4th Quarter, 2000

During the fourth quarter of 2000, all of your companies reported good earnings. Harte-Hanks’ 10% year-to-year quarterly earnings gains was the smallest profit increase. Even Intel met its reduced goals, although it ignited widespread investor unease by clearly stating that its visibility about the future course of its business was the poorest ever. The sudden steep fall-off in demand for data processing and communications equipment that began in December continues to reverberate throughout the industry. Successive gloomy announcements from Dell, Cisco, Sun Microsystems, EMC and Nortel confirm the slump without providing any facts about the timing of an upturn. Uncertainty on this scale depresses stock prices and heightens volatility.


An upturn in Intel’s stock price depends upon a successful launch of the company’s much-delayed new 64 bit microprocessor. The introduction begins this week at Intel’s annual developers conference where functional details are presented to users. Success in this endeavor would double Intel’s addressable market and signal a resumption of growth.


During the last quarter, Solectron’s sales doubled while its earnings rose 63%. The stock, nonetheless, has declined toward its recent lows because Cisco, Nortel and Dell are among its largest customers, and others, such as Hewlett Packard, have issued warnings of slowing sales. The component shortages impeding production as recently as the early fall no longer exist. Information and communications technology producers find themselves with excess inventories and manufacturing capacity. During cyclical downturns, Solectron customarily gains added business from existing customers through the manufacturing flexibility, efficiency and cost advantages it offers.

State Street

State Street’s earnings per share advanced 23% during the fourth quarter, capping a year in which its stock price rose 70%. The stock has fallen 20% since year-end, whereas AIG’s stock fell only 18%, although fourth quarter earnings rose only 16%. DST Systems earnings per share grew 30% during the fourth quarter and 32% for the full year. Last year DST’s stock rose 75%, and unlike State Street’s, has fallen hardly at all this year. Mutual fund accounts processed grew 27% last year to 72 million.

First Data

First Data reported earnings per share growth of 16% last quarter, bringing the full year gains to 21%. The company’s stock is now making new highs as the overall market weakens. Last year money transfer transactions reached 89 million, a 21% increase from 1999, and worldwide agent locations exceeded 100,000 at year-end, a 20% gain. First Data currently processes 310 million credit card transactions and $425 billion in payments, in over two million merchant locations.

Concord EFS

Concord EFS’ earnings rose 37% during the fourth quarter and its stock remains within 10% of its high. Concord’s debit, credit, ATM and electronic benefit transactions rose a combined 26% during the year to 5.3 billion. Its recently closed acquisition of the STAR network adds another 3 billion transactions, and broadens Concord’s debit processing network to 720,000 point-of-sale locations and 180,000 ATM machines throughout the U.S.


UPS’ stock price declined less than 2% since year-end despite the slowing of US shipping volume growth to zero in December. With the aid of continued near 20% international shipping growth, the company expects revenue and earnings growth in the first half of 2001 to come close to 10%.

Express Scripts/Mettler Toledo

Express Scripts and Mettler Toledo’s stock prices are within 15% of their highs. During the fourth quarter, Express Scripts earnings rose 32%, making the increase for the year 36%. Mail prescriptions increased 43% over 1999, and the company repaid $240 million in debt during the year. Mettler-Toledo’s earnings and operating margins reflected its transition to higher growth markets including automated drug discovery, in-line process analytics, increased safety for food and drugs and transportation. Earnings for the fourth quarter and the year were 58¢ and $1.70 per share, up 16% and 21% over last year.


Merck and Alza’s stock prices have fallen back to within 20% of their recent highs. Merck reported fourth quarter and full year diluted earnings of 75¢ and $2.90 per share, increases of 14% and 18%, respectively from 1999. The $840 million growth in quarterly sales of Merck’s top five drugs more than compensated for the $360 decline in the sales of Vasotec, the company’s blockbuster ACE inhibitor whose patent expired in August. Led by strong sales of Concerta, its once-a-day drug for attention deficit hyperactivity disorder, ALZA exceeded its 2000 revenue target of $470 million for ALZA-marketed products. Concerta currently accounts for 14% of new prescriptions for ADHD. ALZA’s earnings rose 28% during the year.


Dendrite’s stock price exhibits the extreme volatility that has become characteristic of software providers. During the past three months, the stock has moved up over 100% from its low only to fall 33% thereafter. The company’s earnings last year increased 35% with its revenues in Japan rising 80%. In the fourth quarter, Bristol Myers Squibb signed worldwide contracts for use of Dendrite’s sales force management software and services.

Stilwell Financial

Stilwell Financial reported a strong rise in revenues and earnings, reflecting the dramatic inflow into Janus’ technology-weighted funds of one-fifth of all new cash deposited into US mutual funds. Year-end assets under management reached $285 billion versus $208 billion at the start of the year. Stilwell is repurchasing 8% of Janus for $800 million from founder Tom Bailey, and other employees possessing put rights. These insider sales, plus Janus’ technology-linked identity, has pushed the stock down to within 20% of its low.


Unigraphics’ stock price has climbed 12% since year-end and is 40% above its low. The company’s reported fourth quarter revenues rose 18%, while earnings declined 18% after expensing the cost of acquiring Engineering Animation. The acquisition will add to earnings this year.

Client portfolio holdings may change, and stocks of companies noted may or may not be held by one or more client portfolios from time to time. Investors should not consider references to individual securities as an endorsement or recommendation to purchase or sell such securities. Transactions in such securities may be made which seemingly contradict the references to them for a variety of reasons, including but not limited to, liquidity to meet redemptions or overall client portfolio rebalancing. Investing in the stock market involves gains and losses and may not be suitable for all investors. Investment return and principal value of an investment will fluctuate.