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FOOL PLATE SPECIAL
An Investment Opinion
by Warren Gump
Retailers Bomb Mattel Earnings
Despite the popularity of the nearly impossible-to-find Biker Barbie, shares of Mattel <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MAT)") else Response.Write("(NYSE: MAT)") end if %> fell $6 7/8 to $23 1/4 this morning on news that earnings will fall significantly below expectations. The company now expects for 1998 ongoing earnings to be about $1.20 per share, well short of the $1.78 First Call estimate and down from last year's $1.65. Sales are now projected to fall $500 million short of expectations, with 70% of that due to lower reorders from retailers and the remainder from delaying shipments of spring merchandise. While sales of Mattel toys at top stores were strong over the important Thanksgiving period, retailers are trying to implement just-in-time inventory management and have slowed reorders dramatically. Because of this shift, Mattel will also delay the shipment of some spring merchandise from December into next year.
Concurrently with the earnings warning, Mattel announced that it would acquire Learning Company <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TLC)") else Response.Write("(NYSE: TLC)") end if %> in a stock-for-stock transaction. The "value" of the deal was said to be $33, but it is structured in such a way that Learning Company shareholders will receive no more than 1.2 Mattel shares for each Learning Company share. Based on today's plunge in Mattel stock, the deal is now worth about $28 per share, explaining why Learning Company is down $2 to $26 5/16. This pairing is designed to help transform Mattel from a toy company, with such brands as Barbie, Hot Wheels, and Fisher Price, into a "global children's product company" that also makes and markets educational and "edutainment" software such as Reader Rabbit, Camen Sandiego, Print Shop, Riven, and Myst. Mattel stated that the deal would be accretive to 1999, but First Call estimates are still likely to fall significantly from their current $2.09 per share because of the poor performance of Mattel's core business.
Mattel has needed to move beyond its traditional toy franchises, and the acquisition of the Learning Company gives it a leading role in the interactive marketplace. As more dollars are being spent on software and interactive games (with a good portion of that money being reallocated from traditional toys), this is an expedient way to gain market presence. Beyond simply broadening Mattel's product line, it also creates a much more significant presence in the direct-to-consumer business. Mattel estimates that roughly $600 million of its sales will now fall in this category, which eliminates retailers and their many demands. Mattel is taking appropriate steps to continue its domination of the worldwide kids entertainment market, but the transformation period will be rough for the company and its shareholders as its core business struggles.
Long-distance phone company Qwest Communications International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QWST)") else Response.Write("(Nasdaq: QWST)") end if %> added $7/8 to $44 1/4 after software giant Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> said it will invest $200 million in Qwest and license a wide range of software to the company to offer a high-speed, secure, and scalable network for Internet services built on Microsoft platforms. Microsoft is buying $200 million in Qwest shares at $45 a share, a 3.7% premium to Qwest's last closing price. More Microsoft news is in this morning's Breakfast With the Fool.
Satellite television company U.S. Satellite Broadcasting <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USSB)") else Response.Write("(Nasdaq: USSB)") end if %> was launched ahead $2 5/8 to $12 1/4 on news of plans to merge with General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %> subsidiary Hughes Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GMH)") else Response.Write("(NYSE: GMH)") end if %> in a $1.3 billion stock deal. USSB shareholders can elect to receive cash or Hughes stock equal in value to .3775 shares of a Hughes share for each of their company's shares.
Australian Internet service provider OzEmail's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OZEMY)") else Response.Write("(Nasdaq: OZEMY)") end if %> American depositary receipts snagged $7/8 to $21 3/4 after telecommunications giant MCI WorldCom <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WCOM)") else Response.Write("(Nasdaq: WCOM)") end if %> announced it has acquired about 21.9 million newly issued ordinary shares, or a 14.9% stake, in the company for $2 per share. MCI WorldCom plans to make a cash offer for all ordinary shares of OzEmail for $2.20 per share and American depositary shares (which represent 10 common shares) for $22 a share, a 5.4% premium to OzEmail's Friday close of $20 7/8. The deal is valued at $322.8 million. Many market watchers expect more bidding before OzEmail finally lands.
