.S. Department of Commerce investigate whether Korean DRAM-makers have been "dumping" product.
DOWNS
Italian getters producer SAES GETTERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SAESY)") else Response.Write("(Nasdaq: SAESY)") end if %> was down $2 17/32 to $15 on news that it would post second quarter income 37% lower than in the year-ago period, due mainly to the strengthening Italian lira. Getters are used to remove gas traces from vacuum tubes or lamps.
NUEREX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NXCO)") else Response.Write("(Nasdaq: NXCO)") end if %> fell $2 1/2 to $17 1/2 after announcing that testing of its SNX-III drug, which is intended to relieve chronic pain associated with cancer, would be not be complete until the end of 1997.
Yesterday's 18% rise in shares of VALUE HEALTH INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VH)") else Response.Write("(NYSE: VH)") end if %>, for which the company had no explanation, has been followed today by an unexplained drop of $1 3/8 of $17 7/8. The company provides managed heath care benefit programs.
CYRIX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYRX)") else Response.Write("(Nasdaq: CYRX)") end if %> fell $15/16 to $13 1/4 after Oppenheimer & Co. cut its earnings estimates for the company and reiterated its "underperform" rating. Cyrix manufactures computer chips which compete with Intel products.
Shares of INTEGRATED SYSTEMS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTS)") else Response.Write("(Nasdaq: INTS)") end if %> sank $3 to $38 after reporting earnings that, after a one-time charge associated with an acquisition, fall a penny short of consensus estimates -- $0.10 vs. $0.11 per share.
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