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FOOL PLATE SPECIAL
An Investment Opinion
by Louis Corrigan
Russell Investors Fleeced
Investors in textiles manufacturer and consumer products wannabe Russell Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RML)") else Response.Write("(NYSE: RML)") end if %> were fleeced for a $1/2 loss to $19 5/8 this morning. The company warned late yesterday that Q4 earnings could come in 50% below the $0.32 per share reported a year ago, or a jersey mile shy of the analysts' estimate of $0.48 per share, excluding restructuring charges. Fourth quarter revenue is now projected to decline by 15% from the $332 million reported last year. The shortfall doesn't do much for the credibility of new Chair/CEO Jack Ward, who promised just October 28 that he expected the company to "improve fourth quarter earnings per share by more than 50 percent."
Ward sheepishly blamed unseasonably warm fall weather, which hit the company's fleece business especially hard. The company has already curtailed production to avoid creating excess inventories. At the close of Q3 on October 8, Russell's inventories were in pretty good shape, basically flat with the year-ago period and in line with sales, which were up 2% for the third quarter and 1% for the first nine months of the year. Even better, accounts receivable were down 17% year-over-year.
Even so, the market's reaction was especially tame, in part because the stock has already given up gains posted earlier this year. Contributing to that was an Alabama jury's November 17 decision to slap Russell with $52 million in punitive damages for its textile wastewater discharges (the company is appealing). Also, Ward said that excluding restructuring charges and other non-recurring expenses, management remains comfortable with current analysts' estimates of $1.79 per share for FY99. Reported results of late look far worse than they really are due to charges. Backing out $39 million in after-tax charges in Q3, the reported loss of $0.39 per share turns into a profit of $0.70 per share, 9% above the $0.64 reported a year ago.
Those charges are part of Ward's three-year plan to close about 25 of Russell's 90 worldwide facilities and cut 4,000 jobs (23% of the workforce) as it sends more work overseas in an attempt to bring down its manufacturing costs in a fiercely competitive industry that includes Sara Lee's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLE)") else Response.Write("(NYSE: SLE)") end if %> Hanes unit and Fruit of the Loom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FTL)") else Response.Write("(NYSE: FTL)") end if %>. After-tax charges should amount to $100 to $125 million over this period.
At the same time, Russell has moved away from its licensing deals, declining to renew pacts with the National Hockey League and the National Football League. Instead, it will triple its advertising to $25 million a year in an effort to enhance its own brands, which include Russell Athletic, Jerzees, and Cross Creek. The company's board doled out some big bucks in April to get Ward to orchestrate this turnaround. A former Sara Lee exec, Ward helped launch the L'eggs stockings brand. Investors apparently see the latest news as just a bump on the turnaround road. We'll see.
Cigar maker Swisher International Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SWR)") else Response.Write("(NYSE: SWR)") end if %> jumped $2 1/8 to $8 15/16 after its board announced a plan to take the company private last night. Under the plan, each Class A common share will be converted into $9.50 in cash, which offers shareholders a 39% premium to the stock's closing price of $6.8125 per share yesterday.
Luxury goods retailer Gucci Group NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GUC)") else Response.Write("(NYSE: GUC)") end if %> moved up $4 to $50 after reporting fiscal Q3 EPS of $0.76 compared to $0.70 a year ago, beating the First Call mean estimate of $0.72. President and CEO Domenico De Sole added that growing revenues and operating profits will result in full-year fiscal 1998 EPS of $2.90.
Information technology training software developer CBT Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBTSY)") else Response.Write("(Nasdaq: CBTSY)") end if %> gained $3 1/16 to $15 1/2 after agreeing to acquire privately held interactive professional training products maker Knowledge Well for about $52 million in stock. Both BancBoston Robertson Stephens and BT Alex. Brown raised their ratings on the company this morning.
Pharmaceutical developer Celgene Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CELG)") else Response.Write("(Nasdaq: CELG)") end if %> was boosted $1 3/16 to $11 13/16 after agreeing to acquire the rights to the drug thalidomide held by EntreMed <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENMD)") else Response.Write("(Nasdaq: ENMD)") end if %>, including EntreMed's patents and orphan drug designation from the FDA. EntreMed has been conducting clinical trials to ascertain thalidomide's effectiveness as a possible cancer treatment. The FDA has already approved Celgene's Thalomid version of the drug for treating a complication of leprosy.
Radio station operator Infinity Broadcasting Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: INF)") else Response.Write("(NYSE: INF)") end if %> gained $3 3/8 to $23 7/8 in its first day of trading after parent CBS Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CBS)") else Response.Write("(NYSE: CBS)") end if %> sold a 17% stake in the company at an initial public offering price of $20.50 per share. For more details on the IPO, please see this morning's Breakfast With the Fool.
