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FOOL PLATE SPECIAL
An Investment Opinion
by Dale Wettlaufer
Al Dunlap Ousted
Sunbeam Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SOC)") else Response.Write("(NYSE: SOC)") end if %> fell $1 1/4 to $16 13/16 after the consumer products company that has struggled of late announced that it has fired its Chairman and CEO, "Chainsaw" Al Dunlap. Sunbeam has been under fire since announcing the acquisition of Coleman Brands and two other smaller companies earlier this year and since the company has had to revise lower numerous quarterly earnings expectations. If there's one thing that Wall Street doesn't like, it's uncertainty over earnings. If there's another thing that Wall Street really doesn't like, it's a pre-announcement on earnings followed by more pre-announcements for the same earnings period. That has been the saga for Sunbeam in the first two quarters of 1998.
Despite renewing Dunlap's employment agreement with a three-year deal earlier this year, the board at Sunbeam couldn't live with him. Dunlap has been a fiery personality at the helm of Sunbeam, especially this spring, as analysts and reporters have been on his case for the quality of the company's 1997 earnings. Barron's especially has pointed out the accrual-rich nature of the company's earnings last year while Sunbeam has argued that everything it did was within Generally Accepted Accounting Principles (GAAP). Looking at the company's cash flow statement told a different story than the company's income statement. While Sunbeam reported earnings from continuing operations of $123.1 million, net cash flow from operations was negative $8.2 million, while cash flow from operations before restructuring reserve drawdowns and changes in short-term financing was $76.4 million, or about 62% of reported earnings. Rather than the 20% return on invested capital (ROIC) that the company's financials showed for 1997, it looks like the company has met, but did not exceed or fall below, its cost of capital, with a 12% real ROIC for the year.
During merger talks between Dunlap and Coleman Brands' Ron Perelman, Dunlap reportedly blew up at Perelman because of the price that was being asked. As it stands now, it appears as though Ron Perelman is in charge of the company, with one of his executives now occupying the office of Sunbeam's CEO, which is one reason the shares sold off this morning. Over the last four or so years at Coleman, Perelman built very little shareholder value for investors. One would have to seriously question the effectiveness of a guy that can totally wreck the value of a company like Marvel Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRV)") else Response.Write("(NYSE: MRV)") end if %>, owner of Spiderman, X-Men, Incredible Hulk and other attractive comic book properties.
At the same time, one wonders how Mutual Series fund manager Michael Price could just blow in the wind on this one. Perelman couldn't take control without Price's approval, and Price was singing the praises of Dunlap as recently as a couple of months ago. Apparently, the media pressure got to be a little much for his uber ego. After all, Al Dunlap's style didn't seem to bother Price before this year. What's left at Sunbeam, then? You've got a business that a management group has to run very intelligently to generate excess shareholder returns. There are lots of makers of coffee makers, griddles and scales, and outdoor equipment out there. Has Perelman been up to the task of building value for shareholders in his publicly traded companies in the past? On average, no.
Networking products company Bay Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAY)") else Response.Write("(NYSE: BAY)") end if %> gained $3 5/16 to $31 5/8 after ending months of speculation by agreeing to merge with Canadian telecommunications equipment company Northern Telecom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NT)") else Response.Write("(NYSE: NT)") end if %> in a deal valued at about $9.1 billion. Each Bay share will be converted into 0.60 of a share of Nortel stock, valuing Bay at $38.21 per share. Bay shareholders will end up owning about 21% of the combined entity. Nortel said the deal will be dilutive to its fiscal 1998 earnings and slightly accretive to fiscal 1999 earnings. Nortel fell $7 13/16 to $55 7/8.
Hardwood flooring maker Triangle Pacific Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TRIP)") else Response.Write("(Nasdaq: TRIP)") end if %> jumped $11 to $54 3/4 after agreeing to be acquired by flooring and ceiling products company Armstrong World Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ACK)") else Response.Write("(NYSE: ACK)") end if %>. Armstrong will pay $55.50 per share in cash for Triangle and assume $260 million in debt. The deal will make Armstrong the world's leader in hardwood flooring, with a 46% marketshare in the U.S.
Albany, N.Y.-based financial services firm Albank Financial Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALBK)") else Response.Write("(Nasdaq: ALBK)") end if %> rose $11 5/16 to $62 13/16 after agreeing to merge with Cleveland-based thrift Charter One Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COFI)") else Response.Write("(Nasdaq: COFI)") end if %>. Each Albank share will be converted into 2.16 shares of Charter One stock. Charter One said it would take a $40 million to $50 million one-time charge related to the merger, which is expected to yield $20 million to $24 million in annual cost savings. Charter One dropped $3 13/16 to $30 1/4 on the news.
Israeli independent semiconductor foundry Tower Semiconductor <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TSEMF)") else Response.Write("(Nasdaq: TSEMF)") end if %> added $5/8 to $8 11/16 on reports it is in talks with semiconductor and wireless communications products maker Motorola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> regarding a possible $1.2 billion joint venture to make semiconductors in Israel.
