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FOOL PLATE SPECIAL
An Investment Opinion
by Louis Corrigan
Zebra Loses a Stripe
Bar code solutions provider Zebra Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZBRA)") else Response.Write("(Nasdaq: ZBRA)") end if %> lost a stripe this morning after both it and its merger partner Eltron International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ELTN)") else Response.Write("(Nasdaq: ELTN)") end if %> missed analysts' estimates. Zebra's Q3 sales rose 15% to $57.4 million, which pushed net income up 12.9% to $11.2 million, or $0.46 per share. That was a nickel ahead of year-ago results but four cents shy of expectations. Meanwhile, Eltron reported a Q3 revenue increase of 20% to $30.7 million (25% excluding its bar code business, which was jettisoned in Q1), leading to net income of $2.7 million, or $0.35 per share, versus $3.5 million, or $0.44 per share, a year ago. The result was substantially below the $0.43 consensus estimate. Zebra shares were stripped $2 13/16 to $30 11/16 at midday while Eltron was off $2 13/16 to $27 3/16. In July, Zebra agreed to acquire Eltron in a pooling of interest merger, with each Eltron share exchanged for 0.9 shares of Zebra Class B. The transaction should close next week, creating a company with about $325 million in annual sales.
Zebra's results were not as disappointing as they might appear. Company CFO Charles Whitchurch blamed market volatility in September for causing a $0.05 per share loss in its diversified investment portfolio. Although Zebra isn't operating its own hedge fund subsidiary, it did have some $145 million in cash and securities at the end of Q2. Indeed, although Zebra didn't release an updated balance sheet with its report, it appears that after the merger, Zebra could have around $165 million in cash ($5.25 per share) with basically no debt.
Moreover, Zebra became more profitable at an operating level during the quarter. Gross margins jumped 3.4 percentage points to 53.5% while operating margins increased 2.2 percentage points to 29.6%. Whitchurch attributed these gains to product re-engineering, improved component procurement, and a better product mix. With over 40,000 customers worldwide, Zebra's history of strong double-digit sales growth remained pretty much intact despite a weak Asia-Pacific region, which accounted for 7% of overall sales in the quarter. Meanwhile, Eltron also suffered from weak international sales plus a shift in its product mix that cut gross margins to 38% from 45% in the year-ago period. Sales to UPS rose 44% year over year but were down 18% sequentially, as expected.
While shares of Zebra and Eltron have endured an erratic year, the story is that bar-coding remains a steadily growing business as companies look to such labeling to improve productivity and increase data accuracy. Over the last four years, Zebra's revenue has increased at a compounded annual rate of 21.7%, while EPS from continuing operations have seen 23.4% annual growth. Eltron enhances Zebra's position as the market leader, with a broad line of computerized label printing systems used in inventory control, automated warehousing, employee attendance records, hospital information systems, and library systems. Zebra's high short interest appears arbitrage-related and thus unimportant. That makes sense given that insiders own 21% of the company and the firm has delivered an exceptional 24.2% return on equity over the last year.
"The Document Company" Xerox Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XRX)") else Response.Write("(NYSE: XRX)") end if %> rose $11/16 to $94 1/4 after saying that Q3 revenue growth of 6% was held back by "weaker global economic conditions," with softness in Brazil and Russia cutting growth by 2 percentage points. The company said it may not be able to deliver double-digit revenue growth in the near term due to the uncertain economic climate. Xerox reported Q3 EPS of $1.05, up from $0.89 last year and a penny ahead of analysts' mean estimate.
Radio and television station owner Sinclair Broadcast Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SBGI)") else Response.Write("(Nasdaq: SBGI)") end if %> moved ahead $1 1/16 to $15 1/16 after it said indications from advertising revenue suggest Q4 revenue growth of as much as 3% over last year's quarter. Sinclair also said it plans to sell TV and radio stations considered not central to its strategy during Q4 and early 1999 to finance acquisitions, pay debt and perhaps institute a stock buyback.
Online community operator GeoCities <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GCTY)") else Response.Write("(Nasdaq: GCTY)") end if %> climbed up $2 to $24 1/4 after reporting a Q3 loss of $0.14 per share, $0.02 per share below last year's loss but not quite as bad as the First Call mean estimate of a loss of $0.24 per share. "Every business indicator we have shows upside," said CEO Thomas Evans, whose company saw Q3 gross margins rise to 58% from 30% in Q2.
