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Tuesday's Winners & Losers: Staples, Target, Varian, COR Therapeutics, Liberty Digital

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  • M&A
  • Earnings/revenue
  • Analyst actions
  • Miscellany
  • Updated from 1:22 p.m.

    Financial giant Citigroup (C) is cutting back on its planned investments and trimming expenses as it braces for the storm called the economic slowdown. The spending pullback could total between $1 billion and $2 billion this year.

    The Wall Street Journal reported this morning that the total amount of the cuts will depend on the state of the economy and its impact on the financial conglomerate's businesses. Citi Chairman Sandy Weill, who earned $28.6 million last year, apparently is keen to prove to investors that the company deserves a higher share price based on its ability to survive tough economic times.

    Banks and trading firms, of course, are hit as consumers borrow, invest and trade less.

    Citigroup's two largest divisions, its global corporate and investment bank -- including brokerage Salomon Smith Barney -- and its global consumer business, are reportedly each considering cuts of up to $400 million this year. The group's global money-management unit, which includes the Citigroup private bank that caters to wealthy individuals, is also planning cuts amounting to $100 million, according to the Journal.

    Separately, Citigroup and its Taiwan strategic partner, Fubon Group, said they are not ruling out the possibility of merging or acquiring other financial institutions in Taiwan. Citigroup, which acquired a 15% stake worth $750 million in Fubon last year, called its relationship with the company "a revenue-creation idea" that would expand the number of financial products they sell. Citigroup closed up 38 cents, or 0.8%, to $48.63.

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    Mergers, acquisitions and joint ventures

    AOL Time Warner (AOL) will create a new TV networks group under the Turner Broadcasting System umbrella, which will include both Turner's basic cable networks and The WB broadcast network. The move will make it the world's largest television networks group.

    The expanded TV networks group will share advertising, marketing, program development and Internet resources, and gain cross-promotion opportunities. The group also will launch new networks and extend its Internet reach. The realignment will enable the company's group of branded networks to accelerate its growth and extend its market leadership.

    Jamie Kellner, the CEO and founder of The WB, has been named chairman and CEO of Turner Broadcasting. In 1993, Kellner founded The WB Television Network in a joint venture that included Warner Bros. and Tribune Co. Previously, Kellner helped found and build the Fox network as president and chief operating officer of Fox Broadcasting.

    Terence McGuirk, chairman and CEO of Turner Broadcasting, has decided to step back from a direct operating role at the company, becoming vice chairman. Wayne Pace, chief financial officer and chief administrative officer of TBS, will take on the added role of vice chairman, but Turner President and Chief Operating Officer Steven Heyer will be leaving the company to pursue other interests.

    The new networks group will operate such brands in entertainment as TBS Superstation, TNT, The WB, Cartoon Network, Turner Classic Movies, CNN/U.S. and CNN Headline News, as well as the Atlanta Braves, Atlanta Hawks, The Goodwill Games, and the company's international language-specific networks. AOL Time Warner closed up $2.74, or 6.3%, to $46.54.

    Boeing (BA) said CIT Aerospace, a unit of CIT Group (CIT), ordered 25 aircraft valued at more than $1.3 billion at list prices.

    The company also took options for five additional aircraft. Boeing closed up 22 cents, or 0.4%, to $62.13; CIT Group closed down 36 cents, or 1.5%, to $23.72.

    Xerox (XRX) agreed to sell half its stake in Fuji Xerox to Fuji Film for 160 billion Yen in cash, or more than $1.3 billion based on recent exchange rates, as part of a massive fund raising effort.

    The deal, which leaves Fuji Film with a 75% ownership in Fuji Xerox, up from 50%, is to close by the end of March. Xerox also said the sale will result in an after-tax book gain of about $310 million for Xerox.

    The sale means that Xerox has raised about $2 billion in an effort to reduce its debt, which was considered junk in recent downgrades by Fitch and Moody's. Last fall, Xerox announced a plan to reduce debt and costs and refocus on core businesses like document services and high-end printing. Xerox closed up 15 cents, or 2.2%, to $6.91.

