FOOL PLATE
SPECIAL
An Investment Opinion by Randy
Befumo
R&R Takes Break
Business forms maker turned information systems developer REYNOLDS &
REYNOLDS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: REY)") else Response.Write("(NYSE: REY)") end if %> plunged $4 3/4 to $15 this morning. The company
informed investors that it would only earn somewhere between $0.21 and $0.25
per share in its fiscal third quarter instead of the $0.33 per share that
analysts had been expecting. Reynolds blames the shortfall on lower-than-expected
revenues in each of the company's major businesses -- particularly the company's
automotive information systems and forms business. Reynolds stated that
automotive system sales were hurt by a "tentativeness on the part of automobile
dealers in making buying decisions because of various automobile manufacturer
initiatives," as well as slower sales of automobiles over the last few months
due to increased
labor strike
activity.
Although the warning seems like a typical earnings yellow flag, there are
some elements to it that suggest the company may have had unrealistic
expectations. The company called revenue growth "below plan" despite the
fact that Reynolds anticipates revenues of $325 to $340 million, up 17% from
year-ago levels. In fact, 17% compares pretty good to the company's historical
revenue growth trends. Over last five-year and two-year periods, sales have
grown an average of 14.1% and 16.6% per year, respectively. While sales growth
has been accelerating over that period, achieving 20%-plus sales growth seems
to have been the company's target for this quarter. For a company that still
derives more than 50% of its revenues from plain old business forms, a growth
rate normally seen in pure-play information companies seems a bit of a
stretch.
Certainly, management at Reynolds is more than capable. When Reynolds realized
that just making business forms was a
dead-end
business, the company began to develop information systems for automotive
dealers and healthcare companies that would use the forms. This has been
wildly successful, particularly on the automotive side where more than 90%
of all dealers use Reynolds and Reynolds systems. This 90% market penetration
has a downside as well, as "the revenue growth
potential is not much more than the car dealership business as a whole."
[See 2/3/97: "The
Wrap on R&R."] Down from as high as $24 only two weeks ago, apparently
a few investors added lagging auto sales to Reynolds auto sales dependence
and found that it equaled a sell order. Today's ugliness in Reynolds has
more to do with the fact that it is 73.4% owned by institutions than any
ridiculous valuation, as even yesterday the company was only trading at 15
times fiscal '97 earnings estimates and 12 times fiscal '98 estimates. In
fact, after today the company may actually be cheap for the first time in
years.
UPS
SEDA SPECIALTY PACKAGING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SSPC)") else Response.Write("(Nasdaq: SSPC)") end if %> gained $6 1/2 to $28 1/2 after
the producer of specialty packing for consumer products agreed to be acquired
by CCL Industries for $29 per share in cash, which values SEDA at 2.6 times
expected 1997 revenues and 19.2 timesestimated 1997 EPS of $1.46.
Telco timing device maker DATUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DATM)") else Response.Write("(Nasdaq: DATM)") end if %> rose $3 to $29
3/4 after Hambrecht & Quist raised its rating on the company to "strong
buy" from "buy," expecting that the company is having a good quarter with
strong demand from such customers as Lucent and Motorola.
Energy exploration and production firm MCFARLAND ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCFE)") else Response.Write("(Nasdaq: MCFE)") end if %>
tacked on another $1 11/16 to $18 5/16 after yesterday's unexplained $3 3/8
move on releasing news this morning that it will be acquired by MONTEREY
RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRC)") else Response.Write("(NYSE: MRC)") end if %> for $18.55 per share in cash.
ICG COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ICGX)") else Response.Write("(Nasdaq: ICGX)") end if %> rose $1 5/8 to $19 7/8 after the
competitive local exchange carrier said it intends to exchange zero coupon
bonds and preferred stock for other bonds and preferred issues.
British cable company TELEWEST COMMUNICATIONS PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TWSTY)") else Response.Write("(Nasdaq: TWSTY)") end if %>
added $1 1/4 to $15 5/8 on a "buy" recommendation from Dresdner Kleinwort
Benson.
EQUIFAX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EFX)") else Response.Write("(NYSE: EFX)") end if %> moved up $3 to $35 1/8 on news from Standard
& Poor's that it will be included in that company's S&P 500 Index,
replacing PanEnergy, which is merging with DUKE POWER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DUK)") else Response.Write("(NYSE: DUK)") end if %>.
Shipping company OVERSEAS SHIPHOLDING GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OSG)") else Response.Write("(NYSE: OSG)") end if %> picked up
$1 3/8 to $20 1/8 on announcing an agreement with a partner to sell Celebrity
Cruise Lines to ROYAL CARIBBEAN CRUISES LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RCL)") else Response.Write("(NYSE: RCL)") end if %>. The company
will receive $230 million in cash and 7.4 million Royal Caribbean shares.
Canadian plastics company ROYAL GROUP TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RYG)") else Response.Write("(NYSE: RYG)") end if %> rose
$1 1/4 to $27 3/8 after being mentioned in yesterday's Wall Street
Journal column, "Fund Track."
