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FOOL PLATE SPECIAL
An Investment Opinion
by Warren Gump
Investors Check Out of Hilton
Steve Bollenbach, the CEO of Hilton Hotels <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HLT)") else Response.Write("(NYSE: HLT)") end if %>, has had a rough year since he lost the battle for ITT last year. Earnings disappointments and fears of a recession have driven this stock from a high last October of nearly $36 to a recent low of $12.50 before rebounding to its current price of $19. Despite the fact that Hilton cautioned investors last month that Q3 earnings would fall in the "low 30-cent" range rather than the $0.38 per share expected by analysts, earnings announced today still fell a penny shy of First Call estimates of $0.31. Looking behind the numbers, one has to wonder whether this once-dominant lodging brand is losing some of its luster.
The lodging division, which owns 34 major Hilton properties and manages or franchises about 200 hotels, accounts for about half the company's cash flow and has seen results deteriorate much more seriously than its competitors over the past year. The company's owned properties saw RevPAR (revenue per available room, which is equal to the occupancy rate times the average room rate) increase 2%-3% in the third quarter and 5% year-to-date. Compare this to Host Marriott <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HMT)") else Response.Write("(NYSE: HMT)") end if %>, which owns major Marriott and Ritz Carlton properties throughout the U.S., which saw Q3 RevPAR increase 7.2% in Q3 and 7.9% year-to-date. While Hilton and Host Marriott's statistics may not be directly comparable because of varying property locations (Hilton numbers are noticeably impacted by the Hilton Hawaiian Village property, which is experiencing horrific results because of Asian turmoil), they do indicate that Hilton's properties are not weathering the current economic environment as well as others.
The gaming side of Hilton, which accounts for the other half of Hilton's cash flow and owns such properties as the Las Vegas Hilton, Bally's Park Place, and the Flamingo Hilton, has been suffering with most of the other gaming companies. Cash flow for Q3 fell 1% to $151 million. The company blames the lackluster results on "generally sluggish" Las Vegas market conditions and low table game hold at its Bally's Park Place casino in Atlantic City. It is hard to envision a dramatic turnaround in the near-term in Las Vegas given the significant increase in competition over the next year. (Mirage's grand Bellagio property opened last week and two other major new resorts, Mandalay Bay and the Venetian, are scheduled to open over the next six months). The next real catalyst (at least the company hopes) will be when Hilton enters the new property fray with its new Paris casino near the end of next year. Over in Atlantic City, there is no visible catalyst for near-term growth.
There is (or at least was supposed to be) some excitement at Hilton. At the end of June, it announced that it was going to merge with Grand Casinos <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GND)") else Response.Write("(NYSE: GND)") end if %> and split up Hilton into separate gaming and lodging companies. Trading separately, the theory goes, the underlying value of each division would be "unlocked" for investors. What has happened since the announcement has been anything but positive: Hilton is down from over $30 per share and Grand is down from about $19 to its current price of $9 1/4. Perhaps investors weren't enthused about Hilton acquiring a company that focused on the Gulf Coast market right before Mirage's new mega-property, Beau Rivage, opens. Then again, maybe they have simply decided to follow the actions of the company chairman, Barron Hilton, who sold 24 million shares held by a trust he controlled for $32.21 per share on April 30th.
Fiber optic cable and components maker Corning Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLW)") else Response.Write("(NYSE: GLW)") end if %> advanced $3 13/16 to $35 3/16 after reporting Q3 EPS of $0.44 versus $0.45 last year, which was $0.06 ahead of the Street's mean estimate. The company benefited from "exceptionally strong" North American volume growth for its fiber optic products, as new telecommunications network providers took out their wallets and started spending. Corning said its Q4 results may not be as strong as its Q3 figures, but profit growth should pick up in fiscal 1999.
Chase Manhattan Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMB)") else Response.Write("(NYSE: CMB)") end if %> climbed $3 15/16 to $55 3/16 after reporting fiscal Q3 operating EPS of $0.82, down from the $1.19 earned last year but ahead of the Street's mean estimate of $0.78. While the bank holding company said "difficult" economic conditions around the world impacted its results, it was able to cope during the quarter by relying on its varied revenue streams and "sound risk management systems."
Bank holding company Bankers Trust <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BT)") else Response.Write("(NYSE: BT)") end if %> rose $7 1/16 to $61 13/16 on speculation that Germany's Deutsche Bank is holding discussions with the firm about a possible merger.