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    Earnings/revenue reports and previews

    C&D Technologies (CHP) posted fourth-quarter earnings of 61cents a share, beating the dual-analyst estimate of 55 cents a share and up from year-ago earning of 35 cents a share. The maker of electrical power storage said earnings rose 80%.

    C&D said it expects to meet first-quarter estimates of 56 cents a share. C&D Tech closed up 91 cents, or 2.7%, to $34.75.

    Tagging on the tail end of earnings season, Staples (SPLS) posted fourth-quarter earnings of 21 cents, a penny better than the 16-analyst estimate, but down from year-ago earnings of 26 cents a share. The decline from the same period last year was caused by the "continued deterioration of the economy" and the company's "aggressive growth initiatives."

    Quarterly revenue was $3.1 billion, compared with $2.6 billion reported for the same period last year. Same-store sales for the quarter rose 3%, while its overall business posted flat results on a comparable basis.

    Looking ahead, the company projected flat first-quarter earnings of 9 cents a share, compared with the same period last year. Analysts are expecting earnings of 8 cents a share. The company also said its "longer-term guidance" was for 20% to 25% earnings growth and same-store sales in the "midsingle-digit range." In a prepared statement, Staples said, "We don't expect to see significant improvements in the economy until the second half of the year." Staples closed up $1.13, or 7.6%, to $15.94.

    Discount retailer Target (TGT) posted fourth-quarter earnings of 62 cents a share, beating the 21 analyst estimate of 59 cents a share and up from year-ago earnings of 58 cents a share.

    "We are satisfied with our fourth quarter and total year 2000 results in light of the current economic environment," said Bob Ulrich, chairman and chief executive officer of Target. "In 2001, we will continue to manage our business with a disciplined approach and, over the long-term, we remain confident in our ability to achieve average annual earnings per share growth of 15 percent."

    Also, Target said it acquired the rights to 35 former Wards stores of which 30 will reopen as Target stores in 2002 after remodeling. Target closed up $1.60, or 4.4%, to $38.


    After Monday's Close

    The day ended with some earnings, and its fair share of warnings.

    COR Therapeutics (CORR) lowered its guidance for the first quarter and 2001, saying that wholesaler inventory levels have fallen sharply from the end of last year.

    The pharmaceutical products company now expects sales of $37 million to $39 million for the first quarter and $245 million to $260 million for 2001. The company previously expected sales of $250 million to $270 million for the year.

    COR also projected a first-quarter loss of 5 cents to 7 cents a share, reversing the consensus earnings projection of 3 cents a share, according to First Call/Thomson Financial. For the year, the company expects earnings of 35 cents to 37 cents, below Wall Street's estimate of 40 cents. COR closed down $2.38, or 7.5%, to $29.38.

    H.J. Heinz (HNZ) announced that it is now expecting earnings for fiscal year 2001 of about $2.54 to $2.56 a share. The First Call 15-analyst estimate is currently $2.76 a share. The figure excludes restructuring costs, plus a benefit of 27 cents per share from tax planning and new tax legislation in Italy enacted in the third quarter.

    Also, it said its third-quarter EPS will be about 65 cents. The 14-analyst estimate is 70 cents a share. Including the Italian tax benefit and excluding restructuring, the EPS would be 92 cents for the third quarter.

    The company said there were a number of factors that are responsible for the reduction in the outlook, including continued price pressure in U.S. tuna, the negative price impact of energy and reduced sales expectations in Australia and New Zealand. Heinz closed down $1.19, or 2.8%, to $41.90.

    J.D. Edwards (JDEC) posted first-quarter results of break-even, better than the First Call/Thomson Financial eight-analyst estimate for a loss of a penny, matching the year-ago results. Net income for the latest quarter was $191,000 compared to year-ago losses of $31,000. J.D. closed up 55 cents, or 5.6%, to $10.30.

    Remec (REMC), a wireless products manufacturer, reported fiscal fourth-quarter earnings of three cents a share, missing the First Call estimate of 9 cents a share. The company's year-ago result was 2 cents a share. Remec closed up 13 cents, or 1.4%, to $9.13.