Getchell Gold Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: GGO)") else Response.Write("(AMEX: GGO)") end if %> shined this morning, glittering $12 3/8 to $28 9/16 after gold mining company Placer Dome <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PDG)") else Response.Write("(NYSE: PDG)") end if %> announced it will buy Getchell in an all-stock deal valued at around $1.085 billion, or $34.45 a share -- a 113% premium to Getchell's close Friday of $16 3/16. Placer shares fell $1 3/4 to $12 5/16 today.
Air Jordan empire Nike Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NKE)") else Response.Write("(NYSE: NKE)") end if %> dunked for $3 7/16 to $39 7/16 after it was upgraded to "buy" from "neutral" by Salomon Smith Barney, which set a 12-month price target of $50 per share.
Risk management software developer C*ATS Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CATX)") else Response.Write("(Nasdaq: CATX)") end if %> clawed its way up $2 9/16 to $7 1/4 after it agreed to be acquired by British company Misys for $7.50 per share in cash, a 60% premium over Friday's closing price.
Multimedia graphics card supplier STBI Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STBI)") else Response.Write("(Nasdaq: STBI)") end if %> snagged $1 19/32 to $7 3/8 after it agreed to be bought by PC graphics accelerator firm 3Dfx Interactive <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TDFX)") else Response.Write("(Nasdaq: TDFX)") end if %>, which will give STBI shareholders 0.65 of a 3Dfx share for each share of their company's stock. The deal is valued at about $141 million based on last week's closing prices. STBI also reported a fiscal Q4 net loss of $0.45 per share, down from last year's $0.31 profit and well off Wall Street's projected $0.02 loss. 3Dfx, meanwhile, fell $2 7/8 to $13 1/2 this morning, possibly on concerns that the deal now puts it in competition with its customers.
Electric utility company New England Electric System <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NES)") else Response.Write("(NYSE: NES)") end if %> zoomed ahead $5 1/2 to $48 1/2 after it said the UK's National Grid Group will acquire it in a $3.2 billion cash deal. The $53 3/4 per share buyout price represents a 25% premium over New England's closing price Friday.
Financial services company Charles Schwab <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SCH)") else Response.Write("(NYSE: SCH)") end if %> rose $2 to $41 3/8 after it agreed to buy privately held, Canada-based Priority Brokerage and Porthmeor Securities, which will be combined to create Charles Schwab Canada. Terms of the deals were not disclosed.
Clinical products developer Vysis Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VYSI)") else Response.Write("(Nasdaq: VYSI)") end if %> earned $2 1/4 to $8 after it said the FDA approved its PathVysion HER-2 DNA Probe Kit for detecting a gene that promotes tumor growth in breast cancer patients for U.S. distribution. The kit is currently under review in France.
Biotech and genetic researcher Gene Logic <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GLGC)") else Response.Write("(Nasdaq: GLGC)") end if %> moved ahead $3/16 to $6 5/16 after it expanded a drug discovery agreement with Procter & Gamble <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PG)") else Response.Write("(NYSE: PG)") end if %> beyond its initial focus on heart failure. Gene Logic expects revenues from the agreement to double as a result.
Chemicals and life sciences company DuPont <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %> popped up $15/16 to $53 3/16 after PaineWebber boosted its rating on the company to "neutral" from "unattractive."
Technology management services company Competitive Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CTT)") else Response.Write("(AMEX: CTT)") end if %> battled its way up $7/8 to $6 1/16 after reporting a fiscal Q1 net loss of $0.05 per share, better than last year's dime loss. The company said a restructuring has helped shore up costs, and President Frank McPike expects a profitable Q2.
Telecom equipment and long-distance services provider Coyote Network Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYOE)") else Response.Write("(Nasdaq: CYOE)") end if %> howled at TheStreet.com today, advancing $1 5/16 to $7 7/8 after it said it asked the SEC to investigate recent heavy trading activity in its stock driven in large part by a series of stories written by the TheStreet.com website raising questions about its business. It also invited TheStreet.com honcho J. J. Cramer to visit the company and meet with top executives. Coyote also named vice president and controller Brian Robson its executive vice president and CFO, replacing Edward Beeman, who left the company.
