TheStreet.com's DAILY BULLETIN
November 18, 1999
Market Data as of Close, 11/17/99:
o Dow Jones Industrial Average: 10,883.09 down 49.24, -0.45%
o Nasdaq Composite Index: 3,269.39 down 26.13, -0.79%
o S&P 500: 1,410.71 down 9.32, -0.66%
o TSC Internet: 902.37 up 4.80, 0.53%
o Russell 2000: 457.07 up 0.19, 0.04%
o 30-Year Treasury: 99 27/32 down 31/32, yield 6.124%
Companies in Today's Bulletin:
In Today's Bulletin:
o Media/Entertainment: Pixar Has a Seemingly Sure Thing With Toy Story 2
o Wrong! Tactics and Strategies: Digging Into B2B
o Evening Update: Hewlett-Packard's Big Night: Earnings and Agilent IPO
o Bond Focus: Rising Oil and Rumination on the Fed Drag Yields Up Again
Also on TheStreet.com:
Hardware & PCs: EMC Takes Aim at Sun's Lead in Midrange Data Storage
The leader in storage tries to make inroads into a market it doesn't lead.
Europe: ABN Amro, Rebuffed by ING, Seeks Large Partner to Maintain Growth
The banking concern needs to penetrate other markets, and is looking at other banks to help it achieve that goal.
SiliconStreet.com: How Ranting, Raving Larry Ellison Has Come to Look Like a Visionary
It's time the Oracle founder got his due for foreseeing the rise of 'renting.' Plus, introducing the Hostile React-O-Metricom.
The Invisible Mouth: Get Ready for the Merriest Christmas in Years
Personal consumption spending appears ready to rise even further.
Media/Entertainment: Pixar Has a Seemingly Sure Thing With
Toy Story 2
11/17/99 8:00 PM ET
In Hollywood, there's usually no such thing as bad publicity.
But there's one glaring exception: Movie studios will almost never offer hard predictions on how well specific films will do before they're released.
And for good reason. Making forecasts has little upside and lots of downside. If a studio lowballs predictions, it'll be accused of lacking confidence in its films. But if it aims high, movies that fail to deliver will immediately be pegged as flops.
But sometimes, when studio executives know they have a hit, they just can't help guessing out loud how big it'll be.
That's what seems to be happening with
Toy Story 2
, which arrives in theaters on Nov. 24. The potential for the film, a 50-50 joint venture of
, is obvious. After all, the combination of Disney's marketing muscle and Pixar's talent for computer animation helped the original
to pull in more than $190 million at the U.S. box office when it was released in 1995.
That performance, which put
third all-time among animated movies, set an exceptionally high bar for
. But Disney and Pixar now appear increasingly certain that their sequel will not just match but beat the original.
: At a
press conference last week, Pixar Chief Financial Officer Ann Mather said her personal opinion was that
Toy Story 2
would outperform its older cousin.
Salomon Smith Barney
report on a conference Disney hosted for sell-side analysts last Wednesday noted "over $200 million domestic box-office expectations" for
Toy Story 2
. (Where that figure came from is unclear. A Disney spokeswoman says the company didn't make any official projections for the film's performance at the conference.)
Publicly, both Disney and Pixar decline to comment on their expectations for the film. But Paul Dergarabedian, president of
, a Los Angeles company that monitors box-office grosses, says that
Toy Story 2
"is probably going to be one of the biggest films of the year, just based on the pedigree and the buzz. Plus, Disney has been incredibly successful releasing movies over Thanksgiving."
Dergarabedian adds that the conventional wisdom that sequels are unlikely to be as successful as their predecessors is wrong. In fact, the biggest movie this year,
Star Wars: The Phantom Menace
, is a sequel (or, technically, a "prequel"). So is
Austin Powers: The Spy Who Shagged Me
, which has grossed more than $200 million, four times the 1997 original.
"The problem is historically that sequels have not been as entertaining as the original," says Chris Lanier, editor of the
Motion Picture Intelligencer
. "When they have been, they have made more money."
And the advance buzz on Toy Story has been nothing short of phenomenal. Two Web sites for film buffs,
, have published glowingly positive reviews about the movie from people who've seen preview screenings, with comments like this:
Computer animation or computer-generated images are definitely the wave of the future in feature filmmaking, as is cleverly proven by Disney and Pixar's latest screen gem, Toy Story 2. Which, I have to admit, was absolutely brilliant in all senses of the word, more so considering that I really did not like the first film.
