The Motley Fool, 8/1/97: The Lunchtime News

FOOL PLATE SPECIAL
An Investment Opinion by Randy Befumo

Kellogg's makes investors' morning G-r-reat!

Out of favor for a good part of the last twelve months, ready-to-eat cereal behemoth KELLOGG CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: K)") else Response.Write("(NYSE: K)") end if %> rose $5 1/8 to $97 this morning on strong second quarter earnings. The Battle Creek, Michigan-based company reported profits of $0.83 per share, ten cents above consensus estimates and more than 84% ahead of last years $0.45 per share. Shares rose on strong volume as the company continued its renewed earnings vigor after spotty results in 1995 and 1996. The company also announced a two-for-one stock split and increased its dividend to $0.45 per share, inspiring momentum and income investors alike.

What was probably most surprising about the results is that the company increased its domestic market share to 33.8%, notching it up 0.6% from the first quarter and up from around 32.7% last year. In spite of a price hike announced a few weeks ago, Kellogg is gaining market share in the cereal market for the first time in years. Many have complained that Kellogg's anemic revenue growth coupled with declining market share spelled trouble for the consumer non-durable vendor. With North American cereal revenues only forecast to grow at 1.4% annually, many did not believe Kellogg could increase earnings very substantially if its main product category only grew 1% to 2%.

Kellogg's promise to cut operating costs combined with double-digit growth for its convenience foods have allowed the company to post strong earnings growth on meager sales gains. Operating margins increased more than 6.0% to 16.9% year-over-year, backing out one-time charges. The company also has begun using its copious cash flow to aggressively repurchase outstanding shares, dropping share count year-over-year to 207.3 million from 212.7 million on a weighted average basis. Given its strong performance, Kellogg will probably see 1997 earnings estimates click up to the $3.70 per share range and 1998 estimates rise to $4.10 per share, putting the company at 23.6 times 1998 estimates with a 1.9% yield.

UPS

FILA HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLH)") else Response.Write("(NYSE: FLH)") end if %> moved up $1 1/2 to $34 3/16 on reporting Q2 net income per share of $0.56, beating estimates of $0.53. While backlog was flat outside of the U.S., backlog for the entire company increased 41%.

Enterprise resource planning software company INTERACTIVE GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTE)") else Response.Write("(Nasdaq: INTE)") end if %> surged $2 5/16 to $9 13/16 on announcing an agreement to merge with manufacturing software company DATAWORKS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DWRX)") else Response.Write("(Nasdaq: DWRX)") end if %> in a stock swap valued at $57 million, or $11.58 per share, as of last night's close. Dataworks lost $1 1/4 to $13 1/8 even though the company said the deal will add to earnings in 1997.

INTELLIGROUP INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ITIG)") else Response.Write("(Nasdaq: ITIG)") end if %> gained $3 3/8 to $14 5/8 after the consulting, systems integration, and software developer reported Q2 revenues of $19.2 million, up 75% year-over-year, and EPS of $0.11, which beat estimates of $0.10.

Wireless communications test systems manufacturer ORBIT/FR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORFR)") else Response.Write("(Nasdaq: ORFR)") end if %> picked up $1 3/4 to $13 3/8 on turning in Q2 revenues of $5.3 million and EPS of $0.20, which handily beat the sole estimate of $0.16.

ORTHOFIX INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OFIXF)") else Response.Write("(Nasdaq: OFIXF)") end if %> rose $1 3/8 to $12 after the orthopedics medical device manufacturer reported Q2 revenues of $22.4 million and EPS of $0.09 (before extraordinary expenses).

Investment management software company ADVENT SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADVS)") else Response.Write("(Nasdaq: ADVS)") end if %> was boosted $2 1/4 to $29 after Deutsche Morgan Grenfell raised its rating on the company to "buy" from "accumulate."

3DLABS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TDDDF)") else Response.Write("(Nasdaq: TDDDF)") end if %> scratched out a $2 3/8 gain to $32 3/8 after Robertson Stephens raised its rating on the graphics chip company to "buy" from "attractive."

Security products and lock maker STRATTEC SECURITY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STRT)") else Response.Write("(Nasdaq: STRT)") end if %> locked in a $1 3/4 rise to $21 1/2 on reporting Q4 EPS of $0.55, beating estimates of $0.53, on an 11% increase in revenues.

DOWNS

APPLIED GRAPHICS TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AGTX)") else Response.Write("(Nasdaq: AGTX)") end if %> fell $3 1/2 to $36 1/4 after the pre-press, print media distribution, and electronic media spot distribution services company reported Q2 EPS of $0.21, in line with estimates.

Orthopedics medical device maker ORTHOLOGIC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OLGC)") else Response.Write("(Nasdaq: OLGC)") end if %> slipped $1 1/4 to $5 1/16 on reporting a 132% jump in Q2 revenues to $7.9 million. The net loss of $0.11 per share fell short of estimates of positive $0.01 per share.

