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FOOL PLATE SPECIAL
An Investment Opinion
by Alex Schay
Manugistics Slammed
The technically inclined have been fretting about supply chain management software firm Manugistics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MANU)") else Response.Write("(Nasdaq: MANU)") end if %> for the last couple of days. The trickle that began on Wednesday with a $2 15/16 stock price decline became Niagra Falls this morning, with the company going over in a barrel and dropping $19 1/2 to $28 3/8. News broke yesterday that analyst Christopher Mortenson of BT Alex. Brown (which underwrote the company's public offerings in 1993 and 1997) had reiterated his "strong buy" rating on the company, but had also warned that Manugistics might have trouble closing enough orders to meet expectations because it is winning larger contracts, which require more time to close. After the bell Manugistics confirmed the fears that had been raised by announcing that it would not meet first quarter EPS expectations of $0.12, and would instead report an operating loss.
Technology ramp-ups and globalization have both contributed to the complexity of modern supply chains. Today, geographically dispersed webs operate with numerous and varied participants, and the fact that small changes in customer demand become amplified as they course through the supply chain (known as the "Forrester Effect," where a 10% change in the rate of sales at the retail level often results in a 40% demand change for the manufacturer) has resulted in the genesis of a large industry devoted to managing these ripple effects. Enter Manugistics. This type of demand amplification and its converse can result in dramatic swings in asset utilization, creating a need for effective software to manage the various processes.
<-------------------<------Goods------------------------<-----
Customer-Retailer-Distributor-Mfr-Tier1 Supplier-Tier2
---------------->-----Information----------->---------------->
Consistent with its markets, Manugistics has managed to grow its topline at a compound rate of 51.6% since 1995 and is expected to grow EPS 43% in 1999, with its 5-year compound average growth in EPS pegged at 48.8% by Zacks -- quite heady growth. Today's drop reflects investor concerns about the sustainability of these numbers. However, in a 15 minute call with investors this morning, Manugistics CEO Bill Gibson noted (with respect to the impending release of Q1 results), "We do not believe there is a market dynamic here." He opened the call by stating he was, "both embarrassed and disappointed by [the] poor execution in the first quarter," but that it was the result of a focus on the ability to meet long-term goals. Some of the factors that affected Q1 results included a sales force expansion, as well as delays in the alignment of new sales territories and the integration of Promira employees (a recent acquisition).
In effect, Manugistics conceded that it took its eye off of the operational ball in the quarter, but that the long-term dynamics are still in place. Although value investors may not get excited by the huge drop, Manugistics currently trades at 23 times next year's EPS estimates of $1.28 with much of its growth still ostensibly intact -- a valuation level that Manugistics has not seen since 1996. [A replay of this mornings' call can be heard at 2:00 p.m. Eastern time by dialing at 1-800-633-8284 ref. #4323578]
Increasingly becoming more of an entertainment company than a beverage operation, Seagram <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VO)") else Response.Write("(NYSE: VO)") end if %> gained $1 to $45 3/4 after announcing plans to spin off its Tropicana orange juice unit to raise $3.5 to $4 billion to help pay for its acquisition of the world's largest record label, PolyGram <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PLG)") else Response.Write("(NYSE: PLG)") end if %>, for $10.6 billion in cash and stock. Seagram also plans to sell PolyGram Filmed Entertainment, which it said was redundant to its Universal Studios operation. To listen to a replay of Seagram's press conference yesterday, call 1-800-475-6701 and enter access number 392043.
Amgen <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMGN)") else Response.Write("(Nasdaq: AMGN)") end if %> surged $3 9/16 to $65 3/8 after Business Week's "Inside Wall Street" column reported that DuPont <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %> may make an offer to acquire the biotech firm for $25 billion, or $95 a share.
Financial market information provider Track Data <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TRAC)") else Response.Write("(Nasdaq: TRAC)") end if %> soared $1 9/16 to $6 1/4 after announcing that its free Internet-based investment tool myTrack has been used by more than 6,000 consumers in the week since it was launched May 14.
Computer Learning Centers <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLCX)") else Response.Write("(Nasdaq: CLCX)") end if %> added $3/4 to $17 after reporting first quarter earnings of $0.20 a share (before unusual items -- net EPS were $0.17), up from $0.13 a share in the year-earlier period. The Zacks mean estimate was $0.15 a share. The computer training and education company said total enrollment at its learning centers increased 33% from the year-ago period and 14% from the fourth quarter.
Long-distance company Sprint <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FON)") else Response.Write("(NYSE: FON)") end if %> rang up $1 1/16 to $72 3/4 on news that it and three cable TV partners plan to sell a roughly 10% stake in Sprint PCS, their wireless phone service joint venture, to the public for up to $1 billion. Sprint, which owns 40% of Sprint PCS, has said it plans to acquire full control of the venture. A partial spin-off would make it easier for Sprint's partners -- Tele-Communications Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TCOMA)") else Response.Write("(Nasdaq: TCOMA)") end if %>, Cox Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COX)") else Response.Write("(NYSE: COX)") end if %>, and Comcast <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMCSA)") else Response.Write("(Nasdaq: CMCSA)") end if %> -- to get out of the phone business.
Women's apparel retailer Talbots <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TLB)") else Response.Write("(NYSE: TLB)") end if %> added another $2 1/4 to $27 3/4 after yesterday announcing a cash dividend of $0.11 per share payable on or before June 15.