    In extended hours, Varian Semiconductor (VSEA) joined its fellow semiconductor companies to warn of an earnings shortfall.

    For the quarter ending March 30, the Gloucester, Mass., company said total revenue will increase no more than 10% from the same quarter last year, when the company reported a top line of $156 million. Previously, Varian, a maker of ion implantation equipment used in semiconductor manufacturing, expected revenue to increase 15% from a year ago.

    First Call/Thomson Financial carries an estimate from only one analyst, who expects the company to report revenue of $206 million for the second quarter. Eight analysts expect earnings of 71 cents a share for the second quarter, up from a profit of 50 cents a year ago. Varian closed up $3, or 9.5%, to $34.50.

    Likewise, TriQuint Semiconductor (TQNT) said that market volatility has forced the company to guide-down its current quarter's revenue forecast.

    The company said first-quarter revenue could be $80 million, compared with First Call's top line estimate of $94 million in the quarter. TriQuint Semiconductor closed up $1, or 5.3%, to $20.

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    Analyst Actions

    Xilinx (XLNX) marks the spot where analysts were aiming today. After the company announced that revenues would drop by as much as 15% in the fourth quarter on Monday night, analysts put Xilinx's earnings estimates and revenue forecasts in the crosshairs.

    Credit Suisse First Boston's Tim Mahon adjusted his forecasts to jibe with Xilinx's new guidance. Mahon now expects the company to earn $1.11 a share in fiscal 2001, down from $1.19 a share. 2001 revenues are expected at $1.63 billion vs. the previous $1.70 billion. For 2002, Mahon sees revenues flat with 2001 expectations, a drop of $370 million from earlier forecasts. 2002 earnings were pegged at 90 cents a share, down 38 cents from the previously forecast $1.28 a share.

    Mahon's large revisions reflect his caution about Xilinx's near-term fortunes. Although he said Xilinx will be a "winner" when the economy recovers, the analyst did not like what he recently saw from the company.

    "Given the ongoing overabundance of inventory in the channel, Xilinx's internal inventory glut, and insufficient end-market demand to overcome the surfeit of supply, we believe that investors should take heed and stay on the sidelines until the inventory is bled off," he said.

    Robertson Stephens analyst Eric Rothdeutsch cut back both his 2001 and 2002 estimates, but not as much as some other brokerages. His fiscal 2001 was higher than CSFB's estimate, pegged at $1.13 a share, down from $1.17. For 2002, he now expects earnings of $1.04 a share, down from $1.25. He maintained his buy rating on the stock and a $55 price target. Xilinx closed today up $1.94, or 4.5%, to $45.19.

    W.R. Hambrecht analyst Jim Liang snipped both his earnings and revenue estimates on the company. He now expects Xilinx to earn $1.10 a share in the full-year 2001, down from $1.14 a share. The fiscal 2002 forecast is now expected at 82 cents a share, down from 94 cents a share.

    For 2001, Liang expects revenues of $1.634 billion, a slight adjustment from the earlier estimate. And 2002 revenue forecasts were dramatically scaled back, pegged at $1.56 billion, $100 million less than previous forecasts.

    "We recognize that this round of estimate revisions has brought expectations to a much more realistic level," Liang wrote.


    A pair of aluminum giants, Alcoa (AA) and Alcan (AL), were dented by Merrill Lynch analyst Daniel Roling this morning after he reviewed their fortunes and didn't like what he saw.

    Alcan's been a busy company in February, making some big changes. A week ago, it named a new CEO after the sudden resignation of its former top executive. And it jettisoned the back half of its name, billing itself as Alcan instead of Alcan Aluminum in order to reflect the company's new focus on things other than metals. It was in talks to sell its Jamaican operations as part of an already announced asset sale.

    But after a closer inspection, Merrill's Roling said he didn't really like what he saw, trimming his 2001 earnings per share estimate to $2.80 a share from $3.50 a share, and 2002 earnings to $3.65 a share from $4.50 a share.