Cleveland-based investment bank McDonald & Co. Investments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDD)") else Response.Write("(NYSE: MDD)") end if %> gained $2 1/8 to $32 15/16 after agreeing to be acquired by retail bank KeyCorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KEY)") else Response.Write("(NYSE: KEY)") end if %>. Under the deal, each McDonald share will be exchanged for $35 in KeyCorp stock, representing a 13.5% premium to McDonald's closing price of $30 13/16 per share on Friday. KeyCorp expects the deal will add to its earnings in fiscal 1999.
Infoseek Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEK)") else Response.Write("(Nasdaq: SEEK)") end if %> gained $3 1/4 to $33 3/8 this morning on market rumors that the Internet content aggregator will soon announce a large media deal with another company.
Semiconductor equipment manufacturers gained some ground this morning after dropping Friday in sympathy with a profit warning from ASM Lithography Holding <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASMLF)") else Response.Write("(Nasdaq: ASMLF)") end if %>. Novellus Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NVLS)") else Response.Write("(Nasdaq: NVLS)") end if %> advanced $2 1/2 to $33 3/4, and KLA-Tencor Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KLAC)") else Response.Write("(Nasdaq: KLAC)") end if %> added $2 1/8 to $27 1/16, but ASM fell another $5/8 to $28 1/2.
CKE Restaurants <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CKR)") else Response.Write("(NYSE: CKR)") end if %>, which operates 732 Carl's Jr. and 2,927 Hardee's restaurants, moved up $4 1/16 to $36 3/8 after reporting fiscal Q1 EPS of $0.47 versus $0.28 a year ago, beating the Street estimate of $0.40. Revenues jumped 124% in the period to $528.2 million, while operating income more than doubled to $45.6 million from a year ago.
Integrated Electrical Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IEE)") else Response.Write("(NYSE: IEE)") end if %> rose $1 7/16 to $19 5/8 after Merrill Lynch raised its near-term rating on the electrical installation contracting company to "buy" from "accumulate."
Diversified manufacturer 3M <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %>, or Minnesota Mining & Manufacturing, dropped $4 11/16 to $82 1/8 after announcing it expects second quarter earnings between $0.90 and $0.94 per share, lower than the $0.99 earned in the year-earlier period and substantially short of analysts' mean estimate of $1.05. The company attributed the shortfall to economic weakness in Asia, the strength of the dollar, and modest growth in the U.S.
Long-distance company Excel Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECI)") else Response.Write("(NYSE: ECI)") end if %> tumbled $4 1/2 to $23 1/16 after announcing it has agreed to be acquired by Montreal-based telecommunications firm Teleglobe <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TGO)") else Response.Write("(NYSE: TGO)") end if %> for about $3.1 billion in stock. Excel shareholders will receive 0.885 Teleglobe shares for each Excel share, which translates to a 17% discount to Excel's closing price on Friday. Teleglobe was up $1 7/16 to $53 1/16.
Automaker General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %> lost $1 5/16 to $68 9/16 after The Wall Street Journal reported that GM factories around North America will probably shut down this week if the United Auto Workers' strikes at two parts plants continue.
Baan Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BAANF)") else Response.Write("(Nasdaq: BAANF)") end if %> slid $2 3/8 to $38 1/2 after Barron's quoted money managers as saying that the company's shares may drop to as low as $22 a share by the end of the year due to accounting changes and concern that the business management software developer may be losing market share to its competitors.
Process machinery manufacturer Gencor Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: GX)") else Response.Write("(AMEX: GX)") end if %> shed $1 7/8 to $21 5/8 after announcing a proposed public offering of 3.6 million shares. The proceeds of the offering would be used to pay down debt.
Data communications chip designer Broadcom Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BRCM)") else Response.Write("(Nasdaq: BRCM)") end if %> was cut $2 to $53 1/8 after Bloomberg reported that the company doesn't expect to maintain its recent torrid revenue growth despite continuing new orders for the second half.
Network Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSOL)") else Response.Write("(Nasdaq: NSOL)") end if %> sank $2 5/8 to $37 1/4 after Barron's reported that the company's shares are expected to fall back to its initial offering price of $18 a share as competition increases in the Internet domain name registration business.
REMEC Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: REMC)") else Response.Write("(Nasdaq: REMC)") end if %>, which makes multi-function modules for microwave transmission systems for the wireless telecommunications market and defense applications, lost $7/8 to $10 after announcing that because a number of customers have postponed releases of new orders, the company doesn't expect to meet analysts' expectations for the quarter ending July 31.
Broderbund Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BROD)") else Response.Write("(Nasdaq: BROD)") end if %> plunged $3 1/16 to $17 1/8 after announcing that it expects a Q3 loss of $0.12 to $0.15 a share, short of analysts' estimates of a profit of $0.01, due to increased product returns and customer rebates during the quarter. The software developer also said it has hired Donaldson, Lufkin & Jenrette to "explore strategic alternatives."
Insurance firm Cincinnati Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CINF)") else Response.Write("(Nasdaq: CINF)") end if %> dipped $1 3/8 to $37 15/16 after announcing it expects Q2 earnings to be cut by $0.16 a share due to estimated pre-tax April and May storm losses of $40.3 million.
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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
Editing |