Toy Story 2
can boost the corporate fortunes of Pixar and Disney is another story. Pixar's problem, as our very own
noted more than once, is that it doesn't have another movie in the pipeline until 2001, while Disney has more issues than the average
But a $200 million domestic box-office gross is never bad news.
Wrong! Tactics and Strategies: Digging Into B2B
James J. Cramer
11/17/99 5:29 PM ET
New group time. There are now enough of these fabulous business-to-business plays, with more on the way, that I now have to do a concentrated bit of analysis to know all of them and learn them enough to trade and invest.
This is a complicated business for anybody, professional or amateur. It would be one thing if we are learning about the paper industry or chemical industry. They are fairly simple animals and you can figure out what the growth is leveraged to and what drives the revenue.
But B2B commerce is a brave new world. Outside of the vendors that I met when I helped start
, my sole experience has been with the prospectus that hits my desk and the occasional research report that I receive on the subject.
My first stop is to call all of my brokers at my research firms and ask them for their best reports on the subject.
sent me an excellent handbook put together by its analysts. Now, here is the tricky part. Goldman Sachs is a great firm and it puts out fabulous research, but it is proprietary. I am loathe to tell you to go look at stuff that you can't get to unless you have an account at that excellent firm. (If you do, get this piece; it is mind boggling.)
But I want to fill you in on how I approach this task. When I do it wrong, which means just looking at a couple of research notes instead of immersing myself, I get slaughtered.
My goal is to find a list of 15 of these companies that I can get comfortable with, get to know the trading patterns of and get so familiar with that I can try to make money off their dislocations.
We are blessed with an associate I have referred to many times,
, who is so far ahead of the curve that I could just go to him and get the 15. But to test myself, I am going to see what I can come up with before I go to him.
As always, if I find something good, I will share it. But also, finding something good is not buying it. That I can't do I until I know even more.
More later as I get further in the work.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long TheStreet.com and Goldman Sachs. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at
Evening Update: Hewlett-Packard's Big Night: Earnings and Agilent IPO
11/17/99 8:16 PM ET
posted fourth-quarter earnings of 75 cents a share, beating the 16-analyst estimate of 73 cents and the year-ago 72 cents. Earnings rose to $760 million from $710 million, while revenues from continuing operations totaled $11.4 billion compared with $10.3 billion last year.
CEO Carly Fiorina said in a statement that the company had some longstanding business issues it needed to address but that the company was not expecting an overnight fix. Fiorina said she was comfortable the company could make substantial progress this year, and aimed to achieve 12% to 15% growth levels.
The eagerly awaited IPO of Hewlett-Packard spinoff
was priced at $30 a share, above the expected range, up from the expected $26 to $28 a share range. Agilent also increased the size of the offering, upping the number of shares to 65 million from 57 million.
Morgan Stanley Dean Witter
is the lead underwriter.
For more on H-P, check out additional
coverage from the
took the top spot on
Nonetheless, Applied Materials was still quite active on news of its stronger-than-expected fourth-quarter earnings.
joint newsroom wrote about the company's earnings in an earlier
story. During the day, ahead of the earnings release, the company rose 4 1/2, or 4.3%, to 110, hitting a 52-week high of 113 1/4 in the process.
On Island, volume was moderate as the ECN's most-actives list was dominated by Internet and tech stocks valued in the teens or lower.
in heavy volume.
In other post-close news (earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified):
Earnings/revenue reports and previews
American Management Systems
reaffirmed its fourth-quarter earnings estimate of 40 cents to 43 cents a share, as its stock price slipped 10%. The current six-analyst estimate calls for earnings of 42 cents a share.
reported fourth-quarter income from continuing operations of 69 cents a share, beating the 28-analyst estimate of 65 cents and the year-ago operating loss of 45 cents a share. See additional
reporting on Applied Materials from
reported first-quarter earnings of 29 cents a share, a penny better than the eight-analyst estimate, and up from the year-ago 23 cents a share. JLG said it expects earnings and sales to top year-ago levels, citing strength from new products and overseas recovery. The company said it expects 2000 earnings between $1.60 to $1.65 a share. The current nine-analyst estimate for 2000 is $1.64 a share.
posted third-quarter earnings of 16 cents a share, beating the three-analyst estimate of 11 cents, but lower than the year-ago 33 cents.
reported third-quarter earnings of 56 cents a share, a penny better than the six-analyst estimate and up from the year-ago 51 cents a share.
posted second-quarter earnings of 32 cents a share, a penny shy of the two-analyst estimate and up slightly from the year-ago 31 cents a share. Smucker said it was reviewing its business and looking to divest certain assets it considers nonstrategic or underperforming.
