The Motley Fool, 6/26/97: The Lunchtime News

FOOL PLATE SPECIAL
An Investment Opinion by Randy Befumo

Komag Warns, Torn

Thin-film media manufacturer KOMAG INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KMAG)") else Response.Write("(Nasdaq: KMAG)") end if %> plunged $7 7/16 to $16 1/8 after the company reported that second quarter results would not match current expectations. Although the company still believes that revenues will be slightly above $167.2 million level achieved in the fiscal first quarter, earnings per share (EPS) will lag the $0.33 that the company booked in that same period. The reaction to this disappointing news was fast and furious as more than 5.2 million Komag shares traded in the first hour the market was open, more than four times normal volume for a day. As Komag is the world's largest independent manufacturer of thin-film media, the primary storage medium for digital data in computer disk drives, fears about a slowdown in drive demand were rekindled.

Although output for Komag will increase by "double-digits" (company code to make something in the 10% to 14% range sound more impressive) on a sequential basis, the company will not hit its previous internal targets due to "lower market demand for enterprise-class drives." Yield problems due to production glitches also cost Komag some output, shaving some growth off of the unit volume. Given SEAGATE's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> much-publicized earnings warnings for this quarter and the fact that Seagate represented 31% of Komag's sales in the first quarter, the sales decrease does not come as a complete surprise to some. As Komag now says that Seagate will only represent 15% of sales in the second quarter, the shortfall is more severe than Komag had anticipated. Komag had also expected Seagate's orders to rise in the second half of the fiscal year, something the company has now reconsidered after talking with Seagate. Given the shortfall in orders and the fact that the company just added production capacity, this will all result in falling margins, exacerbating the earnings shortfall.

Komag's customers include Fujitsu, IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %>, Matsushita-Kotobuki Electronics (MKE), Maxtor, Micropolis, NEC, QUANTUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QNTM)") else Response.Write("(Nasdaq: QNTM)") end if %>, Seagate, Toshiba and WESTERN DIGITAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %>, explaining the widespread carnage in the drive industry this morning. Although shares of the already battered Seagate were pretty much unchanged, companies throughout the drive manufacturing food chain were affected. Western Digital was down $15/16 to $31 15/16, READ-RITE TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RDRT)") else Response.Write("(Nasdaq: RDRT)") end if %> was off $1 5/8 to $20 9/16, and HUTCHINSON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HTCH)") else Response.Write("(Nasdaq: HTCH)") end if %> lost $1 1/2 to $24 13/16. Although one could argue that this is actually the third time the same Seagate news has been announced, the violent reaction in Komag can definitely be explained by the dramatic change in forward earnings estimates the company has told investors to make. Estimates for the year now will probabaly be closer to the $1.00 EPS mark than the $2.15 EPS previously expected.

UPS

Pharmaceutical company RHONE POULENC RORER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RPR)") else Response.Write("(NYSE: RPR)") end if %> jumped $11 1/16 to $90 1/2 after French parent RHONE POULENC S A <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RP)") else Response.Write("(NYSE: RP)") end if %> announced an offer to buy out minority holders in RPR for $92 per share in cash. Rhone Poulenc also endorsed estimates of 20% EPS growth for 1997 and 1998.

Supply chain software company MANUGISTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MANU)") else Response.Write("(Nasdaq: MANU)") end if %> gained $4 to $42 on reporting Q1 EPS of $0.09, beating estimates of $0.07, on an 85% increase in revenues.

IMNET SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IMNT)") else Response.Write("(Nasdaq: IMNT)") end if %> rose $2 3/8 to $27 1/4 on announcing the acquisition of French consultant and computer integration firm Advisoft for $7.1 million in cash and Imnet stock.

Reporting success in its Phase II trial of a tryptase inhibitor for asthma, ARRIS PHARMACEUTICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ARRS)") else Response.Write("(Nasdaq: ARRS)") end if %> added $1 1/4 to $13 1/4.

Apparel company NAUTICA ENTERPRISES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NAUT)") else Response.Write("(Nasdaq: NAUT)") end if %> rose $1 3/4 to $22 after releasing Q1 EPS of $0.18, up 38% on a 25% year-over-year increase in revenues.

CELLSTAR CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLST)") else Response.Write("(Nasdaq: CLST)") end if %> gained $2 7/16 to $29 1/4 on reporting an 81% increase in Q2 revenues and EPS of $0.48, which crushed estimates of $0.32.

Industrial equipment manufacturer IMO INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IMD)") else Response.Write("(NYSE: IMD)") end if %> jumped $2 1/2 to $5 3/4 after agreeing to be acquired by Canadian industrial company UNITED DOMINION INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UDI)") else Response.Write("(NYSE: UDI)") end if %> for $6 per share in cash. Electronics and farm equipment company CORE INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CRI)") else Response.Write("(NYSE: CRI)") end if %> is also being bought by United Dominion for $25 per share.

ALLIANCE CAPITAL MANAGEMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AC)") else Response.Write("(NYSE: AC)") end if %> rose $2 1/16 to $28 15/16 after Smith Barney raised its rating on the money management partnership to "buy" from "neutral." The company said its Q2 per-unit earnings will beat estimates of $0.64 before a write-off for goodwill associated with its investment in Cursitor Holdings LP, which the company viewed as impaired.

Firearms manufacturer STURM RUGER & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RGR)") else Response.Write("(NYSE: RGR)") end if %> added $1 1/4 to $18 1/2 after the company announced an agreement to buy CALLAWAY GOLF's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ELY)") else Response.Write("(NYSE: ELY)") end if %> 50% interest in a metals foundry. Callaway agreed to raise by a million units its orders for golfclub heads from Ruger's Investment Casting foundry.

ALBERMARLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALB)") else Response.Write("(NYSE: ALB)") end if %> added $1 3/8 to $20 5/8 on word that the chemicals company is expanding its capacity for making SAYTEX RB-100 flame retardant.
Employee leasing company STAFF LEASING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STFF)") else Response.Write("(Nasdaq: STFF)") end if %> gained $1 1/4 from its IPO price of $17.

DOWNS

ZAG INDUSTRIES LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZAGIF)") else Response.Write("(Nasdaq: ZAGIF)") end if %> was crushed for a $6 1/4 loss to $8 1/2 after the manufacturer of plastic consumer products warned that it will miss EPS estimates of $0.25 because of product introduction delays and pricing pressures in Europe.

Refrigerant reclamation, management, and blending services company HUDSON TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HDSN)") else Response.Write("(Nasdaq: HDSN)") end if %> lost $2 9/16 to $6 5/16 after warning that it "anticipates that it will incur substantial losses for the three and the six months ended June 30, 1997" because of unseasonably cool spring weather.

WARRANTECH CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WTEC)") else Response.Write("(Nasdaq: WTEC)") end if %> lost $1 1/16 to $10 7/8 after the warranty marketer reported a Q4 loss of $0.03 per share, which includes charges for settlement of litigation as well as spending on management information systems.

Thin film disk manufacturer HMT TECHNOLOGY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HMTT)") else Response.Write("(Nasdaq: HMTT)") end if %> lost $1 3/16 to $11 3/4 on Komag's pre-announcement. Flexible circuit manufacturer ADFLEX SOLUTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AFLX)") else Response.Write("(Nasdaq: AFLX)") end if %> suffered equally, losing $2 3/16 to $15 13/16.

RUSSELL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RML)") else Response.Write("(NYSE: RML)") end if %> fell $2 5/8 to $27 3/4 after the apparel company warned that second quarter earnings will miss the mean analyst expectation of $0.41 per share by as much as 50% because of poor performance in licensed products sales as well as a write-down of obsolete inventory.

Personal care and nutritional products company NU SKIN ASIA PACIFIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NUS)") else Response.Write("(NYSE: NUS)") end if %> lost $1 15/16 to $25 after the company said its counsel advised that Nu Skin may have violated South Korean foreign exchange laws.

ROYAL CARIBBEAN CRUISES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RCL)") else Response.Write("(NYSE: RCL)") end if %> sank $2 1/4 to $34 5/8 after CARNIVAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCL)") else Response.Write("(NYSE: CCL)") end if %> offered to buy Celebrity Cruise Lines, which Royal Caribbean had agreed to buy in mid-June from OVERSEAS SHIPHOLDING GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OSG)") else Response.Write("(NYSE: OSG)") end if %>.

Underwater sensing systems and aircraft maintenance company WHITEHALL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WHT)") else Response.Write("(NYSE: WHT)") end if %> slid $1 1/8 to $18 1/4 after the Air Force canceled a C-130 maintenance contract with the company that could have been worth more than $100 million over five years.

CONFERENCE CALLS

3COM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %>
Available though 7:00 p.m. EDT on 6/26
(800) 696-1563 (code: 204860) -- replay

ECHLIN INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECH)") else Response.Write("(NYSE: ECH)") end if %>
(800) 683-1535 (password: McCurdy) -- replay through 6/27

CABLETRON SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CS)") else Response.Write("(NYSE: CS)") end if %>
(402) 220-5185 -- replay available through 6/30

COGNOS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COGNF)") else Response.Write("(Nasdaq: COGNF)") end if %>
(800) 997-6910 -- replay available from 1:15 p.m. EDT to midnight 6/30

THIS WEEK'S CONFERENCE CALL SYNOPSES

JABIL CIRCUIT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JBIL)") else Response.Write("(Nasdaq: JBIL)") end if %> Q3 Call
ST. JOHN KNITS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SJK)") else Response.Write("(NYSE: SJK)") end if %> Q2 Call
MICRON ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MUEI)") else Response.Write("(Nasdaq: MUEI)") end if %> Q3 Call
MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> Q3 Call
BRODERBUND <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BROD)") else Response.Write("(Nasdaq: BROD)") end if %> Q3 Call
COMPAQ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> / TANDEM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TDM)") else Response.Write("(NYSE: TDM)") end if %> Merger
3COM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %> Q4 Call

FOOL PORTFOLIO STOCKS

FOOL PORTFOLIO                  BORING PORTFOLIO

ATCT down $1/16 at $5 5/16     ATLS dn $3/16 at $31 15/16
AOL down $7/16 at $57 1/16     BGP up $1/4 at $24
CHV up $1/2 at $74 5/16        CSL down $9/16 at $36 1/8
COMS down $1 3/4 at $46 5/8    CSCO dn $1 1/16 at $67 11/16
DJT up $1/8 at $10 1/4         GNT down $5/16 at $35 3/4
GM down $1/8 at $55 7/8        ORCL up $7/16 at $51 3/8
IOM down $3/8 at $20 1/2       OXHP up $3/16 at $74 7/16
KLAC up $3/8 at $50 11/16      PMSI unch. at $10 15/16
LU unch. at $72 5/8            TDW up $1/4 at $42 3/8
MMM up $7/8 at $102 1/8
T down $5/16 at $36 5/16

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Randy Befumo (TMF Templr), a Fool
Fool Plate Special

Dale Wettlaufer (TMF Ralegh), another Fool
Ups & Downs

Brian Bauer (TMF Hoops), and yet another Fool
Editing

Julia Wilson (TMF Delete), one more Fool
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