Auto and industrial lead-acid battery manufacturer Exide Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EX)") else Response.Write("(NYSE: EX)") end if %> charged ahead $1 3/8 to $7 1/4 after saying its fiscal Q2 EPS will be at the high end of or possibly even above the $0.05 loss to $0.10 gain range it forecasted last week, although the results will still fall short of the $0.56 originally expected by the Street. Also, Exide said its largest investor, the State of Wisconsin Investment Board, has been authorized to increase its stake in the company up to 20%.
Electrical wire, cable, and insulation products maker Essex International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SXC)") else Response.Write("(NYSE: SXC)") end if %> gained $5 1/8 to $28 5/16 after agreeing to merge with telecommunications cable and wire provider Superior TeleCom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SUT)") else Response.Write("(NYSE: SUT)") end if %> in a multi-step deal valued at $1.35 billion. First, Superior will launch a cash tender offer for up to 81% of Essex's outstanding shares at $32 per share, which is a 38% premium to Essex's closing price of $23 3/16 per share yesterday. Superior will then exchange the remaining Essex shares for preferred stock and assume $419 million of Essex debt. Superior, which fell $3 1/8 to $42 7/8, expects the deal to boost its calendar 1999 earnings by 15% to 25%.
Business telecommunications services provider WinStar Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WCII)") else Response.Write("(Nasdaq: WCII)") end if %> gained $5 5/16 to $24 7/8 after saying Lucent Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %> will provide the company with $2 billion in equipment financing over five years to help WinStar build out its wireless broadband telecommunications network in major U.S. and international markets.
Enterprise helpdesk software developer Clarify Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLFY)") else Response.Write("(Nasdaq: CLFY)") end if %> rang up gains of $2 3/8 to $10 3/4 after CEO Tony Zingale said his company was entering Q4 "very encouraged" by the market. Clarify reported Q3 EPS of $0.09 last night, a penny ahead of the Street's mean estimate, thanks in part to a 61% jump in license revenues. Both Adams, Harkness & Hill and BT Alex. Brown upgraded the firm this morning.
Digital audio and video tool creator Avid Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVID)") else Response.Write("(Nasdaq: AVID)") end if %> zoomed up $4 5/8 to $18 5/8 after reporting Q3 EPS of $0.30 (excluding acquisition-related charges), which was toward the high end of the $0.02 to $0.39 estimate range offered by the eight analysts surveyed by Zacks and $0.13 above the mean. The company also benefited from the announcement of a 2 million share stock buyback plan and upgrades from Piper Jaffray and Hambrecht & Quist.
Oil and gas production and refining firm Conoco <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COC)") else Response.Write("(NYSE: COC)") end if %> rose $1 15/16 to $24 15/16 after selling $4.4 billion in shares through an initial public offering last night at a price of $23 per share, which was near the top of the IPO price range expected by parent DuPont <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %>. For more details, see this morning's Breakfast With the Fool.
Long-term care services provider Centennial HealthCare <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTEN)") else Response.Write("(Nasdaq: CTEN)") end if %> shot up $6 3/16, or 72.8%, to $14 11/16 after agreeing to be bought by a new company formed by privately held investment firm Welsh Carson Anderson & Stowe, which already owned 23% of the company. The $16 per share cash buyout offer is nearly twice Centennial's closing price of $8 1/2 per share yesterday.
CardioGenesis Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CGCP)") else Response.Write("(Nasdaq: CGCP)") end if %>, which makes laser devices for the treatment of cardiovascular disease and angina pain, flew up $2 29/32 to $5 1/8 after it announced the signing of an agreement to be acquired by rival Eclipse Surgical Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ESTI)") else Response.Write("(Nasdaq: ESTI)") end if %> in a stock swap valued at about $86 million. Eclipse was down $25/32 to $8 after the announcement.
Interactive entertainment software developer THQ Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: THQI)") else Response.Write("(Nasdaq: THQI)") end if %> jumped up $1 to $17 3/4 after CEO Brian Farrell said he expects the company to meet or beat last year's Q4 results due to "stronger than expected" retail demand. Analysts currently expect Q4 EPS of $0.51, well below the $0.56 blowout quarter posted last year. THQ blasted out Q3 EPS of $0.21, beating Street projections by $0.04 and last year's results by $0.08.
Restoration Hardware <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RSTO)") else Response.Write("(Nasdaq: RSTO)") end if %> hammered out a $2 7/8 gain to $13 3/4 after Goldman Sachs placed the upscale home furnishings retailer on its "recommended list."
