TheStreet.com's DAILY BULLETIN
December 16, 1999
Market Data as of Close, 12/15/99:
o Dow Jones Industrial Average: 11,225.32 up 65.15, 0.58%
o Nasdaq Composite Index: 3,621.95 up 50.29, 1.41%
o S&P 500: 1,413.19 up 10.02, 0.71%
o TSC Internet: 1,094.90 down 2.53, -0.23%
o Russell 2000: 461.32 down 1.43, -0.31%
o 30-Year Treasury: 97 10/32 down 8/32, yield 6.328%
Companies in Today's Bulletin:
Sabre (TSG:NYSE)Omnicom (OMC:NYSE)
In Today's Bulletin:
o Banking: Spelling Out Nuances Poses Biggest Obstacle in SEC's Disclosure Push
o Wrong! Dispatches from the Front: Put on Your Crash Helmet!
o Evening Update: CMGI Powers Higher After Hours on Upside Results, Stock Split
o Bond Focus: Bonds Drift Lower in Afternoon
Also on TheStreet.com:
SiliconStreet.com: *Extra* With Wireless Packaging, Palm Could Pilot IPO to Bigger Payoff
Convincing analysts that it is indeed a wireless company could help Palm once it goes public.
Tech Savvy: The ISPs Are Free at Last
They're good for consumers and the companies that offer them. Plus, Excite@Home's advanced-TV services, and Paul Allen's latest deal.
Retail: Shedding (Blue) Light on Retail Tie-Ups With Net Firms
Both sides are trying to avoid being left behind in a transformation whose results no one can predict.
Internet: At Omnicom, an Ad Shop Turns Venture Capitalist
The stock offers a way to play the Net boom with few risks.
Banking: Spelling Out Nuances Poses Biggest Obstacle in SEC's Disclosure Push
12/15/99 8:10 PM ET
Securities and Exchange Commission
, the stock market's chief cop, wants the Little Guy to get more information about publicly traded companies. But proposals to improve corporate disclosure may be hard to enforce without more detail on what regulators want, observers say.
The SEC Wednesday voted in favor of proposed new rules to clamp down on companies that provide important information only to a limited number of individuals, a practice known as selective disclosure. Instead, the SEC wants all "material corporate information" to be made available to the wider public through press releases, publicly accessible conference calls and meetings, or through filings with the agency itself.
recently called selective disclosure "a stain on our markets" because it puts the specially picked recipients of nonpublic information at an advantage. The SEC is seeking public comment on the proposed rules for 90 days.
There are plenty of potential targets for the SEC.
recently told one analyst it would fall short of the fourth-quarter earnings forecast. (
reported this Tuesday.) KeyCorp declined to comment.
I Say Tomato
However, the SEC will probably have to draw more detailed guidelines.
The first problem is defining what's material. The SEC is clear about what must be supplied in quarterly and annual filings, as well as in filings on executive compensation. But when it comes to disclosure outside of those filings, SEC guidance can be vague. An SEC spokesman says material information is what "the reasonable investor needs to know in order to make an informed decision about an investment."
This very broad definition may cause problems given the complex issues surrounding disclosure. Two recent actions by financial institutions illustrate some of the difficulties that the SEC may confront.
Wednesday morning, several Wall Street bank analysts cut their estimates for
2000 earnings by as much as 6%. First Union made no public announcement about its operations or future profitability on Tuesday or Wednesday.
Instead, the analysts called the company for guidance after an important board meeting Tuesday. A First Union spokeswoman says the bank gave the analysts "qualitative" and "strategic" information that the analysts then plugged into their models to come up with new 2000 profit targets. In this case, the bank said some of its costs would be higher, according to an analyst who spoke to the bank. (The analyst, who requested anonymity, works for a firm that hasn't done underwriting for the bank.)
Was First Union's disclosure selective? Hard to say from the details made available by the SEC on its disclosure rules.
The bank thinks it's in the clear. First, the spokeswoman says the bank had not given guidance -- privately or publicly -- on what 2000 earnings would be in the first place, so it was under no obligation to make a public release on analysts' 2000 forecasts. Moreover, when First Union earlier this year twice revised down earnings forecasts it had made itself, press releases were issued.
Second, she says that if individual investors -- who are usually the victims of selective disclosure -- had requested the information, they would've gotten it. "We have a whole team of people who share information with individual shareholders," she says.
The Best Disinfectant
Another alleged instance of selective disclosure took place at an early December conference hosted by
, at which a number of top bank executives made presentations to institutional investors. One sell-side analyst who requested anonymity says
CEO Phil Humann disclosed material information that should have been made public in a press release. (The analyst's firm hasn't done any recent underwriting for SunTrust.)
Humann said at the conference that SunTrust would have to book a loss on bond sales, according to a note from Lori Applebaum, the Goldman analyst who helped host the conference. The analyst who requested anonymity says this loss totaled around $95 million. (Goldman didn't say whether it has done recent underwriting for SunTrust, and Applebaum didn't return calls seeking a comment.)
