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FOOL PLATE SPECIAL
An Investment Opinion
by Louis Corrigan
CBT Group Crushed as CEO Ousted
CBT Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBTSY)") else Response.Write("(Nasdaq: CBTSY)") end if %> is a leading developer of interactive training software, but it has reserved some of its best lessons for investors, who have now watched the company's stock collapse 85% since trading at around $60 in early September. The firm's American Depositary Receipts plunged another $4 3/4 this morning to $8 3/4, dipping as low as $6 7/8, after the company announced that Chair/CEO James Buckley and CFO Richard Okumoto had been booted from their jobs. They will be replaced by a new management committee formed by former Chair/CEO William McCabe, former CFO Gregory Priest, and John Grillos, a member of the board. McCabe said that recent events had "created a crisis of confidence" in CBT and that the board considered it imperative to "move quickly to address the concerns that have arisen surrounding the company."
The move comes as a dramatic about-face because Buckley, who had served as CEO since December 1996, was only elevated to Chair on August 14. At the time, McCabe credited Buckley with driving the firm's expansion, which had included 14 consecutive quarters of growth and profits since going public. In the second quarter ended June 30, revenues soared 51% to $44.9 million while EPS exploded to $0.19 from $0.06 per American Depositary share equivalent before one-time acquisition charges.
However, rumors of a weak third quarter started circulating September 14 when Hambrecht & Quist analyst Genni Combes warned that firm's sales force that Europe could be disappointing for CBT. "I had conversations with management that led my gut to believe that there were issues," she told the Wall Street Journal. That same day, a spokesperson for CBT told Reuters that business was "where we expect it to be at this point in the quarter," but noted that a company official in Ireland was sidelined by the unexpected death of his son. With that, the stock price began its free-fall. It didn't help that CFO Okumoto failed to clarify matters the next day at a NationsBank Montgomery Securities investor conference.
That same day, BT Alex. Brown downgraded CBT from "strong buy" to "buy," noting that the company would probably just meet estimates for the third quarter. This past Monday, CBT warned that it would miss third quarter estimates due to softness in orders late in the quarter, especially in Europe, and because it didn't win a major order that was expected to bring in $5 to $6 million. CBT today announced that third quarter revenues came in at around $35 million, only slightly better than the $30.4 million reported last year. Though some observers think the selling has been overdone considering CBT's strong position in a market for information technology training that International Data Corp. expects will grow by 40% annually through 2002, such a huge sequential slowdown in sales growth is not encouraging.
Perhaps the main lesson here is that stocks driven by momentum investors can collapse in a hurry. At its peak, CBT traded at nearly 70 times FY98 earnings estimates and 16 times run-rate sales. Investors should also recognize that many technology firms, especially software firms, derive most of their sales at the end of the quarter, so there's always a higher risk of negative surprises. Yet CBT also offers a lesson in how information flows (or doesn't flow) to individual investors. Very few individuals are in the position of H&Q's Combes or of the institutional investors at the NationsBank conference. That means they aren't in a position to feel out the intangibles, the quiver in a CFO's voice, the reluctance to offer details, that can turn one's gut. Investors need to ask themselves how well positioned they are to access and process such intangibles. Otherwise, they can be exposed to enormous disappointment when a highflyer crashes.
Oil stocks bounced back in advance of a meeting tomorrow between the oil ministers of Saudi Arabia, Mexico, and Venezuela. New York crude futures are trading above $16 a barrel, significantly off the 12-year low of $11.42 a barrel reached in June. British Petroleum <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BP)") else Response.Write("(NYSE: BP)") end if %> gained $1 1/16 to $88 1/4, BP merger partner Amoco Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AN)") else Response.Write("(NYSE: AN)") end if %> added $1 11/16 to $55 9/16, Exxon <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XON)") else Response.Write("(NYSE: XON)") end if %> tacked on $7/8 to $71 1/2, Chevron <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHV)") else Response.Write("(NYSE: CHV)") end if %> was up $1 1/16 to $85 1/8, and Forest Oil Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FST)") else Response.Write("(NYSE: FST)") end if %> jumped $1 1/16 to $11 7/16.
Diversified media and electronic commerce company USA Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USAI)") else Response.Write("(Nasdaq: USAI)") end if %> climbed $1 1/16 to $20 1/2 on news that its Ticketmaster Online-CitySearch subsidiary made an SEC filing yesterday for an initial public offering (IPO) of $92 million worth of its class B common stock. The shares would trade on Nasdaq under the ticker "TMCS."
Electronic components distributor Richey Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RCHY)") else Response.Write("(Nasdaq: RCHY)") end if %> surged $3 1/16, or 44.6%, to $9 15/16 after announcing it will be acquired by Arrow Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ARW)") else Response.Write("(NYSE: ARW)") end if %> for $10.50 a share, representing a 53% premium over Richey's closing price yesterday of $6 7/8.
Website developer go2net Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GNET)") else Response.Write("(Nasdaq: GNET)") end if %> picked up $1 to $16 as the company's shares began trading on the Nasdaq National Market today. The stock had been traded on Nasdaq's SmallCap Market since the company's initial public offering in April 1997.
California State Bank parent First Security Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FSCO)") else Response.Write("(Nasdaq: FSCO)") end if %> rose $5/8 to $17 3/8 after announcing it has signed a binding letter of intent to acquire Irvine, Calif.-based Marine National Bank, a subsidiary of Shinhan Bank of Seoul, Korea, for an undisclosed sum of cash.
Computer programming consulting services company TSR Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TSRI)") else Response.Write("(Nasdaq: TSRI)") end if %> moved up $7/8 to $7 3/4 after reporting fiscal first quarter earnings of $0.18 per share compared with $0.08 last year.