Enterprise data storage systems and software maker EMC Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EMC)") else Response.Write("(NYSE: EMC)") end if %> gained $4 3/16 to $62 after reporting fiscal Q3 EPS of $0.38 versus $0.25 a year ago, beating the Street's mean estimate by $0.02. The firm's net profit margin hit a decade-high 20% during the quarter, while revenues jumped 37% from a year-ago to a hair over $1 billion.
Semiconductors and electronics manufacturer Texas Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %> moved up $2 1/8 to $62 1/2 after announcing fiscal Q3 EPS of $0.41 versus $0.60 last year, which was above analysts' estimates of $0.29. While the company's memory chip business took a $0.26 per share bite out of net income, its digital signal processor (DSP) unit grew by 17% in the period. For Q4, the firm is expecting "generally stable" performance from its semiconductor business and continued strong demand for its products for the wireless phone market.
Small household appliance maker Sunbeam Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SOC)") else Response.Write("(NYSE: SOC)") end if %> shined $1 3/16 brighter to $7 11/16 after restating its financial results for fiscal 1997 and Q1 of fiscal 1998, effectively wiping out the "dramatic turnaround" in 1997 often trumpeted by since-ousted Chairman and CEO Al Dunlap. However, the company is not out of the woods yet and said it expects "significant charges" during the rest of 1998 to adjust its inventories and operations. For more details, see this morning's Breakfast With the Fool.
Electronic design automation (EDA) software and consulting firm Structural Dynamics Research Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SDRC)") else Response.Write("(Nasdaq: SDRC)") end if %> picked up $1 15/16 to $11 3/4 after reporting Q3 EPS of $0.28 (including a $2.7 million gain) versus $0.33 a year ago, topping the Street's mean estimate by $0.08. Total revenues rose 17% to $102 million from a year ago. Merrill Lynch raised its near-term rating to "accumulate" from "neutral."
Shares of online auction service eBay Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EBAY)") else Response.Write("(Nasdaq: EBAY)") end if %> were bid up $5 1/8 to $50 1/2 this morning after Goldman Sachs placed the company on its "recommended list" and BT Alex. Brown started coverage with a "buy" rating. Both brokerages were underwriters of the company's initial public offering last month.
Telecommunications equipment maker Ciena Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CIEN)") else Response.Write("(Nasdaq: CIEN)") end if %> gained another $2 7/16 to $14 9/16 after rising 30% yesterday following comments from Tellabs <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TLAB)") else Response.Write("(Nasdaq: TLAB)") end if %> CEO Michael Birck, who suggested Tellabs may make still be interested in merging with Ciena even though a previous deal fell apart a little over a month ago.
Earnings Movers
AMC Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: AEN)") else Response.Write("(AMEX: AEN)") end if %> up $1 1/8 to $13 1/4; fiscal Q2 EPS: $0.34 vs. $0.33 (before charges) last year; Estimate: $0.27
Ben & Jerry's Homemade <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BJICA)") else Response.Write("(Nasdaq: BJICA)") end if %> up $2 1/16 to $18 9/16; Q3 EPS: $0.39 vs. $0.34 last year; Estimate: $0.33
Grand Casinos <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GND)") else Response.Write("(NYSE: GND)") end if %> up $9/16 to $8 7/8; Q3 EPS: $0.76 vs. $0.51 last year; Estimate: $0.54
Mallinckrodt Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MKG)") else Response.Write("(NYSE: MKG)") end if %> up $1 1/4 to $25 5/16; fiscal Q1 operating EPS: $0.44 vs. $0.37 last year; Estimate: $0.39
Net.B@nk Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NTBK)") else Response.Write("(Nasdaq: NTBK)") end if %> up $1 11/16 to $19 3/16; Q3 EPS: $0.10 vs. $0.32 loss last year; Estimate: $0.10
Network Associates <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NETA)") else Response.Write("(Nasdaq: NETA)") end if %> up $2 1/4 to $37 1/8; Q3 EPS: $0.41 (before charges) vs. $0.27 last year; Estimate: $0.38
Praxair Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PX)") else Response.Write("(NYSE: PX)") end if %> up $2 7/16 to $38; Q3 EPS: $0.66 vs. $0.65 last year; Estimate: $0.65
Qwest Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QWST)") else Response.Write("(Nasdaq: QWST)") end if %> up $1 3/8 to $38 1/8; Q3 EPS: loss of $0.02 vs. profit of $0.06 last year; Estimate: loss of $0.06
Xircom Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XIRC)") else Response.Write("(Nasdaq: XIRC)") end if %> up $2 3/4 to $27 3/4; fiscal Q4 EPS: $0.33 vs. loss of $0.57 last year; Estimate: $0.25
Computer networking company Ascend Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %> tumbled $3 1/16 to $44 13/16 after reporting Q3 EPS of $0.32, up from $0.20 a year ago and a penny above analysts' consensus estimate. NationsBanc Montgomery Securities and Warburg Dillon Read cut the company to "hold" from "buy." Though the company expressed an optimistic outlook for coming quarters, some investors on the conference call were concerned that Ascend will be offering increased vendor financing to fuel its growth. For more details on that, the company's conference call replay is available through Oct. 26.
