Company Report: EDS, ARW, GE, HWP, SSOL, MCD, MSFT, TWX, MPPP, More

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M&A Earnings/revenue Analyst actions Offerings/stock actions Miscellany

Downgrades rained down onto Electronic Data Systems(EDS Quote) this morning as Merrill Lynch downgraded the company to accumulate from buy, Goldman Sachs cut it to market outperform from its U.S. buy list, Morgan Stanley Dean Witter axed its rating to outperform from strong buy, lowering its price target to 75 from 90. Investors punished the stock today, which closed down 14 11/16, or 25.4%, to 43 1/8.

Yesterday, the company warned that future revenues will be significantly lower. Merrill's Stephen McClellan called the announcement a "major disappointment."

Mergers, acquisitions and joint ventures

The two largest distributors of electronics components, Arrow Electronics(ARW Quote) and Avnet(AVT Quote), along with British private equity firm Schroder Ventures, have formed a consortium that has emerged as the leading bidder for Veba's(VEB Quote) electronics division with an offer of about $2.5 billion, according to The Wall Street Journal, citing people familiar with the situation. Arrow Electronics boosted 2 1/16, or 5.6%, to 39 1/8; Avnet rose 11/16 to 73 11/16; Veba fell 3/16 to 50 13/16.

The newspaper reported the sources as saying if the consortium's offer is successful, the companies plan to divide the assets of the unit, which would help Arrow and Avnet avoid antitrust problems.

Delphi Automotive(DPH Quote) said it would join Covisint, the online automotive purchasing exchange backed by General Motors(GM Quote), Ford(F Quote) and DaimlerChrysler(DCX Quote), according to the Journal. Delphi Automotive slipped 3/4 to 17 1/8, General Motors fell 3/16 to 68 9/16; Ford climbed 5/8 to 49 5/8; DaimlerChrysler shed 3/8 to 57.

General Electric (GE Quote) unit GE Aircraft Engines said it won a $300 million contract to supply engines for the Italian government's fleet of 196 NH90 helicopters. Deliveries are expected to begin in 2004. General Electric declined 1 7/16 to 49 7/16.

SmartServ Online (SSOL Quote) and Hewlett-Packard(HWP Quote) formed an alliance to build a global wireless services platform to serve worldwide financial markets. Financial terms weren't disclosed. SmartServ Online lost 4 11/16, or 5.8%, to 76 1/8, while Hewlett-Packard took on 2 1/8 to 128.

PowerGen(PWG Quote) said it bought a 50% stake in Corby Power from Dominion Resources(D Quote) and ESBI Engineering for about $50 million. PowerGen lifted 9/16 to 31 9/16, while Dominion Resources gained 3/4 to 44 5/8.

Prior to the deal, Dominion held 80% of Corby and ESBI held 20%. After the deal, PowerGen holds 50% and ESBI holds 50%. PowerGen said the transaction, which is subject to regulatory approval, will be completed by the end of the year and will enhance earnings from 2001.

Digital wireless company Qualcomm (QCOM Quote) announced that the Federal Communications Commission gave it a $125 million voucher to buy one or more spectrum licenses over three years in bandwidth auctions. Qualcomm added 1 5/8 to 79 1/16.

Syntroleum (SYNM Quote) said Enron (ENE Quote) is paying $21 million for a 13% stake in its Sweetwater project. Syntroleum increased 3 3/16, or 17.2%, to 21 3/4.

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Earnings/revenue reports and previews

Check-cashing company ACE Cash Express (AACE Quote) stated that several cost factors will result in lower-than-expected earnings for its fourth-quarter and fiscal year ending June 30. ACE Cash Express slumped 2 7/8, or 18.1%, to 13.

Regional department store Bon-Ton (BONT Quote) announced that it is letting go nearly 2% of its work force in a cost-cutting move, which will result in a fiscal 2001 charge of two cents a share. Bon-Ton dipped 1/8, or 5.1%, to 2 5/16.

Consumer products company Chatten (CHTT Quote), a manufacturer of over-the-counter drugs, announced that it expects second-quarter net sales to be below the year-ago period. Chattem blamed the shortfall on continued weakness in its Sunsource dietary supplements line and "competitive pressures in the deodorant marketplace" weighing on its Ban line of products. Chatten increased 1 7/16, or 14.5%, to 11 3/8.

Eli Lilly (LLY Quote) said it expects its 2000 sales growth to be in the low double digits, pushing earnings-per-share toward the high end of the current analysts' range of $2.60 and $2.65. The pharmaceutical group said it was comfortable with a second-quarter earnings estimate of 60 cents a share. Eli Lilly improved 1 1/4 to 76 3/16.

McDonald's (MCD Quote) said sales rose 5% from a year ago in the period from January to May. Excluding the effect of currencies, sales for the first five months of 2000 were up 7%. U.S. sales rose 2%, while reported European sales decreased 1%, hurt by a weaker euro. McDonald's slid 2 1/16, or 5.8%, to 33 3/8.