Earnings Movers
Asyst Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASYT)") else Response.Write("(Nasdaq: ASYT)") end if %> up $1 7/16 to $9 15/16; Q2 EPS: $0.63 loss (excluding charges) vs. $0.37 gain last year; Estimate: $0.34 loss
Bankers Trust <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BT)") else Response.Write("(NYSE: BT)") end if %> up $7/8 to $61; Q3 EPS: $4.98 loss vs. $2.19 gain last year; Estimate: $3.70 loss
Cerner Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CERN)") else Response.Write("(Nasdaq: CERN)") end if %> up $1 7/8 to $22 3/8; Q3 EPS: $0.19 vs. $0.13 last year; Estimate: $0.18
CDW Computer Centers <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CDWC)") else Response.Write("(Nasdaq: CDWC)") end if %> up $6 3/8 to $63 15/16; Q3 EPS: $0.79 vs. $0.60 last year; Estimate: $0.72
Cirrus Logic <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CRUS)") else Response.Write("(Nasdaq: CRUS)") end if %> up $3/8 to $8; fiscal Q2 EPS: $0.02 (before charges) vs. $0.13; Estimate: $0.02 loss
Harmonic Lightwaves <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HLIT)") else Response.Write("(Nasdaq: HLIT)") end if %> up $1 9/16 to $12 1/8; Q3 EPS: $0.07 loss vs. $0.04 gain last year; Estimate: $0.07 loss
NetGravity Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NETG)") else Response.Write("(Nasdaq: NETG)") end if %> up $7/8 to $9 3/16; Q3 EPS: $0.22 loss vs. $0.22 loss (pro forma) last year; Estimate: $0.24 loss
Office Depot <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ODP)") else Response.Write("(NYSE: ODP)") end if %> up $2 1/8 to $24 3/4; Q3 EPS: $0.32 (excluding charges) vs. $0.24 last year; Estimate: $0.31
3M <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %> dropped $4 1/2 to $79 3/4 after reporting Q3 EPS of $0.97, down from $1.03 in the same prior-year period and a penny short of expectations, due to "the slower pace of economic growth, combined with negative currency effects." Changes in currency exchange rates cut EPS by $0.08, or roughly 8%. However, the company expects higher Q4 sales and earnings compared with a year ago.
Golf equipment maker Callaway Golf Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ELY)") else Response.Write("(NYSE: ELY)") end if %> bogeyed for a $1 1/2 loss to $10 3/4 after reporting Q3 EPS of $0.08, down 85% from $0.52 a year ago though better than analysts' mean estimate of a loss of $0.01. Sadly, the company said it does not see "any significant improvement in sales in the next several quarters" and could even see "further softening of the golf equipment market" due to "various factors beyond our control." The company plans to announce a restructuring plan in the next two weeks.
DuPont <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %> slipped $1 5/16 to $60 11/16 as Merrill Lynch downgraded its short-term rating on the chemicals and life-sciences company to "neutral" from "accumulate." Yesterday DuPont reported Q3 EPS of $0.67 (before charges), down from $0.85 a year ago though in line with estimates.
The nation's second-largest publicly traded auto retailer United Auto Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UAG)") else Response.Write("(NYSE: UAG)") end if %> skidded $1 1/8 to $13 7/8 after reporting Q3 EPS of $0.40, up from $0.31 last year and in line with expectations. The company's third quarter was affected by the General Motors strike and disruption due to Hurricane Georges in Puerto Rico.
Hospital and healthcare systems operator Quorum Health Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QHGI)") else Response.Write("(Nasdaq: QHGI)") end if %> sank $2 7/8, or 20.5%, to $11 1/8 after revising its forecast for fiscal 1999 to $1.43 to $1.48 a share, short of analysts' mean estimate of $1.57, with Q2 EPS expected to be essentially flat with last year's $0.32 due to recent acquisitions that have underperformed. Quorum also reported fiscal Q1 EPS of $0.33, up from $0.28 in the same year-earlier quarter and even with analysts' expectations.
Electronic Arts <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ERTS)") else Response.Write("(Nasdaq: ERTS)") end if %> shed $2 1/4 to $39 15/16 after announcing fiscal Q2 EPS of $0.17 (before charges) versus $0.12 last year and beating analysts' expectations by a penny.
Earnings Movers
Gardner Denver Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GDI)") else Response.Write("(NYSE: GDI)") end if %> down $2 to $16 1/8; Q3 EPS: $0.52 vs. $0.44 last year; Estimate: $0.52
Inhale Therapeutic Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INHL)") else Response.Write("(Nasdaq: INHL)") end if %> down $1 5/8 to $22 7/8; Q3 EPS: loss of $0.32 vs. loss of $0.19 last year; Estimate: loss of $0.32
Terra Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRA)") else Response.Write("(NYSE: TRA)") end if %> down $1 to $6 11/16; Q3 EPS: loss of $0.29 vs. $0.19 last year; Estimate: loss of $0.14
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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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