<BREAKFAST WITH THE FOOL>
Wednesday, September 30, 1998
"Investing is fun, exciting, and dangerous if you don't do any work." -- Peter Lynch
Russian Roulette for RJR
Not to be left out of the recent internationally flavored earnings warning party, RJR Nabisco Holdings Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RN)") else Response.Write("(NYSE: RN)") end if %> issued a statement last night indicating that Russia's scare-istroika economic troubles will result in fiscal Q3 EPS between $0.46 to $0.48, missing the First Call mean estimate of $0.60.
Like its American consumer product cousins Coca-Cola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %>, Procter & Gamble <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PG)") else Response.Write("(NYSE: PG)") end if %>, and Gillette <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: G)") else Response.Write("(NYSE: G)") end if %>, RJR's exposure to this globalized economy of ours fueled profit and revenue growth when times were good. But with several emerging economies in the tank, the flip side of the globalization record is hurting RJR's financials with the same ugly severity that its Camel and Winston cigarettes harm a healthy pair of lungs.
Following Russia's decision to convert the ruble into rubble with a late-summer devaluation, RJR shut down its cigarette production facility in the land of Lenin and vodka and stopped shipping higher-priced brands into the country. The firm said it has restarted its Russian manufacturing operations, but warned that business conditions in the country remained "volatile," for lack of a better word.
RJR's share price has risen 19% this month, and arch-rival Philip Morris <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %> has seen a 12% stock appreciation over the same span, on hopes that Congress would put the tobacco litigation settlement talks on hold in order to address more important state matters, such as the President's sexual habits. But after last night's warning, RJR's smokin' share price performance for September may be snuffed out. Philip Morris may not be too far away from the ashtray, either, as the market is still waiting for an international damage report from the Marlboro Man.
News to Go
In a move that surprised no one (not even the managers of the Fool Portfolio), the Federal Reserve voted to cut the key Fed funds short-term interest rate yesterday to 5.25% from 5.50%. The Fed's counterpart to the north, the Bank of Canada, followed suit with a one-quarter percent point reduction of its own to 5.75%. And Norwest <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NOB)") else Response.Write("(NYSE: NOB)") end if %> affiliate Norwest Bank Minnesota set the example for other North American banks by moving fast to drop its base lending rate to 8.25% from 8.50%.
Columbus, Ohio-based Banc One Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ONE)") else Response.Write("(NYSE: ONE)") end if %> unveiled a technology alliance with units of AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> and IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> this morning. The deal includes a six-year, $1.4 billion voice and data networking management agreement with AT&T Solutions and seven-year, $420 million data center operations arrangement with IBM Global Services.
Media and entertainment giant Walt Disney Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> said it would replace its normal quarterly dividend with a single annual dividend payable in November of each year starting in 1999. According to the company, the change will cut postage and processing costs and simplify payments to the "great number" of Disney shareholders who own 10 or fewer shares in the House of the Mouse.
Telecommunications equipment maker Northern Telecom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NT)") else Response.Write("(NYSE: NT)") end if %> was downgraded to "outperform" from "buy" by Lehman Brothers this morning after the firm reportedly told analysts yesterday that its third quarter revenue growth will be lower than expectations due to weak Asian and European demand.
Electronic medical and scientific information services firm Ovid Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OVID)") else Response.Write("(Nasdaq: OVID)") end if %> agreed to be acquired by a subsidiary of Dutch business and scientific publisher Wolters Kluwer N.V. for $24.59 per share in cash. The purchase price represents a 19% premium to Ovid's closing price of $20 per share yesterday.
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