Generic drug maker Mylan Laboratories (MYL Quote) warned of sharply lower first-quarter earnings because of weak results from its brand name medicines and lower margins. Mylan Laboratories slumped 6 5/16, or 26.7%, to 17 5/16.

Office furniture maker Steelcase (SCS Quote) posted first-quarter earnings of 37 cents a share, beating the six-analyst estimate of 32 cents a share and even with the year-ago report. Steelcase hopped 1 5/16, or 10.2%, to 14 3/16.

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Analyst actions

Upgrades

Fairchild Semiconductor (FCS Quote): Price target UP to 65 from 60 at Merrill Lynch. Fairchild Semiconductor climbed 3/4 to 46 11/16.

Hilton Hotels (HLT Quote): price target UP to 12 from 10 at Prudential. Hilton Hotels fell 1/8 to 9 3/8.

H&R Block (HRB Quote): 2000 EPS estimates DOWN to $2.52 from $2.75 and 2001 EPS view down to $2.85 from $3.25 at Goldman Sachs. H&R Block decreased 2 11/16, or 8.6%, to 28 11/16.

Starwood Hotels & Resorts (HOT Quote): UP to strong buy from accumulate at Prudential; price target: 40. Starwood Hotels & Resorts stayed flat at 30 1/8.

Turnstone Systems (TSTN Quote): 2000 earnings estimate UP to 95 cents a share from 63 cents a share at Goldman Sachs. Turnstone Systems jumped 34 3/8, or 25.8%, to 167 5/8.

Downgrade

Chase Manhattan (CMB Quote): Fiscal-year 2000 earnings estimate DOWN to $5.71 from $6.00. Second-quarter estimate DOWN to $1.05 from $1.29. Chase Manhattan shed 3 3/16 to 73 5/16.

Profit Recovery Group (PRGX Quote): 2000 earnings estimate DOWN to $1.04 from $1.07 at Goldman Sachs. 2001 earnings estimate DOWN to $1.35 from $1.45. Profit Recovery Group tacked on 5/8 to 15 11/16.

Rollins Truck Leasing (RLC Quote): DOWN to hold from buy at Credit Suisse First Boston. Rollins fell 1/16 to 9 5/16.

Group Moves

PaineWebber initiated coverage of three telecommunications equipment companies:

• ADC Telecommunications (ADCT Quote) at buy, price target: 74. ADC Telecommunications climbed 11/16 to 77 3/16.

• Ciena (CIEN Quote) at buy; price target: 175. Ciena rose 4 3/4 to 139 7/8.

• Tellabs (TLAB Quote) at attractive; price target: 100. Tellabs lowered 11/16 to 67 5/16.

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Offerings and stock actions

Drug and hospital products manufacturer Abbott Laboratories (ABT Quote) announced that it will buy back up to 25 million shares of its 1.55 billion shares outstanding. Abbott Laboratories traded up 3/16 to 40 13/16.

The board of Abgenix(ABGX Quote) approved a 2-for-1 split of the company's 40.3 million outstanding shares of common stock. It will be paid in the form of a stock dividend, entitling each stockholder of record at the close of business on June 19 to receive one share of common stock for every share of common stock held. Abgenix popped 9 1/2, or 8.5%, to 121 1/2.

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Miscellany

Microsoft (MSFT Quote) CEO Steve Ballmer today welcomed an offer from the Justice Department for more talks aimed at settling their antitrust dispute. "We would love to settle this case," Ballmer said in a news conference during a European summit organized by Belgium's employers' federation. He repeated that Microsoft would appeal this week's court ruling. He also said that the judgment, if applied, would "severely restrict innovation and increase prices for software and computers worldwide." Microsoft stayed flat at 68 13/16.

MP3.com(MPPP Quote) settled copyright infringement suits with Time Warner's(TWX Quote) Warner Music Group, allowing the company to include the labels' songs in its Internet-based database, and with BMG Entertainment. BMG also announced that it granted MP3.com a license to use its catalog of music in My.MP3.com, an online service that allows consumers to store and replay music that they previously purchased. MP3.com improved 1 15/16, or 11.2%, to 19 3/16.

Financial terms of either settlement were not disclosed, but earlier this week, label executives said that MP3.com was expected to pay the labels a total of $75 million to $100 million in exchange for the right to use their songs as part of My.MP3.com.

Barnes & Noble (BKS Quote) said it will cut the number of book titles on some of its bestseller lists to 10 from 15. The Wall Street Journal said the move has some publishers worried that their revenues will suffer because the bookseller offers those books at a discounted price, which increases sales. Barnes & Noble added 1/8 to 19 9/16.

The Journal said paring down the lists will improve the company's margins because the discounts come straight out of Barnes & Noble's profits.

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