The Motley Fool, 7/30/97: The Lunchtime News

FOOL PLATE SPECIAL
An Investment Opinion by Randy Befumo

Widening Gap in Networking Sector

After positive comments from ASCEND COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %> last night, the sharp drop in shares of frame-relay networking equipment manufacturer ACT NETWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ANET)") else Response.Write("(Nasdaq: ANET)") end if %> may come to some investors as a surprise. Ascend has been under pressure since announcing the acquisition of frame-relay and asynchronous transfer mode (ATM) gear developer Cascade Communications in March. Last night, Alameda, California-based Ascend Communications told analysts it expected a sequential improvement in Cascade's revenues, including the company's frame-relay business. This news combined with a marketing agreement that joined Xircom, Ascend, Cisco, and Bay Networks in support of Rockwell's flagging "K56Flex" modulation standard was enough to boost Ascend shares more than $6 in heavy trading yesterday.

Today, ACT Networks is getting clobbered after releasing painfully bad fourth quarter results due to a slowdown in orders for their frame-relay products -- the same slowdown that was visible for the Cascade business when Ascend Communications reported last quarter. ACT's revenues only increased 48% in the quarter versus the 73.1% it managed for the entire fiscal year and were down sequentially from last quarter by a few hundred thousand dollars. Investors were probably more concerned that the company only earned $0.01 per share versus the consensus estimate of $0.17 according to First Call. Irate and disappointed investors responded by selling their ACT Networks shares, causing the company to drop $1 7/8 to $12 1/8 on more than eight times normal volume.

Rising operating costs like Research and Development (R&D) and Sales, General and Administrative (SGA) are what squeezed ACT's profits. On a combined basis, operating costs consumed 62.1% of revenues versus 49.7% a year ago, resulting in a 12.4% drop in the operating margin. As gross margins were stable, the results have all the hallmarks of a company that aggressively ramped up operating costs in expectation of sales that failed to materialize in the quarter, causing a nasty lump in the earnings. If Ascend's comments about what it sees next for Cascade's business live up to Chief Executive Mory Ejabat's billing, dismal results at ACT Networks might undergo some much needed life support. The only problem that remains for ACT is that it is a relatively small company competing with established giants like Newbridge Networks, Cisco Systems (with Stratacom), and Ascend Communications (with Cascade). Very rarely does the number four company in terms of revenues ever amount to much in mature networking or telecommunications equipment markets. Given the positive signs that Ascend is beaming about Cascade's business, those who know more about frame relay than the average investor might want to check the company out.

UPS

Broadline retailer NORDSTROM INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NOBE)") else Response.Write("(Nasdaq: NOBE)") end if %> added $1 3/4 to $58 3/8 after yesterday's earnings estimates upgrades and positive analysts' comments.

AMERICAN VANGUARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMGD)") else Response.Write("(Nasdaq: AMGD)") end if %> rose $2 1/8 to $9 3/4 after the specialty and agricultural chemicals company reported a 61% rise in second quarter revenues and EPS of $0.27.

Chemical, pharmaceutical, and biotech research services and software company TRIPOS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TRPS)") else Response.Write("(Nasdaq: TRPS)") end if %> was lifted $1 5/8 to $14 1/8 after announcing a multi-million dollar contract to develop drug research software for PFIZER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFE)") else Response.Write("(NYSE: PFE)") end if %>.

SAVILLE SYSTEMS PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SAVLY)") else Response.Write("(Nasdaq: SAVLY)") end if %> gained $5 1/4 to $62 after the telecom billing software company reported a better than 100% increase in Q2 revenues of $25.5 million and EPS of $0.23, which was up 100% year-over-year and $0.05 per share better than estimates. License fee revenues were up 50%, service revenues were up 22%, and EPS was up 22%, all sequentially.

Material handling equipment manufacturer OMNIQUIP INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OMQP)") else Response.Write("(Nasdaq: OMQP)") end if %> gained $2 1/4 to $26 1/8 on recording a 17.8% increase in Q3 revenues and EPS of $0.46, which smashed the analysts' mean estimate of $0.37.

CHECK POINT SOFTWARE TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHKPF)") else Response.Write("(Nasdaq: CHKPF)") end if %> ticked up $1 9/16 to $31 1/4 after the leading firewall software company reported Q2 revenues of $17.3 million, up 26% sequentially, and EPS of $0.21, besting the First Call mean estimate of $0.16.

Anti-virus and utilities software company SYMANTEC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SYMC)") else Response.Write("(Nasdaq: SYMC)") end if %> rose $1 11/16 to $23 1/16 on reporting Q1 revenues of $135 million and EPS of $0.32, beating estimates by about 7%.

NICHOLS RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NRES)") else Response.Write("(Nasdaq: NRES)") end if %> picked up $1 to $23 1/8 after the software developer and information systems company announced that a joint venture company won a U.S. Army contract worth up to $195 million over five years.

Cosmetics company and LBO baby REVLON INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: REV)") else Response.Write("(NYSE: REV)") end if %> rose $2 3/4 to $53 on reporting what looks like a good quarter. The company's press release mentions EPS of $0.18 before extraordinary charges, but fails to back out extraordinary gains from the sale of subsidiary stock, the settlement of claims, and one-time, non-recurring international tax benefits.

WORLD FUEL SERVICES CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: INT)") else Response.Write("(NYSE: INT)") end if %> was pumped up $1 1/4 to $21 3/8 after the aviation fueling company reported Q1 EPS of $0.46, beating estimates of $0.45, resulting from better brokerage operations, lower credit charge-offs and bad debt reserve provisions, and an overall better business mix.