SIMULA INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SMU)") else Response.Write("(NYSE: SMU)") end if %> added $1 to $19 1/8 after clarifying the
circumstances around the sale of 200,000 share block of shares by charitable
remainder trusts established by the safety equipment firm's Chair.
Textile company UNIFI INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UFI)") else Response.Write("(NYSE: UFI)") end if %> rose $2 to $35 1/2 on announcing
a yarn production joint venture with Parkdale Mills, Inc.
CANADIAN PACIFIC LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CP)") else Response.Write("(NYSE: CP)") end if %> climbed $1 1/2 to $28 7/8 on news
that it has sold a $722 million stake in waste disposal company LAIDLAW
INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LDW.A)") else Response.Write("(NYSE: LDW.A)") end if %>.
European electronics giant PHILIPS ELECTRONICS NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHG)") else Response.Write("(NYSE: PHG)") end if %> gained
$3 3/8 to $66 5/8 after announcing a $2.5 billion joint venture with LUCENT
TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %> to produce corded and cordless phones, other
wireless devices, and answering machines.
DOWNS
PRIME CAPITAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMCP)") else Response.Write("(Nasdaq: PMCP)") end if %> declined $1 1/16 to $5 7/16 after
filing a lawsuit that reveals that leases it owns are currently in default.
Medical products company VITAL SIGNS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VITL)") else Response.Write("(Nasdaq: VITL)") end if %> slumped $2 1/4
to $18 7/8 after the company said it will acquire respiratory products maker
Marquest Medical, which the company says will necessitate an expansion of
its sales force and will hurt near-term earnings.
COMPLETE BUSINESS SOLUTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBSL)") else Response.Write("(Nasdaq: CBSL)") end if %> lost $1 7/8 to $23 7/8
after Donaldson, Lufkin & Jenrette cut its rating on the company to "market
perform" from "buy," despite the company's announcement yesterday that it
signed a Year 2000
remediation contract with South Carolina Electric & Gas.
Insurance company POE & BROWN INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: POBR)") else Response.Write("(Nasdaq: POBR)") end if %> fell $1 7/8
to $33 3/8 after Robinson-Humphrey adjusted its rating on the firm to "long-term
buy" from "near-term buy." Everyone clear on that?
AMWAY JAPAN LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AJL)") else Response.Write("(NYSE: AJL)") end if %> lost $2 1/2 to $16 3/4 after the consumer
products marketer said it expects fiscal 1997 sales to fall 4.8% and earnings
to decline 16.7%, both in yen terms.
Fashion designer TOMMY HILFIGER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TOM)") else Response.Write("(NYSE: TOM)") end if %> slid $3 to $40 3/8
after Dillon Read cut its rating on the company to "outperform" from "buy."
UCAR INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UCR)") else Response.Write("(NYSE: UCR)") end if %> slid $2 3/8 to $41 3/4 after the company
said its customers have filed a class action lawsuit against the graphite
electrode company alleging price fixing. Recently, UCAR and other industry
participants were slapped with grand jury subpoenas.
CONFERENCE CALLS
MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %>
(402) 220-1003 -- replay
After 8:00 p.m. EDT
COMPUTER ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %>
(Journalist Briefing of New OpenIngres Release)
(888) 243-0816 -- replay from 1:30 p.m. EDT through 6:00 p.m. EDT on 6/17
(703) 736-7255 -- replay number for international callers
06/17/97 (Tuesday)
ORACLE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %>
(402) 220-4217 -- replay for 24 hours
06/18/97 (Wednesday)
ADOBE SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADBE)") else Response.Write("(Nasdaq: ADBE)") end if %>
after 8:45 p.m. EDT for 3 days
(800) 633-8284 (reservation # 2805001)
06/19/97 (Thursday)
BRODERBUND SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BROD)") else Response.Write("(Nasdaq: BROD)") end if %>
(800) 642-1687 (ID#427430) -- replay available through 6/23
FOOL PORTFOLIO BORING PORTFOLIO ATCT down $3/16 at $5 5/16 ATLS down $1/8 at $34 3/4 AOL up $1/2 at $61 1/2 BGP down $3/8 at $23 CHV down $1/2 at $76 3/8 CSL down $1/4 at $33 1/2 COMS down $3/16 at $47 1/8 CSCO up $1 3/16 at $68 3/4 DJT down $1/4 at $11 7/8 GNT down $1/2 at $35 1/4 GM down $1/2 at $57 ORCL up $3/8 at $52 11/16 IOM up $7/8 at $21 3/8 OXHP up $9/16 at $69 3/4 KLAC up $2 3/8 at $49 1/8 PMSI unch. at $11 5/8 LU up $2 1/4 at $69 7/8 TDW up $3/8 at $41 1/2 MMM up $1 1/4 at $99 T unch. at $38 1/4WE DELIVER - Get The Lunchtime News delivered
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Randy Befumo (TMF Templr), a Fool
Fool Plate SpecialDale Wettlaufer (TMF Ralegh), another Fool
Ups & DownsBrian Bauer (TMF Hoops), and yet another Fool
Editing