    "Our lowered earnings expectations are a result of a further review and discounting of Alcan's cost-cutting and profit-improvement targets amid continued near-term market weakness," he wrote to investors. One of the major reasons for the estimate revisions has nothing to do with Alcan's attempts to reduce costs -- it has to do with gross domestic product .

    "Alcan's $1 billion profit improvement program assumes a 'normal' economic environment, which -- if based on 3.5% GDP growth rate -- may only be achieved in 2002," Roling wrote.

    Like its rival Alcan, Alcoa has made some changes in the past month, slashing production in an attempt to reduce costs by $1 billion over the next three years. The company eased aluminum refining in its Florida, Texas and Washington plants, making some headway. Historically, Alcoa has been a successful cost-cutter, saving $1.1 billion in its previous attempt, which ended in December 2000.

    While acknowledging the company's previous success, Roling cut his 2001 earnings estimate to $2.25 a share from $2.60 a share, with his first-quarter estimate coming in at 42 cents from 50 cents. A weaker demand for finished aluminum products was cited as a major reason for the revision.

    Both companies were still listed with a buy rating. Alcoa closed down 9 cents, or 0.2%, to $37.99; Alcan was down 15 cents, or 0.4%, to $38.70.

    Upgrades

    Caterpillar (CAT): UP to market outperform from neutral at Morgan Stanley Dean Witter. Caterpillar closed up 18 cents, or 0.4%, to $44.51.

    Deere (DE): UP to market outperform from neutral at Morgan Stanley Dean Witter. Deere closed up 32 cents, or 0.8%, to $42.73.

    EOG Resources (EOG): UP to intermediate-term buy from accumulate at Merrill Lynch. EOG finished the trading day up 63 cents, or 1.4%, to $46.35.

    Immunogen (IMGN): UP to strong buy from buy at Robertson Stephens. The stock closed up $2.25, or 14.9%, to $17.38.

    Wells Fargo (WFC): UP to buy from hold at Credit Suisse First Boston. Wells Fargo closed down 36 cents, or 0.7%, to $49.47.

    Downgrades

    Liberty Digital (LDIG): DOWN to market perform from buy at Deutsche Bank Alex. Brown. Liberty closed down 50 cents, or 5.8%, to $8.13.

    Parker Hannifin (PH): DOWN to market perform from market outperform at Goldman Sachs. Parker Hannifin closed down 54 cents, or 1.2%, to $44.16.

    Redback Networks (RBAK): DOWN to buy from strong buy at Lehman Brothers. Redback closed down $2.69, or 9.8%, to $24.63.

    Initiations

    Oil States International (OIS): NEW buy at Merrill Lynch. The stock closed up 40 cents, or 4.3%, to $9.65.

    StorageNetworks (STOR): NEW buy at Lehman Brothers; price target: $28. StorageNetworks closed up 13 cents, or 0.9%, to $13.50.

    W.R. Berkley (BKLY): NEW buy at Credit Suisse First Boston. W.R. Berkley closed up 50 cents, or 1.1%, to $46.63.

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    Miscellany

    American Home Products (AHP) named Robert Essner its chief executive, effective May 1. Essner will retain his current titles as president and chief operating officer.

    The pharmaceutical's current CEO, John Stafford, will stay on as chairman. American Home Products closed down $1.70, or 2.8%, to $60.20.


    After Monday's Close

    More signs of a price war between chipmakers Intel (INTC) and Advanced Micro Devices (AMD) emerged Monday as both cut list prices on some microprocessors for the second time this year. Intel closed up $1.13, or 3.7%, to $31.50; Advanced Micro Devices was up $1.62, or 7%, to $24.75.

    National Steel (NS) announced Monday evening that it named Hisashi Tanaka as the company's new chairman and CEO. The move came after former CEO Yutaka Tanaka and CFO Glenn Gage, both resigned from the company. National Steel did not have any comment on the resignations, according to Reuters. the company's stock closed up 15 cents, or 7.3%, to $2.20.

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