YAHOO! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> jumped another $3 7/16 to $51 11/16 after re-crafting an online commerce agreement with VISA International. Instead of going with a joint venture agreement, VISA will take a stake of approximately 1.5% in Yahoo! for which Yahoo will take a $21 million one-time charge this quarter.

DOWNS

Semiconductor and flat panel display wafer processing equipment manufacturer LAM RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LRCX)") else Response.Write("(Nasdaq: LRCX)") end if %> eased $3 1/2 to $52 1/2 after reporting Q4 revenues of $263 million and EPS (before a charge) of $0.09, which beat estimates. The company says it's past the trough of the cycle, but investors are worrying that there might not be much room for upward revisions in forward EPS estimates. Merger partner ONTRAK SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ONTK)") else Response.Write("(Nasdaq: ONTK)") end if %> also fell, losing $4 to $42 3/4.

SEACHANGE INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEAC)") else Response.Write("(Nasdaq: SEAC)") end if %> plunged $7 7/8 to $20 after the maker of software systems for storage and distribution of video for the TV and telecom markets reported Q2 revenues of $21.8 million, up 55% over last year, and EPS of $0.18, in line with estimates. Both Morgan Stanley and Alex. Brown lowered their ratings on the company.

Rebuilt engine and natural gas engine manufacturer BONDED MOTORS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BMTR)") else Response.Write("(Nasdaq: BMTR)") end if %> lost $2 1/4 to $8 1/4 after the company said record Q2 revenues will be accompanied by higher expense levels which will result in EPS of $0.08 to $0.10, below estimates of $0.20.

CLINTRIALS RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CCRO)") else Response.Write("(Nasdaq: CCRO)") end if %> slid $1 7/8 to $9 3/8 after the contract clinical research company reported an expected loss of $0.08 per share for the second quarter. The company said that revenue recognition will not be up to anticipated levels for the full year, which will result in a loss for the year.

BRINKER INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EAT)") else Response.Write("(NYSE: EAT)") end if %> fell $1 1/8 to $16 3/16 after the Chili's restaurant operator reported Q4 EPS of $0.29, better than estimates. Possibly casting a cloud over the earnings report is the resignation of the company's CFO.

CONFERENCE CALLS

TIDEWATER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TDW)") else Response.Write("(NYSE: TDW)") end if %>
(800) 475-6701 (#348218) -- replay

PAPA JOHN'S PIZZA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PZZA)") else Response.Write("(Nasdaq: PZZA)") end if %>
(800) 642-1687 (ask for Papa John's Int'l conference call) -- replay

GENZYME <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GENZ)") else Response.Write("(Nasdaq: GENZ)") end if %>
(402) 220-2251 -- replay through 7/31

ACCEPTANCE INSURANCE COMPANIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AIF)") else Response.Write("(NYSE: AIF)") end if %>
(800) 633-8284 (code: 2931450) -- replay through 7/31

OLSTEN CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLS)") else Response.Write("(NYSE: OLS)") end if %>
(800) 475-6701 (code: 348684) -- replay through 7/31
(320) 365-3844 (code: 348684) -- replay for international callers

CYRIX CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYRX)") else Response.Write("(Nasdaq: CYRX)") end if %> and
NATIONAL SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NSM)") else Response.Write("(NYSE: NSM)") end if %>
Regarding merger
(800) 642-1687 (code: 534426) -- replay through 8/1

LERNOUT & HAUSPIE SPEECH PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LHSPF)") else Response.Write("(Nasdaq: LHSPF)") end if %>
1-800-677-4611 (passcode: 11345) -- replay through 8/1 @ 7:00 p.m. EDT
(402) 220-2168 (passcode: 11345) -- replay number for international callers

07/31/97 (Thursday)
PERFORMANCE TECHNOLOGIES, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PTIX)") else Response.Write("(Nasdaq: PTIX)") end if %>
(800) 360-6077 -- 10:00 am EDT

07/31/97 (Thursday)
HA-LO INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HALO)") else Response.Write("(Nasdaq: HALO)") end if %>
1-800-275-2442 -- replay available through 8/1 @ 10:00 am EDT

THIS WEEK'S CONFERENCE CALL SYNOPSES

NAT'L SEMI - CYRIX Merger Call
ATLAS AIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATLS)") else Response.Write("(Nasdaq: ATLS)") end if %> Call
PRIME MEDICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMSI)") else Response.Write("(Nasdaq: PMSI)") end if %> Call

FOOL PORTFOLIO STOCKS

FOOL PORTFOLIO                  BORING PORTFOLIO

ATCT up $1/16 at $4 1/8         ATLS up $3/8 at $25 3/8
AOL up $1 11/16 at $66 1/16     BGP up $5/16 at $25 3/4
CHV up $1 3/16 at $79 13/16     CSL up $1/2 at $42 1/4
COMS down $1 1/2 at $56 1/2     CSCO up $1/2 at $79 3/4
DJT up $1/8 at $10 11/16        GNT up $1 43/8 at $47 9/16
GM up $5/16 at $59 3/4          ORCL up $7/8 at $55 3/8
INVX up $1/8 at $32 1/8         OXHP up $1 at $84 
IOM up $1 5/16 at $22 15/16     PMSI unch. at $11 1/2
KLAC down $13/16 at $59 3/8     TDW up $15/16 at $50 7/16
LU up $1 15/16 at $85 3/8       
MMM up $1/16 at $96 5/8
T unch. at $36 15/16

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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