Fellow IPO AboveNet Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ABOV)") else Response.Write("(Nasdaq: ABOV)") end if %> climbed $4 5/8 to $17 5/8 after the company sold 5 million shares priced at $13 per share. AboveNet offers so-called "Internet Service Exchanges," which provide co-location services and direct Internet access to websites.
Networking products maker 3Com Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %> moved up $2 5/16 to $46 3/16 after Morgan Stanley Dean Witter raised its 12-month price target to $55 per share from $45 per share.
Wallace Computer Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WCS)") else Response.Write("(NYSE: WCS)") end if %> added $1 1/2 to $23 13/16 after the provider of print management services reported fiscal Q1 EPS of $0.40, down from $0.49 last year but ahead of the $0.38 expected by the two analysts surveyed by Zacks.
Stockholm, Sweden-based telecom equipment maker Ericsson <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ERICY)") else Response.Write("(Nasdaq: ERICY)") end if %> tumbled $4 5/16 to $24 9/16 after it said it anticipates full year 1998 revenues and earnings will be "somewhat below market expectations." The company blamed the expected shortfall on the continued impact of the global financial crisis and said it plans to make "substantial reductions" in its workforce, the details of which will be disclosed when it reports year-end results in late January. Wall Street currently expects EPS of $1.05 for the year.
Aerospace and defense contractor Lockheed Martin <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LMT)") else Response.Write("(NYSE: LMT)") end if %> dropped $1 7/8 to $99 7/8 after it lost out to a consortium led by Computer Sciences Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CSC)") else Response.Write("(NYSE: CSC)") end if %> for a 15-year, $3 billion contract with the Internal Revenue Service to modernize the tax agency's computer system.
Chef Boyardee, Crunch 'n Munch, and other food products maker International Home Foods <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IHF)") else Response.Write("(NYSE: IHF)") end if %> boiled away $7/8 to $17 7/8 after Merrill Lynch lowered its near-term rating on the company to "accumulate" from "buy." The brokerage maintained its long-term "accumulate" rating on the stock.
Computer network directory and messaging products company Banyan Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BNYN)") else Response.Write("(Nasdaq: BNYN)") end if %> lost $1 5/16 to $7 3/4 after it said its Switchboard Inc. subsidiary won't renew its Yellow Pages contract with online services provider America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> next year.
Cerprobe (Nasdaq CRPB), which makes testing equipment for integrated circuits, dropped $2 11/16 to $12 7/16 after it said it expects fiscal Q4 losses from continuing operations of between $0.03 and $0.06 per share, well off the $0.16 consensus profit estimate from three analysts surveyed by First Call. The company blamed customer acceleration of shipments to Q3, as well as worldwide softness in the semiconductor industry, for the shortfall.
E-commerce outsourcing solutions specialist Digital River <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DRIV)") else Response.Write("(Nasdaq: DRIV)") end if %> ran down $2 13/16 to $22 3/4 after it announced a public offering of an additional 3 million shares of common stock at $23.50 per share.
Toymaker Hasbro Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: HAS)") else Response.Write("(AMEX: HAS)") end if %> cracked $1 1/16 to $34 1/16 while competitor Mattel Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MAT)") else Response.Write("(NYSE: MAT)") end if %> slipped $5/16 to $30 as the number of shopping days 'til Christmas continues to decrease inexorably. Reports in USA Today said Hasbro will donate $3.6 million in toys to the Toys For Tots charity and pay $2.4 million in cash to establish funds for children in order to settle an antitrust suit. Hasbro admitted no wrongdoing.
Drug maker Merck & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRK)") else Response.Write("(NYSE: MRK)") end if %> lost $2 3/4 to $149 3/16, prolonging its fall on yesterday's news that it expects full-year 1999 EPS of between $4.85 and $4.95, compared with the Street's $4.97 mean estimate. Two brokerages downgraded the stock this morning. Meanwhile, Bristol-Myers Squibb <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BMY)") else Response.Write("(NYSE: BMY)") end if %> lost $3 7/16 to $124 3/16 after PaineWebber Securities downgraded the stock to "neutral" from "attractive."
Discount retailer Consolidated Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNS)") else Response.Write("(NYSE: CNS)") end if %> fell $1 3/6 to $20 1/2 after it announced management changes atop its closeout division after the market's close yesterday. NationsBank Montgomery Securities lowered its rating on the company to "hold" from "buy" today.
Enterprise software developer Genesys Telecommunications Laboratories <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GCTI)") else Response.Write("(Nasdaq: GCTI)") end if %> fell $2 9/16 to $24 3/4 following last night's news that it named former Scopus Technology CEO Ori Sasson its CEO. Genesys also acquired privately held Plato Software, an early-stage company of which Sasson is a principal shareholder, for 200,000 shares of common stock.
Potash producer and distributor IMC Global <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IGL)") else Response.Write("(NYSE: IGL)") end if %> burned off $1 1/16 to $19 13/16 after Donaldson, Lufkin & Jenrette downgraded the stock to "market perform" 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 |