But a SunTrust spokesman says the bond loss "is not a material event and not part of core earnings." He adds that the conference could be seen as a public event, since the press attended, although Goldman didn't confirm reporters were there.
The SEC didn't comment on how investor conferences should be handled to prevent selective disclosure.
Thin Gray Line
While it's easy to identify potential gray areas, other observers think that the proposed SEC rules will press companies to find new, workable ways of improving disclosure.
Instead of giving information to analysts selectively, companies will probably adopt the following procedure: Issue a press release with general points followed by a publicly accessible conference call in which more detail can be given, says Boris Feldman, a securities lawyer at
Wilson Sonsini Goodrich & Rosati
in Palo Alto, Calif. That way, companies will be able to comply with the new rules and still satisfy analysts' needs for a detailed briefing. However, if this is what the SEC intends, "it will have to give more guidance," says Feldman.
On the question of what constitutes a material event, companies, in an effort to stay on the right side of the SEC, will go to the length of making information public even if they aren't sure whether it's material, says Mark Coker, president of
, an online directory of earnings calls and company events. "Companies will be more cautious in one-on-one meetings, but open up more in public forums," Coker says.
But one securities lawyer isn't so optimistic. The new rules will initially "clog the information flow" as companies become nervous about what they can release on a nonpublic basis, says John Olson, senior partner at
Gibson Dunn & Crutcher
in Washington, D.C. The rules "will cause managements to spend time with lawyers deciding what can be disclosed," he says.
Wrong! Dispatches from the Front: Put on Your Crash Helmet!
James J. Cramer
12/15/99 2:11 PM ET
Oh, ye of little faith, you doubters and shortsellers of
, you are getting your comeuppance today. A nasty headslam of a comeuppance. Intel's always like that. You have to go the opposite of what people are thinking at a given moment on Intel. This company has been written off more times than just about any company I know, and each time it comes roaring back when you least expect it.
Join the discussion on
Earlier this week, after that downgrade, people were emailing me, pleading with me to say that Intel had lost it, or didn't know what it was doing. Others were pounding away at their short positions, telling me that gross margins were bad, or
was imploding or
Advanced Micro Devices
had finally gotten the
accounts. To which I say: (*&%(*&%(*&$&*$!
Intel is rapidly evolving into a communications-chip company, as I
said the other day on my
chat. You can't keep this company down, because it reinvents itself constantly.
Right before I left
(and well before that jerk Bestman of Julie and Brad's was shooting his mouth off), I wrote that Intel had just had a huge run and it was time to double down, not sell. It was my best call ever.
I don't know if this is one of those times to double down again. But I do know that selling here seems pretty stupid to me.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Yahoo! and Intel. 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: CMGI Powers Higher After Hours on Upside Results, Stock Split
12/15/99 8:14 PM ET
surged 33 3/16 to 233 in after-hours trading (see below) after it posted a narrower-than-expected loss and announced a 2-for-1 stock split.
CMGI posted a first-quarter loss of $1.08 a share, smaller than the three-analyst estimate of a loss of $1.76 a share but down from the year-ago profit of 38 cents a share. CMGI said excluding items, the company lost 10 cents a share for the quarter. Revenue jumped to $123.7 million in the latest quarter, from $37.4 million a year ago.
The stock split will be distributed Jan. 11 to shareholders of record Dec. 28.
CMGI forecast no let-up in its furious acquisition spree, with CEO David Wetherell saying the company plans to double its portfolio of businesses to 120 from 58.
The good news cheered gloomy shareholders who watched the stock fall 2.6% in regular trading today, following news that the acquisitive company is
joint newsroom covered the acquisition and the postclose news in a
story updated this evening.
There are 5-point losses and then there are 33-point gains. CMGI was experiencing the latter after announcing a first-quarter loss of $1.08 a share, which beat the
First Call/Thomson Financial
estimate by 68 cents. The company also set a 2-for-1 stock split. It was up 33 3/16 in after-hours trading on
, the third-most-active issue. During the day session the company fell 5 5/16 after announcing it was purchasing yesmail.com for $500 million in stock.
In other postclose news (
earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified
Earnings/revenue reports and previews
said it expects fourth-quarter earnings to fall below year-ago levels and miss estimates citing a slowdown in international sales. The company said it expects fourth-quarter earnings of 18 cents to 22 cents a share vs. the year-ago 29 cents. The current six-analyst estimate calls for earnings of 28 cents.
Bed Bath & Beyond
reported third-quarter earnings of 22 cents a share, in line with the 19-analyst estimate and up from the year-ago 17 cents. The company said it plans to open five superstores in the fourth quarter, and 60 new superstores in fiscal 2000.