NUTRITION FOR LIFE INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NFLI)") else Response.Write("(Nasdaq: NFLI)") end if %> backed down $1 3/16 to $6 7/8 after reporting a 90% decrease in Q3 EPS of $0.03 due to increased expenses associated with expanding distribution as well as an increase in its backlog. The nutritional supplements company says that the profit squeeze is behind it, though.

Network file server and software company AUSPEX SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASPX)") else Response.Write("(Nasdaq: ASPX)") end if %> slid $1 to $10 on reporting a 15% increase in Q4 revenues of $54.8 million and EPS of $0.21 (before an acquisition-related charge), missing estimates.

MERCURY INTERACTIVE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MERQ)") else Response.Write("(Nasdaq: MERQ)") end if %> lost $1 9/16 to $16 1/4 after the software testing tools company reported a 45% increase in Q2 revenues and EPS of $0.13, in line with estimates.

Specialty insurance underwriter WESTBRIDGE CAPITAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WBC)") else Response.Write("(NYSE: WBC)") end if %> declined $2 3/16 to $7 1/16 on reporting a second quarter loss of $1.07 per share (before extraordinary items), missing by a good margin the sole EPS estimate of $0.17.

DONNA KARAN INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DK)") else Response.Write("(NYSE: DK)") end if %> lost $2 1/8 to $11 7/8 after reporting a second quarter loss and forecasting a full year loss per share of $0.55, below the mean EPS estimate of $0.65. The company's president and chief operating officer, who has been with the company since 1989, also announced his resignation.

German industrial giant DAIMLER-BENZ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DAI)") else Response.Write("(NYSE: DAI)") end if %> lost $3 3/8 to $80 5/16 after reporting a 26% advance in first half EPS. The company said it expects more earnings expansion in the second half, but Morgan Stanley and Merrill Lynch both cut earnings estimates on the company.

SALLIE MAE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLM)") else Response.Write("(NYSE: SLM)") end if %> fell $4 to $145 15/16 after yesterday's victory by a dissident group of shareholders known as the Committee to Restore Value. Only votes against a new slate of board members by Fidelity Investments kept the vote from being nearly unanimous.

Stocks are under pressure today as components of the index of leading economic indicators are showing strength, driving down the 30-year Treasury bond by nearly two points. Diversified financial company HOUSEHOLD INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HI)") else Response.Write("(NYSE: HI)") end if %> lost $3 3/4 to $125 3/4 and key DJIA component GENERAL ELECTRIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %> slid $1 5/16 to $68 13/16. Dow Stock CATERPILLAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAT)") else Response.Write("(NYSE: CAT)") end if %> is going the other way, though, gaining $2 5/8 to $58 5/8 on strong earnings.

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

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 %>
(800) 677-4611 (passcode: 11345) -- replay through 8/1 @ 7:00 pm EDT
(402) 220-2168 (passcode: 11345) -- replay number for international callers

FAMILY GOLF <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FGCI)") else Response.Write("(Nasdaq: FGCI)") end if %>
(800) 275-2442 -- replay through 8/2 @ 9:00 am EDT

SMARTALK TELESERVICES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMTK)") else Response.Write("(Nasdaq: SMTK)") end if %>
Regarding acquisition of ConQuest
(800) 964-3574 -- through 8/2 @ 11:00 am EDT

08/04/97 (Monday)
CREE RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CREE)") else Response.Write("(Nasdaq: CREE)") end if %>
(800) 642-1687 (code: 523215) -- replay
(706) 645-9291 (code: 523215) -- replay for international callers

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 $1/8 at $4 7/16         ATLS unch. at $26 1/2
AOL up $1 15/16 at $69 7/16     BGP up $5/8 at $24 3/4
CHV down $1 1/4 at $77 3/4      CSL up $1/8 at $41 5/8
COMS up $3/8 at $55 1/16        CSCO down $1/8 at $79 3/8
DJT down $5/16 at $10 7/16      GNT dn $1 1/2 at $45 5/8
GM down $1/2 at $61 3/8         ORCL up $1/2 at $54 15/16
INVX down $1/8 at $30 7/8       OXHP dn $11/16 at $83 3/8
IOM down $3/8 at $22 1/8        PMSI dN $9/16 at $10 11/16
KLAC down $7/16 at $60 1/8      TDW up $1/8 at $50 5/8
LU down $1 1/16 at $83 13/16
MMM down $1 5/16 at $93 7/16
T down $5/16 at $36 1/2

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MORE FOOLISHNESS
HEAR YE, HEAR YE! FOOLISH ANNIVERSARY!

Let it be known that the month of August in the year of the Jester, 1997, marks the third anniversary of the Motley Fool, and the second anniversary of FoolMart.

In honor of this momentous occasion, all Fools who purchase $75 or more of Foolish goods in the FoolMart between Friday, August 1, and Wednesday, August 6, shall receive a complimentary Wall Street Fool t-shirt in the size of Xtra Large.

So be it decreed by their most Royal Highnesses,
King and Queen Jester the First

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