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FOOL PLATE SPECIAL
An Investment Opinion by Alex Schay
The El Nino Effect
The release of the February unemployment report has highlighted yet again the importance of the weather phenomenon known as "El Nino." Although many factors contributed to the unemployment rate decline to 4.6% -- the lowest level in 24 years -- El Nino was cited as a strong factor. The construction industry added 41,000 jobs (13% of the total jobs) in February, largely due to bad weather in the South and West, which necessitated substantial cleanup activity and reconstruction. In addition, the very mild winter in the Northeast has allowed construction activity to proceed unhampered by weather-related delays.
This morning the Sports Authority <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSA)") else Response.Write("(NYSE: TSA)") end if %>, an operator of 196 sporting goods superstores, announced Q4 EPS of $0.35 compared to $0.50 for the prior year (but in-line with estimates). Chairman & CEO Jack Smith discussed the results on CNBC this morning and attributed the weaker year-over-year results to sales declines in treadmills, indoor games, and winter gear. Yes, this came largely as a result of effects from "The Little Boy" -- keeping people outside (in the East) and less-engaged in traditional winter activities. This phenomenon has boosted the shares of numerous retailers across the board.
Last week, American Skiing Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SKI)") else Response.Write("(NYSE: SKI)") end if %> gained after weak snowfall in Maine was tempered by record snowfall at the company's resort in Heavenly, near Lake Tahoe. Record El Nino-induced snowfall in the West contributed to the company's estimate-beating earnings results. And this week, Callaway Golf Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ELY)") else Response.Write("(NYSE: ELY)") end if %> warned on Monday about a possible 70% shortfall in Q1 earnings due to disastrously rainy weather in its major winter markets (California and Florida) and the residual effects of the Asian currency crisis.
Wait a second, Callaway derives most of its revenue from golf-club sales. Sure, excessively rainy weather in the West should affect the company, but how about all those golers in the East hitting the links due to the unseasonably warm weather? In an unprecedented move, Callaway attributed its expected weak results to both of the current favorite whipping boys -- El Nino and the "Asian Contagion." Now, Callaway had announced a number of months ago that it expected high-priced golf club sales to Japanese and South Korean duffers to drop off as a result of the currency crisis. This report jibes with the overall downward spiral in leisure product sales to Asia, but the company hoped that weakness in Asia would be offset by sales in the U.S. As it is presently turning out, that is not going to be the case. So, the problem really lies more with Asia than with El Nino. Trying to sort out the various catch-all attributions that companies are making these days with respect to their results should be made easier by understanding exactly what El Nino is, as well as its actual effects in various areas of the world.
Wal-Mart Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMT)") else Response.Write("(NYSE: WMT)") end if %> charged up $1 1/4 to $50 1/8 after the discount retailing giant announced plans to increase the size of its existing share repurchase program by about $1.6 billion, bringing its share repurchase plan for the next 12-18 months to $2 billion. The company also raised its annual dividend by 15% to $0.31 per share.
Education software firm The Learning Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TLC)") else Response.Write("(NYSE: TLC)") end if %> earned an A+ this morning, gaining $1 11/16 to $19 after announcing that it has agreed to acquire Mindscape Inc., an education and entertainment software publisher owned by affiliates of Pearson Plc, for $150 million in cash and stock. The Learning Co. expects the acquisition to be accretive to 1998 EPS by at least $0.05. The company also announced that it is raising gross cash proceeds of $104 million by selling 6.25 million special warrants convertible into one non-voting share of its Canadian subsidiary SoftKey Software Products or one Learning Co. share.
Boston Beer Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SAM)") else Response.Write("(NYSE: SAM)") end if %> added $5/8 to $9 13/16 after money manager Vince Carino told Business Week in its March 16 edition that he has taken a 5% stake in the craft brewing company as well as a 5% stake in Redhook Ale Brewery <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HOOK)") else Response.Write("(Nasdaq: HOOK)") end if %>. Both Boston Beer and Redhook Ale have dropped more than 50% from their 1995 initial public offering prices, and Carino expects both to double within a year. He also expects Budweiser <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BUD)") else Response.Write("(NYSE: BUD)") end if %>, which owns a 25% stake in Redhook, to make a bid for the rest of the company for $11 to $12 per share.
British pharmaceutical company SmithKline Beecham <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBH)") else Response.Write("(NYSE: SBH)") end if %> rallied $2 9/16 to $65 11/16 on rekindled talk that Glaxo Wellcome <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLX)") else Response.Write("(NYSE: GLX)") end if %> will attempt a hostile takeover of its competitor. Glaxo also moved up $1 1/4 to $54 1/16. Other drug companies also advanced on the news. Zeneca Group Plc <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZEN)") else Response.Write("(NYSE: ZEN)") end if %> gained $4 3/4 to $130 1/4 and Sweden's Astra AB <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: A)") else Response.Write("(NYSE: A)") end if %> jumped $1 3/8 to $21 1/16.
Vanstar Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VST)") else Response.Write("(NYSE: VST)") end if %> rose $1 to $12 3/4 after BA Robertson Stephens raised its rating on the computer systems integrator and distributor to "buy" from "long-term attractive."
Home improvement contractor Diamond Home Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DHMS)") else Response.Write("(Nasdaq: DHMS)") end if %> gained $7/8 to $6 7/8 after announcing it will acquire privately held Reeves Southeastern Corp. for around $42 million, consisting of roughly $34 million in cash and short-term notes plus up to $8 million in long-term notes.
Avant! Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVNT)") else Response.Write("(Nasdaq: AVNT)") end if %>, which develops integrated circuit design automation software, surged $1 27/32 to $14 3/4 after announcing that its Q1 results will exceed Wall Street analysts' estimates of $49.26 million in revenues and earnings per share of $0.31.