Burlington Coat Factory
reported second-quarter earnings of 65 cents a share, in line with the five-analyst estimate, and a penny better than the year-ago earnings.
posted third-quarter earnings of 21 cents a share, 3 cents better than both the six-analyst estimate and the year-ago figure. The company said the year-ago results do not include revenue from Brite Voice Systems, which merged with the company during the second quarter of the latest fiscal year.
posted third-quarter earnings of 46 cents a share, including a gain of $100,000. That matched the three-analyst estimate, while the year-ago earnings were 40 cents.
posted fourth-quarter earnings of 54 cents a share, beating the five-analyst estimate of 46 cents and the year-ago 30 cents.
posted first-quarter earnings of 18 cents a share, in line with the eight-analyst estimate and up from the year-ago 16 cents.
cut its fourth-quarter view and said it sees a net loss of $1.5 million, or 6 cents a share. The three-analyst estimate called for a profit of 14 cents. The company also said it expects a 1999 net of 66 cents, down from a previous estimate of 85 cents to 90 cents. The current three-analyst estimate for 1999 calls for earnings of 88 cents.
reported second-quarter earnings of $2.59 a share, well above the six-analyst estimate of $2.28 and the year-ago $1.81.
Mergers, acquisitions and joint ventures
Federal Communicatons Commission
said it would need more information about the Internet backbone businesses of
before considering the companies' application to merge.
Sorgenti Chemical Industries
said they ended discussions to acquire
. The companies said the letter of intent with Foamex, signed in August, had expired and would not be extended.
Offerings and stock actions
priced 51.2 million shares of
at $21 a share.
said its shareholders approved a rise in shares to 50 million from 15.35 million. The company said the share increase would enable it to have a 2-for-1 split.
set a 3-for-2 stock split.
said it named Daniel Levy as its new CEO to succeed Harvey Appelle as of Jan.1. Levy is a veteran of the Gimbels Pittsburgh group where he was chairman and CEO. Appelle told the board he would resign to return to private investing, but will continue to serve on Donnkenny's board.
said Allen Hill has resigned as president and CEO, and named Alan Kaganov as interim CEO.
announced the retirement of CEO Robert North and CFO Raymond Thomas.
said it will seek court permission to sell up to 201 funeral homes and 170 cemeteries in the U.S. as it struggles to emerge from bankruptcy.
Bond Focus: Bonds Drift Lower in Afternoon
David A. Gaffen
12/15/99 4:46 PM ET
Gentlemen, stop your engines!
Trading activity in the bond market is certainly winding down for the year, but it wasn't unreasonable to expect at least a flurry of trading this morning on the release of the
But those reports produced barely a whimper and Treasuries faded away in the afternoon. Those who would have supported the market aren't taking risks at this time of the year, concentrating on preserving their gains. Lately the 30-year Treasury bond was down 13/32 to 97 7/32. The yield was 2 basis points higher at 6.33%.
The day's only other major news was the details of next week's two-year Treasury note auction. What's interesting about this $15 billion auction? Well, for one, the settlement date is Dec. 31, the last day of the year. (Settlement refers to the day the money changes hands. No, it's not in big canvas sacks with "$" signs on the bags.) Partially because of the proximity to the Y2K date change, so far, the market's interest in buying this is pretty darn low.
"This issue is going to be inhibited not only by year-end constraints that people might have with their balance sheets, but because there are shops that say, 'no more trades after Dec. 30. We want our back-office guys to be done,'" said David Ader, director of fixed income at
Thomson Global Markets
. "People have cash and they will want to keep it as cash."
But the complications don't stop there. The Treasury said today that this issue won't necessarily be a two-year note. If it is sold at a yield between 6.125% and 6.25% next Wednesday, it would be designated a reopening of five-year notes sold in December 1996, the department said.
Normally, an announced issue will trade, on a "when-issued" basis, at a lower yield than the most recently issued security of its type. Dealers are willing to pay a higher price, to receive lower yields for the newest notes, because they're the most liquid, or easily tradable.
But the yield on this impending note is actually higher than the current two-year note. The when-issued note was recently yielding 6.09%, while the current two-year note was yielding 6.08%. While Ader said the Dec. 31 date is part of the reason for the yield reversal, he also said it's because of the uncertainty as to whether this issue is going to be a new note or an old one.
That might have been the day's most interesting occurrence.
Maybe the bond market did enough selling yesterday to cover today, because the industrial production numbers certainly weren't friendly for bonds. Industrial production rose 0.3% in November, more evidence of increasing strength in the manufacturing sector. In addition, September and October's figures were revised higher.
Capacity utilization was unchanged at 81%, but that's only because October's utilization rate was revised up to 81% from the original 80.7% estimate. Economists were looking for a decrease in capacity utilization to 80.6%,
chief capital markets economist David Orr pointed out in a comment that productivity growth must still be "exceptionally strong," because manufacturing employment and hours are falling, even while output has increased.
Business inventories rose 0.2% in October, while sales rose 0.5%. Massive stockpiling of inventories, which economists presumed would happen as a precaution against Y2K, hasn't happened yet. Either the business sector as a collective force isn't worried about Y2K, or sales are running at such a rapid pace that they are preventing businesses from filling the warehouses.
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