Pharmaceutical developer Cell Pathways <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLPA)") else Response.Write("(Nasdaq: CLPA)") end if %> improved $3 3/16 to $17 3/16 after taking $3 7/8 Friday following reports that its CEO said its Prevatac treatment for pre-cancerous colon polyps should be on the market by late 1999.
Hospital and healthcare systems operator Quorum Health Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QHGI)") else Response.Write("(Nasdaq: QHGI)") end if %> tumbled $4 15/16 to $12 after warning that continuing poor performance from recent acquisitions, operational problems, and payor pressures will result in fiscal Q2 earnings "significantly below" the $0.32 per share posted last year, and possibly even a loss for the quarter if potential special charges for losses are factored in. Moreover, fiscal 1999 earnings will fall below the previous guidance of $1.43 to $1.48 per share, the firm's second downward revision for the period in as many months.
New and used auto dealerships and car rental outlets operator Republic Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RII)") else Response.Write("(NYSE: RII)") end if %> spun out for a $13/16 loss to $13 7/8 after saying lower-than-expected used car sales and problems closing some recent acquisitions will result in Q4 EPS about $0.05 below the $0.27 the firm said analysts had been expecting. Separately, the company said it is buying ten auto dealership groups in five states with combined annualized revenues of about $1.1 billion for roughly $240 million in cash.
Wireless and mobile information systems developer Telxon Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TLXN)") else Response.Write("(Nasdaq: TLXN)") end if %> slid another $1 9/16 to $13 7/16 after falling 45% Friday after saying it will restate its fiscal Q2 results to account for revenue recognition concerns stemming from a new financing program with distributors, which will result in a loss of $0.05 per share for the period.
Electronic design automation (EDA) tools maker Cadence Design Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDN)") else Response.Write("(NYSE: CDN)") end if %> declined $1 15/16 to $25 5/8 after Credit Suisse First Boston cut its rating on the firm to "hold" from "buy" and reduced its fiscal 1999 earnings estimate to $1.32 per share from $1.35 per share.
Commercial aircraft cabin products maker BE Aerospace <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BEAV)") else Response.Write("(Nasdaq: BEAV)") end if %> dove $1 1/2 to $24 1/2 following a downgrade from Morgan Stanley Dean Witter to "outperform" from "strong buy."
Information technology education centers operator Computer Learning Centers <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLCX)") else Response.Write("(Nasdaq: CLCX)") end if %> dropped $7/16 to $5 3/16 after Bloomberg News reported late Friday that the company's Houston center is being investigated by Texas authorities due to allegations that the company misled students about their future earnings potentials and helped them cheat on their examinations.
Specialty chemicals maker Witco Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WIT)") else Response.Write("(NYSE: WIT)") end if %> spilled $1 5/8 to $16 1/4 after saying higher costs and "intensified" pricing pressures will result in Q4 operating earnings "substantially lower" than the $0.19 per share recorded in Q3. The Zacks mean estimate had called for earnings of $0.20 per share in the quarter. The company expects the difficult operating environment for its business to persist in 1999.
Visual Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VNWK)") else Response.Write("(Nasdaq: VNWK)") end if %> was blindsided for a $1 11/16 loss to $32 1/4 after Donaldson, Lufkin & Jenrette downgraded the maker of wide area network (WAN) troubleshooting products to "market perform" from "buy."
Storage Technology Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STK)") else Response.Write("(NYSE: STK)") end if %> slid $3 5/16 to $32 11/16 after SoundView Technology Group lowered its rating on the maker of information storage devices to "hold" from "buy."
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Contributing Writers Yi-Hsin Chang (TMF Puck), a Fool Brian Graney (TMF Panic), another Fool David Marino-Nachison (TMF Braden), a new Fool
Editing |