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FOOL PLATE SPECIAL
An Investment Opinion
by Dale Wettlaufer
American Standard Chills Out
Trane Air conditioning systems, plumbing products, and automotive components manuacturer American Standard Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASD)") else Response.Write("(NYSE: ASD)") end if %> was cracked for an $8 15/16 move down to $25 1/16 after issuing a revision in its estimates for performance for the rest of fiscal 1998. The company warned that "economic turmoil in Eastern Europe, Russia and now Latin America are adding to pressures already created by the weakness in the Far East." Among these problems, the company is facing reduced demand for air conditioning systems, which has manifested itself in increased pricing pressures and customers asking to hold back on delivery of orders.
American Standard's revised 1998 earnings estimate calls for Q3 EPS of $0.88, $0.01 below the Zacks mean estimate, but at the bottom end of the five-analyst range of $0.87 to $0.91. For the full year, the company now estimates it will report EPS between $2.90 and $3.00, meaning the company's current expectations for the fourth quarter fall in the range of $0.49 to $0.59 per share, below the current mean analyst estimate of $0.69. Of immediate consequence to the share price and the total valuation of the company, American Standard is a leveraged corporation with a high debt-to-market capitalization ratio of 150% (this includes not just long-term debt, but payables to banks and post-retirement obligations). When the total valuation of the company changes, the debt needle doesn't change. So the total valuation change comes out of the hides of the equity holders -- great when things are going well, not so great when they're not.
Because the company makes products for basic infrastructure, a slowdown in the economies where basic infrastructure growth is growing faster than the U.S. does two things. First, it hurts the immediate sales picture. Second, it hurts the net present value of sales and earnings that come from the business of supplying replacement parts. For 1997, 60% of sales came from replacement and remodeling and 40% came from new construction. Since the company strives to keep on top of the flow of inventory by having adopted the Demand Flow system, it knows how to adjust production and ordering quickly. Since 1989, the company has made great leaps on working capital needs and inventory turnover, improving operating working capital as a percentage of sales from 16% to 4.7% and increasing inventory turns three-fold, from 3 turns per year to 9 in 1997. Whatever the international markets offer, the company is in as good a position to deal with the circumstances as one could expect.
In addition to American Standard's move down today, HVAC and refrigeration equipment company York International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: YRK)") else Response.Write("(NYSE: YRK)") end if %> lost $2 1/16 to $32 5/16 and Carrier HVAC systems manufacturer United Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UTX)") else Response.Write("(NYSE: UTX)") end if %> declined $3 13/16 to $75 7/8.
Government-sanctioned international satellite communications and digital networking services company COMSAT Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CQ)") else Response.Write("(NYSE: CQ)") end if %> gained $1 9/16 to $35 11/16 after announcing that it will be acquired by aerospace and defense giant Lockheed Martin <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LMT)") else Response.Write("(NYSE: LMT)") end if %> in a two-phase deal valued at around $2.7 billion. In Phase One, Lockheed will make a cash tender offer in the next five days to acquire up to 49% of COMSAT's outstanding stock for $45.50 a share, or a total of about $1.3 billion. Phase Two, contingent on new legislation and regulatory approval, will involve a stock swap -- valued at around $1.4 billion -- exchanging half a share of Lockheed stock for each COMSAT share. Lockheed dropped $5 7/8 to $94 1/8. For more details, see today's Breakfast With the Fool.
Integrated circuits developer Broadcom Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BRCM)") else Response.Write("(Nasdaq: BRCM)") end if %> leapt $4 5/8 to $79 5/8 after announcing it has integrated all of the cable modem media access control (MAC) and physical layer transmission functionality into a single chip, which it says means that next-generation cable modems will be smaller and cost less for consumers and will be able to deliver data, digital video, telephony, and Internet access at speeds up to 56 megabits-per-second, which is 1,000 times faster than standard 56k voice-band modems.
Internet search engine and portal company Infoseek Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEK)") else Response.Write("(Nasdaq: SEEK)") end if %> added $3/4 to $21 1/4 after announcing that the company and Walt Disney Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %>, which owns a 43% stake in Infoseek, will launch a new website called the "Go Network" (www.go.com) later this year. The Go Network will take over Infoseek's role as a portal service, leaving the Infoseek name on just the company's search and directory services. The Wall Street Journal reported that "people familiar with the matter" said Infoseek might change its corporate name to Go Network Inc.
Milwaukee-based diagnostic cardiology and patient monitoring devices maker Marquette Medical Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MARQ)") else Response.Write("(Nasdaq: MARQ)") end if %> powered up $15 to $42 3/8 on news that it will be acquired by GE Medical Systems, a unit of General Electric <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %>, for $45 a share in GE stock. GE Medical provides medical diagnostic imaging systems and services. GE was down $1 13/16 to $76 1/16 at midday.
Client/server enterprise resource planning software developer Platinum Software Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSQL)") else Response.Write("(Nasdaq: PSQL)") end if %> recovered $1 15/16 to $9 15/16 after saying it is "unable to explain" the roughly 37% drop in its stock price Friday. George Klaus, the company's chairman, president, and CEO, said the firm had "no material, negative developments to announce" and called rumors saying he was leaving the company "baseless."