Networking products company Applied Innovation <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AINN)") else Response.Write("(Nasdaq: AINN)") end if %> jumped $11/16 to $7 1/4 after announcing that it is seeking a "strategic partner" to leverage the expanded development of its Internet Access DSAM product line, which consists of products designed to allow data calls to bypass voice switches in public phone networks.
Electronics for Imaging <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EFII)") else Response.Write("(Nasdaq: EFII)") end if %> picked up $3 17/32 to $24 11/32 after Prudential Securities raised the digital color printing product developer's 12- to 18-month price target to $35 from $30.
Lincoln Electric Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LECOA)") else Response.Write("(Nasdaq: LECOA)") end if %>, which makes arc welding products, industrial electric motors, and plasma oxyfuel cutting equipment, rose $3 3/4 to $42 1/2 after announcing plans to convert the company's two classes of common stock into a single class of voting stock. The company also plans to double its outstanding shares by forming a holding company and issuing two new shares of its stock in exchange for each existing share of LECO (voting) and LECOA (non-voting), effectively a 2-for-1 stock split.
Sunglass Hut International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAYS)") else Response.Write("(Nasdaq: RAYS)") end if %> gained $1 1/16 to $9 3/16 after BT Alex. Brown yesterday raised its rating on the sunglasses retailer to a "buy" from "market perform."
Hospital and healthcare company Columbia/HCA Healthcare Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COL)") else Response.Write("(NYSE: COL)") end if %> soared $3 1/8 to $29 1/2 after announcing that it expects first quarter earnings to be between $0.30 and $0.35 per share before charges. The company also said it is proceeding with plans to file for tax-free status for its planned spin-offs of various hospital groups and that it expects its operating margin (which it defines as earnings before interest, taxes, depreciation, and amortization as a percentage of reveune) in the first quarter to reach the high teens.
Semiconductor and wireless communications products maker Motorola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> plunged $2 3/16 to $53 11/16 after warning that its fiscal Q1 sales will be flat compared to the same period a year ago, which will likely cause earnings to come in well below the First Call mean estimate of $0.47. The company attributed the shortfall to weak currencies in Asia and said its semiconductor business will be the hardest hit.
Information technology and software engineering services provider PRT Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRTG)") else Response.Write("(Nasdaq: PRTG)") end if %> fell $9 1/8 to $10 after saying that it expects a fiscal Q1 net loss due to customer delays for starting Year 2000 projects and changes in ramp-up plans for other projects. Sales are expected to come in below the Q4 figure of $19.8 million. Analysts surveyed by First Call had been expecting EPS of $0.08 in Q1. Y2K services competitor Peritus Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PTUS)") else Response.Write("(Nasdaq: PTUS)") end if %> was up $1 3/8 to $15 1/4 at midday.
I.C. Isaacs & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ISAC)") else Response.Write("(Nasdaq: ISAC)") end if %> was ripped for a $3 1/8 loss to $8 1/4 after the designer of the Boss and Girbaud lines of sportswear reported Q4 pro forma EPS of $0.05, excluding a $1.4 million tax benefit related to the company's conversion from an S corporation to a C corporation. The sole analyst surveyed by First Call was expecting EPS of $0.17.
Shares of Osicom Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FIBR)") else Response.Write("(Nasdaq: FIBR)") end if %> dropped $1 to $5 after the networking products company reported Q4 earnings of $0.02 per share, 82% lower than the $0.11 per share earned a year ago.
Sub-prime mortgage lender Emergent Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EMER)") else Response.Write("(Nasdaq: EMER)") end if %> dipped $5/8 to $8 3/4 after advising investors that higher costs, lower volumes, and changes in its loan sale policy will result in a "significant loss" in fiscal Q1. The company also reported Q4 earning results today -- Q4 EPS came in at $0.15 versus $0.29 a year ago, which was in line with the First Call mean estimate.
Immunological reagents and test kits supplier BioSource International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BIOI)") else Response.Write("(Nasdaq: BIOI)") end if %> sank $1/2 to $5 13/16 after reporting Q4 EPS of $0.08 versus $0.09 a year ago.
Select Software Tools <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SLCTY)") else Response.Write("(Nasdaq: SLCTY)") end if %> dropped $1 23/32 to $5 3/32 after the software developer reported a Q4 loss of $0.22 per share (excluding charges) compared to earnings of $0.04 per share a year ago. The results fell short of the loss of per share expected by analysts surveyed by I/B/E/S.
Physician practice management firm FPA Medical Management <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FPAM)") else Response.Write("(Nasdaq: FPAM)") end if %> fell $1 3/8 to $23 1/16 after reporting Q4 EPS of $0.30 (before acquisition-related charges) versus a loss of $0.27 a year ago. The First Call mean EPS estimate was $0.29.
New Orleans-based electric power provider Entergy Corp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ETR)") else Response.Write("(NYSE: ETR)") end if %> lost $1 5/16 to $27 1/2 after reporting Q4 EPS of $0.12 (before pre-tax charges) compared to Q4 1996 EPS of $0.17. The street had been expecting earnings of $0.22 per share. The company advised that a decline in earnings from its regulated businesses will be difficult to offset with the growth in its unregulated business. "It will be a real challenge to equal 1997's $2.25 ongoing earnings per share," company chairman Ed Lupberger said.
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Dale Wettlaufer (TMF Ralegh), Fool
Alex Schay (TMF Nexus6), Fool
Yi-Hsin Chang (TMF Puck), Fool
Brian Graney (TMF Panic), Fool
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