Personnel management training and development services company Administaff Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASF)") else Response.Write("(NYSE: ASF)") end if %> rose $2 1/4 to $41 1/4 after Morgan Stanley Dean Witter upgraded its rating on the company to "strong buy" from "outperform," citing recent price weakness despite strong fundamentals. Morgan Stanley kept its 1998 earnings estimate at $0.75 per share but raised its 1999 projection to $1.35 from $1.10. It also increased the price target to $60 from $50.
Cold medicine company Quigley Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QGLY)") else Response.Write("(Nasdaq: QGLY)") end if %> roared ahead $2 3/4 to $12 3/4 after announcing a marketing partnership with Yahoo! Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> to launch worldwide sales of its patented COLD-EEZER PLUS lozenge in about 45 days. The lozenge will be sold on the Internet for $19.95, which includes delivery charges.
Internet browser and "portal" company Netscape Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> dropped $1 5/8 to $24 3/4 after the company ended its business relationship with Internet content aggregator Yahoo! Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %>. The two companies will stop producing their Netscape Guide by Yahoo! customizing tool for users, and Yahoo! will not renew its listing as a search engine on Netscape's search page. Yahoo! dropped $2 1/16 to $114 15/16.
Computing products maker Apple Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %> lost $1 1/4 to $27 5/8 after Reuters reported that Taiwan's Umax Data Systems is expecting to lose about $12 million to $15 million from making Macintosh clones in fiscal 1998. The clones resulted in a roughly $21 million loss for Umax in fiscal 1997, according to the firm's finance manager.
Ciena Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CIEN)") else Response.Write("(Nasdaq: CIEN)") end if %> fell $2 7/8 to $49 3/16 after the provider of bandwidth enhancement technology for fiber-optic communications networks reported fiscal Q2 EPS of $0.29 (excluding acquisition and litigation charges) versus $0.27 a year ago, which was a penny ahead of the Street's estimate. However, the company said it faces "continued uncertainty" regarding the volume of orders from major clients WorldCom <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WCOM)") else Response.Write("(Nasdaq: WCOM)") end if %> and AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %>. Revenues and earnings in Q3 are expected to be "moderately sequentially higher."
Network and applications software developer Novell Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NOVL)") else Response.Write("(Nasdaq: NOVL)") end if %> fell $11/16 to $10 11/16 after reporting fiscal Q2 EPS of $0.05 versus a loss of $0.04 a share a year ago, which was a penny ahead of the Zacks mean estimate. However, net sales slipped 4.1% in the period to $262.5 million.
Supply chain management software firm QAD Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QADI)") else Response.Write("(Nasdaq: QADI)") end if %> slipped $1 9/16 to $12 5/16 after reporting a Q1 loss of $0.08 per share compared to a $0.02 per share profit (pro forma) last year. The Street had been expecting EPS of $0.04 for the quarter. Increased sales force hiring and product development drove total costs and expenses up 55% to $49.3 million, the company said.
Clustered server manufacturer Sequent Computer Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SQNT)") else Response.Write("(Nasdaq: SQNT)") end if %> slid $1 1/8 to $17 5/8 after Lehman Brothers lowered its rating to "outperform" from "buy."
Embedded computer modules and flash memory card maker SMART Modular Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMOD)") else Response.Write("(Nasdaq: SMOD)") end if %> was crushed $7 11/16 to $13 15/16 after reporting fiscal Q2 EPS of $0.30 versus $0.22 a year ago, missing the Street estimate by a penny. However, the company said it sees an "uncertain" business environment over at least the next two quarters and consequently is expecting Q3 EPS to come in around $0.19 and Q4 EPS to be close to $0.26.
Essex International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SXC)") else Response.Write("(NYSE: SXC)") end if %> was cut $7 3/8 to $25 1/4 after the electrical wire and cable manufacturer said competitive pressure on wire prices and profit margins will result in Q2 EPS between 25% to 30% below the $0.79 earned last year. The IBES mean estimate for the quarter is currently $0.71 per share.
World Color Press <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WRC)") else Response.Write("(NYSE: WRC)") end if %> dropped $1 1/16 to $30 1/16 after the print and digital information management firm sold 8 million shares in a secondary offering at a price of $30 per share, which was below its closing price of $31 1/8 yesterday.
Business software firm BEA Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BEAS)") else Response.Write("(Nasdaq: BEAS)") end if %> lost $2 1/4 to $22 3/4 after reporting Q1 EPS of $0.06 (excluding acquisition charges) versus a loss of $0.04 a year ago, beating the Street estimate by a penny.
Long-distance and online communications services provider IDT Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IDTC)") else Response.Write("(Nasdaq: IDTC)") end if %> slumped $2 to $31 1/2 after reporting fiscal Q3 EPS of $0.15 compared with $0.01 last year, which was a penny more than the Street had been expecting.
Graphics accelerator technologies company 3DLabs Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TDDDF)") else Response.Write("(Nasdaq: TDDDF)") end if %> was knocked down $1 5/16 to $10 3/16 after CIBC Oppenheimer lowered its rating on the stock to "hold" from "strong buy."
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Contributing Writers Yi-Hsin Chang (TMF Puck), a Fool Brian Graney (TMF Panic), Fool Two Alex Schay (TMF Nexus6), Fool, too Dale Wettlaufer (TMF Ralegh), Final Fool
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