posted a third-quarter loss of 10 cents a share, wider than the 11-analyst estimated loss of 7 cents and year-ago results of nil.
posted fourth-quarter earnings of 30 cents a share, in line with the seven-analyst estimate and up from the year-ago 26 cents
posted a third-quarter operating loss of 16 cents a share including items. The five-analyst expected loss was for 19 cents a share. Excluding items, the loss was 33 cents a share. The year-ago loss was 32 cents a share excluding items. Sports Authority also said it plans to spend about $40 million next year in order to lead its industry.
posted fourth-quarter earnings of 42 cents a share, better than the 13-analyst estimate of 40 cents and the year-ago 36 cents a share.
Mergers, acquisitions and joint ventures
said it would buy
in a transaction valued at $850 million. Under the agreement, shareholders of Safeskin will receive 0.1956 of a share of Kimberly-Clark common stock for each share of Safeskin common. Kimberly-Clark will issue about 10.5 million shares to complete the acquisition.
Offerings and stock actions
Credit Suisse First Boston
priced 5.5 million shares of
at $15 each, above the estimated $12 to $14 range. Retek makes software used by retailers to communicate online with suppliers and distributors.
said it would repurchase up to $100 million of its common stock.
Bond Focus: Rising Oil and Rumination on the Fed Drag Yields Up Again
11/17/99 4:54 PM ET
Yesterday, the Treasury market hit the skids after the
hiked interest rates. Today, the skids were greased by the latest rise in oil prices, and bond prices dropped even further. The action hoisted yields to their highest levels in more than two weeks.
Not helping: The October
Consumer Price Index
, which was merely in line with expectations. The CPI -- the government's broadest measure of inflation -- rose 0.2% overall and 0.2% at its core, which excludes food and energy prices. And
launched a $2.5 billion new issue that competed with Treasuries for investor dollars.
The market: Join the discussion on
The benchmark 30-year Treasury bond ended the day down 31/32 at 99 27/32, lifting its yield 7 basis points to 6.14%, the highest since Nov. 1. Shorter-maturity note yields rose by anywhere from 1 to 8 basis points.
"Today's kind of a bad inflation day," said Craig Simmons, investment strategist at
Williams Capital Group
. "On a scale of 1 to 10, it's probably a 4, which is really the worst we've seen in a while."
The CPI was bad only in that it wasn't good, but oil was just plain bad. Crude oil for December delivery hit $26.60 a barrel on the
New York Mercantile Exchange
, up from $25.70 yesterday, after the
American Petroleum Institute
reported an unusually large drop in oil inventories in October. Today's closing price was the highest since January 1997. Since Oct. 28, the December contract is up 22.7%.
Bond investors' worry is that higher oil prices will eventually lead to higher prices for everything else.
Today's price action in Treasuries also represented a fair amount of unfinished business from yesterday, when the Fed hiked interest rates and released a
statement that was surprisingly hawkish in tone, analysts said.
Only half the market expected the Fed's decision to raise the fed funds rate to 5.5% from 5.25%. But it was the Fed's admonition about the potential for additional rate hikes that really got the market down. Many were hoping for an expression of confidence that the three rate hikes the Fed has administered in the last five months would suffice for the foreseeable future. Instead, they got a warning that "the pool of available workers willing to take jobs has been drawn down further in recent months, a trend that must eventually be contained if inflationary imbalances are to remain in check and economic expansion continue."
A rate hike by itself might not have triggered selling of Treasuries if it had been accompanied by a friendlier statement. "The statement was much more hawkish" than the statement that accompanied the last rate hike, in August,
government bond strategist
said. "It really seems like
Fed Chairman Alan Greenspan is a man on a mission, and it's probably going to take more than a 5.50% funds rate" to slow the economic growth rate enough to stop shrinking the pool of available workers.
Some of today's selling, Simmons said, was "related to unwinding of positions -- bad bets on the Fed."
Finally, the October
report released today emphasized the "tentative" nature of the evidence that interest-rate sensitive sectors of the economy are exhibiting slower growth, which the Fed also noted in yesterday's statement.
Housing is the quintessential rate-sensitive sector. In August and September, there were pullbacks in both housing starts and building permit issuance, but in October, both rebounded. Starts rose 0.1% to a pace of 1.628 million, while permits, which forecast starts, rose 5.2% to a pace of 1.584 million.
TO VIEW TSC'S ECONOMIC DATABANK, SEE:
Chat with James J. Cramer on AOL Thursday, Nov. 18 at 5 p.m. EST. (Keyword: Live)
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