Harvey Entertainment Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HRVY)") else Response.Write("(Nasdaq: HRVY)") end if %>, owner of such proprietary characters as Richie Rich and Casper the Friendly Ghost, jumped $2 to $8 1/2 after announcing it has hired Donaldson, Lufkin & Jenrette to advise the company on "strategic alternatives intended to maximize shareholder value," which may include the sale, merger, recapitalization, or spin-off of the business or assets of the entertainment and merchandising company.
Norwood Promotional Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NPPI)") else Response.Write("(Nasdaq: NPPI)") end if %> picked up $1 7/8 to $18 3/4 after announcing that it has been advised by FPK, LLC, which previously proposed acquiring the promotional products supplier, that it has received a letter of intent and a commitment letter for new financing for the merger, by which Norwood would be bought for $20.70 per share in cash. FPK, LLC is a limited liability company formed by Frank P. Krasovec, Norwood's chairman and CEO.
The American depositary shares of Franco-Italian chip maker STMicroelectronics S.A. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STM)") else Response.Write("(NYSE: STM)") end if %> fell $4 3/4 to $48 5/8 on worries in Europe that the worldwide slowdown in the electronics industry is not improving as quickly as some observers had hoped. Fellow European chipmaker Philips Electronics N.V. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHG)") else Response.Write("(NYSE: PHG)") end if %> was also down $7 5/16 to $43 11/16 this morning.
Medical stent maker Arterial Vascular Engineering <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVEI)") else Response.Write("(Nasdaq: AVEI)") end if %> collapsed $2 5/8 to $41 1/2 after an analyst told the The Wall Street Journal's "Heard on the Street" column that the Street's mean fiscal 1999 earnings estimate for the firm is too high, given that the company will face increased competition in the stent market in coming months from rivals Boston Scientific <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BSX)") else Response.Write("(NYSE: BSX)") end if %> and Guidant <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GDT)") else Response.Write("(NYSE: GDT)") end if %>.
Internet marketing firm Think New Ideas <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: THNK)") else Response.Write("(Nasdaq: THNK)") end if %> tumbled $1 5/8 to $6 7/8 after Barron's raised questions about the company's revenue recognition and other accounting policies, as well as concerns about increased competition in Think's business lines.
Wireless handsets wholesaler and retailer CellStar Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLST)") else Response.Write("(Nasdaq: CLST)") end if %> was cut $2 1/4 to $5 7/16 after saying the economic problems in Asia and Latin America will trim from $0.17 to $0.20 per share from its fiscal Q3 earnings. Also, a new accounting policy to recognize the losses from its investment in privately held Topp Telecom Inc. will reduce its Q3 earnings by another $0.08 to $0.10 per share. As a result, CellStar's earnings will miss the First Call mean estimate of $0.31 per share and possibly fourth quarter expectations as well.
Flat rolled steel processor Steel Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STTX)") else Response.Write("(Nasdaq: STTX)") end if %> slipped $1 1/16 to $6 13/16 after saying this summer's strike at General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %> and start-up costs for its Mi-Tech Steel joint venture will result in fiscal Q4 EPS between $0.09 and $0.10, missing the Street's mean estimate of $0.21. The company also forecasted fiscal 1998 EPS between $0.80 and $0.81, which is below expectations of $0.93.
Specialty chemical and minerals company Amcol International Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACOL)") else Response.Write("(Nasdaq: ACOL)") end if %> spilled $2 3/8 to $10 7/8 after saying the strong dollar and British pound caused margins for its overseas environmental businesses to fall and will result in fiscal Q3 EPS 14% to 22% below the First Call mean estimate of $0.28 per share.
Irrigation equipment maker Lindsay Manufacturing Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LNN)") else Response.Write("(NYSE: LNN)") end if %> was soaked $2 7/16 to $15 9/16 after saying its fiscal Q1 and Q2 earnings and revenues in fiscal 1999 will be lower than last year due to lower demand for its products because of weak agricultural commodity prices. On the bright side, the company said its earnings in Q4 and for fiscal 1998 "should be in line with expectations."
Shares of industrial gas company Praxair (NYSEL: PX) evaporated $4 to $31 5/8 after the company said the strong dollar, the recent General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %> strike, and unusually warm summer weather in the U.S. will result in fiscal 1998 earnings about $0.10 per share below the First Call mean estimate of $2.70 per share. Goldman Sachs, J.P. Morgan, and Brown Brothers Harriman all lowered their ratings on the company this morning.
Celadon Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLDN)") else Response.Write("(Nasdaq: CLDN)") end if %>, a trucking company that specializes in hauling goods between the U.S. and Mexico, skidded $4 7/8 to $9 15/16 on concerns that a planned management-led buyout of the firm may not take place because the bank backing a key bridge loan for the deal is not obligated to provide the financing under current market conditions.
Food storage container direct marketer Tupperware Corp. (NYSE: TUP) melted $3 1/8 to $15 1/16 after saying that foreign exchange losses will reduce its fiscal Q3 EPS by $0.03 to $0.05 and will lead to a "modest loss" in the period. The First Call mean estimate for the period called for EPS of $0.09. Additionally, the firm said the currency problems will drive down its fiscal 1998 EPS by $0.20 to $0.22.
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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 |