Investors checked out of hotel and senior living communities operator Marriott International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MAR)") else Response.Write("(NYSE: MAR)") end if %> this morning, which fell $1 7/16 to $22 7/16 after reporting fiscal Q3 EPS of $0.32. The results beat last year's EPS of $0.27 but missed the Street's mean estimate by a penny. The company said its international lodging business was hampered by the Asian financial crisis despite seeing profit growth in Latin America, Europe, and the Middle East.
Discount apparel retailer TJX Cos. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TJX)") else Response.Write("(NYSE: TJX)") end if %> lost $2 1/16 to $15 3/4 after Morgan Stanley Dean Witter cut its rating to "neutral" from "outperform." Identical ratings changes sent shares of Gap <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GPS)") else Response.Write("(NYSE: GPS)") end if %> $2 3/4 lower to $50 and Men's Wearhouse <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUIT)") else Response.Write("(Nasdaq: SUIT)") end if %> down $2 1/4 to $15. Other retailers got the knife from the brokerage as well. Sears <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: S)") else Response.Write("(NYSE: S)") end if %> fell $2 9/16 to $41 5/8, Barnes & Noble <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKS)") else Response.Write("(NYSE: BKS)") end if %> was ripped $2 1/2 to $24 1/2, and General Nutrition <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GNCI)") else Response.Write("(Nasdaq: GNCI)") end if %> sank $7/8 to $9 15/16.
Networking products and systems designer FORE Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FORE)") else Response.Write("(Nasdaq: FORE)") end if %> was floored $5 3/8 to $11 1/4 after pre-announcing fiscal Q2 EPS between $0.09 and $0.10 (excluding acquisition-related charges), missing the Street's mean estimate of $0.14. The company said it was having difficulty dealing with stronger-than-anticipated demand and customer delivery schedules in the period.
Harbinger Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HRBC)") else Response.Write("(Nasdaq: HRBC)") end if %> dropped $2 1/2 to $4 3/4 after living up to its name last night by warning that operating EPS in fiscal Q3 will come in between $0.04 and $0.08 (before charges), missing the Street's mean estimate of $0.11. The supplier of electronic commerce software said it will refocus its business on electronic connectivity, which will include a 10% reduction in its workforce, a realignment of its management team, and the elimination of duplicate departments. Rival Sterling Commerce <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SE)") else Response.Write("(NYSE: SE)") end if %> lost $11 1/2 to $23 1/8 as BancBoston Robertson Stephens cut its rating to "attractive" from "buy."
Metal working and mining tools maker Kennametal <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KMT)") else Response.Write("(NYSE: KMT)") end if %> was shafted $3 5/16 to $23 5/8 after saying its fiscal Q1 revenues will come in between $480 million and $485 million and its earnings will be in the $0.20 to $0.25 per share range, missing the Street's mean estimate of $0.55 per share. The company blamed the shortfall on weak economic conditions in most of its major markets, the recent strike at General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %>, and problems in the oil and gas industries.
Banking and brokerage firm Bankers Trust <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BT)") else Response.Write("(NYSE: BT)") end if %> slid another $3 to $56 on market rumors that other hedge funds are close to collapsing along the same lines of recent blowup Long-Term Capital Management. Yesterday, reports surfaced that BT has $1 billion in outstanding loans to hedge funds on its books, which are 99% collateralized by U.S. Treasury securities and cash. Other banks dropped as well. Chase Manhattan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMB)") else Response.Write("(NYSE: CMB)") end if %> fell $2 1/16 to $41 1/16, BankBoston <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKB)") else Response.Write("(NYSE: BKB)") end if %> slid $1 13/16 to $31 3/16.
Golf course and turf care products supplier Lesco Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LSCO)") else Response.Write("(Nasdaq: LSCO)") end if %> hit a triple bogey and fell $3 1/8 to $10 5/8 after warning that its fiscal Q3 EPS will be about half of the $0.51 earned last year, missing the $0.59 to $0.62 range expected by analysts. The company also is expecting fiscal 1998 EPS of $1.02, which will be short of the Street's forecasted range of $1.19 to $1.27.
Airbags and safety seating technologies firm Simula Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SMU)") else Response.Write("(NYSE: SMU)") end if %> deflated $2 to $6 1/4 after saying it is expecting breakeven fiscal Q3 results on $22 million in revenues, below the Street's mean earnings estimate of $0.14 per share. The company said its commercial airline seating business is responsible for the lack of earnings in the period.
Broadband digital data transmission chip maker Broadcom Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BRCM)") else Response.Write("(Nasdaq: BRCM)") end if %> slipped $3 13/16 to $67 3/16 despite pre-announcing fiscal Q3 EPS of $0.16 to $0.17, ahead of the First Call mean estimate of $0.14, and saying it signed a two-year deal to supply Scientific-Atlanta <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFA)") else Response.Write("(NYSE: SFA)") end if %> with chips for its set-top boxes. However, the company also announced a secondary offering of 3 million shares, including 2,607,500 shares to be sold by certain shareholders.
Computer consulting company Cambridge Technology Partners <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CATP)") else Response.Write("(Nasdaq: CATP)") end if %> was beaned with a $2 5/16 loss to $20 after Merrill Lynch cut its near-term rating to "neutral" from "accumulate." The company has fended off rumors this week that employees are quitting as many of their stock options have become worthless amid a continuing decline in Cambridge Technology's stock price.
Titanium and specialty metal mill products manufacturer RMI Titanium Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RTI)") else Response.Write("(NYSE: RTI)") end if %> slumped $2 13/16 to $17 5/16 after being struck by 504 production and clerical employees belonging to the United Steelworkers of America, which has caused a work stoppage at RMI's plant in Niles, Ohio.
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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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