Integrated retail software developer JDA Software Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JDAS)") else Response.Write("(Nasdaq: JDAS)") end if %> sank $5 1/16, or 38.9%, to $7 15/16 after announcing that its European software license sales were "significantly lower than expected," and that "a substantial number" of its European, Latin American, and Asian customers have delayed buying merchandising systems. The company turned in Q3 EPS of $0.17, up from $0.16 last year but well below the Street's $0.22 estimate.
The world's largest enterprise software developer SAP AG's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SAP)") else Response.Write("(NYSE: SAP)") end if %> American depositary receipts slipped $7/8 to $38 5/8 after the company said it expects growth to slow in the fourth quarter due to Asian economic weakness and as customers divert resources to address the Year 2000 problem. The company said unfavorable exchange rates stalled Q3 sales growth by 7 percentage points.
Natural gas, electricity, and monitored alarm security company Western Resources <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WR)") else Response.Write("(NYSE: WR)") end if %> lost $2 3/4 to $38 1/8 despite reporting third quarter earnings of $1.10 a share, up 47% from $0.75 in the same year-earlier period (before a large one-time gain) and ahead of the First Call mean estimate of $1.00. Including the gain on the sale of an investment last year, the company earned $7.77 per share in Q3 1997.
SOS Staffing Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SOSS)") else Response.Write("(Nasdaq: SOSS)") end if %> dove $5 11/32 to $8 1/32 after late yesterday's announcement that it expects to report Q3 EPS of $0.26 to $0.27, including $0.02 in income tax credits, when it reports quarterly results tomorrow morning. Wall Street analysts had forecasted a $0.30 per share quarter for SOS. CEO Howard Scott said the company had anticipated a seasonal boost in business during the quarter but was hit by a slowdown late in the period. Prudential Securities downgraded SOS to "accumulate" from "strong buy."
Digital signal processing cores manufacturer DSP Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DSPG)") else Response.Write("(Nasdaq: DSPG)") end if %> dropped $1 3/4 to $13 1/2 after reporting Q3 EPS of $0.35, compared with $0.32 a year ago and analysts' mean estimate of $0.34. Q3 revenues increased 5% to $17.3 million, a smaller gain than the 10% overall growth it achieved in the first nine months of the year.
Circon Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CCON)") else Response.Write("(Nasdaq: CCON)") end if %>, which makes equipment for minimally invasive urological and gynecological surgery, was cut $1 3/4 to $7 7/8 after announcing that attempts to find a buyer for the company produced no "acceptable" acquisition offers. Circon's board said it was taking the company out of the "for sale" fishbowl but would consider further discussions with companies already in the mix, as well as any unsolicited offers. It was a busy morning for Circon, which also reported Q3 EPS of $0.19 (double last year's figure) as quarterly U.S. sales were 5% lower than a year ago. Chairman and CEO Richard Auhll did his part to generate news by resigning from both posts.
Earnings Movers
Ballard Medical Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BMP)") else Response.Write("(NYSE: BMP)") end if %> down $3/8 to $19 15/16; fiscal Q4 EPS: $0.30 vs. $0.28 last year; Estimate: $0.30
Brio Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BRYO)") else Response.Write("(Nasdaq: BRYO)") end if %> down $9/16 to $9 7/8; fiscal Q2 EPS: breakeven vs. loss of $0.42; Estimate: loss of $0.03
Tupperware Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TUP)") else Response.Write("(NYSE: TUP)") end if %> down $1 1/2 to $15 11/16; Q3 EPS: loss of $0.11 vs. profit of $0.06 last year; Estimate: loss of $0.12
Western Digital Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %> down $3 /16 to $7 15/16; fiscal Q1 EPS: loss of $1.24 (before charges) vs. $0.67 last year; Estimate: loss of $1.24
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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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