EARNINGS LETTER

1st Quarter, 2001

During the first quarter all of your companies, except Intel and Dendrite reported good earnings and even Intel managed to meet its diminished goals. In reviewing the quarter’s results, however, most of your companies’ managements commented on factors causing deceleration in their businesses. The few that expressed confidence modestly explained why their businesses could sustain their exceptional growth during the current cyclical business downturn.

During this period of economic and stock market uncertainty we are re-examining the key assumptions underlying your portfolio investments. Companies lacking the financial and managerial strengths needed to further their competitive advantage during these stressful times should be cut. Those executing business plans geared to profit from the disruptive changes underway in our economy should be bought. We enclose for your evaluation descriptions of CH Robinson and Intuit, two companies that we think possess these strengths.

Solectron

After reporting a 33% earnings advance for its quarter ending February, Solectron forecast a 20% sequential drop in revenues for the current quarter. The company confirmed its somber forecast on May 10 and stated that its shipments against backlog still exceed new orders. In response to questions, the company’s management carefully explained that negotiations with customers on production contracts for existing product lines and new products have yet to move beyond the discussion stage. The good news consists of steady progress with customers to resolve their responsibilities for excess inventories, which frees Solectron’s cash. The drastic decline in Solectron’s business and the absence of any solid evidence of a quick upturn caused a 17% drop in Solectron’s stock price during the first few months of the year.

State Street

State Street reported first quarter earning per share a penny above last year’s quarter which recorded a 25% gain. State Street offset the effect of this year’s worldwide decline in equity prices with new business from new and existing customers, notably Merrill Lynch’s 227 US retail funds. State Street stock, which will split 2 for 1 on May 30 for stockholders of record on April 30, has fallen 14% so far this year.

DST

DST Systems reported a 21% gain in first quarter earnings per share with a similar gain in mutual fund accounts processed. Nonetheless its stock price, inexplicably, has fallen 22% this year.

AIG

AIG reported a 16% gain in adjusted earnings per share while its stock declined 16% reflecting the general weakness in financial service stocks. AIG has successfully bid to acquire American General, whose US life insurance and annuity products fit well with AIG’s and promise to add to this year’s earnings per share.

Concord EFS/First Data

Concord EFS and First Data each reported strong first quarter earnings gains of 33% and 18% respectively. Consumers continue to use credit card and debit cards for an ever-larger portion of their spending on goods and services. First Data is your best performing stock this year, up 34%, as investors came to recognize the company’s return to consistent double-digit profit growth. Concord, whose stock is up 11% this year, completed its acquisition of the STAR ATM network, which adds a major link toward delivering a seamless nationwide processing network for debit and ATM transactions. The Concord stock issued to a consortium of banks in payment for STAR is scheduled for sale to the public in a secondary offering this quarter.

Concord EFS reported strong first quarter earnings gains of 33%. Consumers continue to use credit card and debit cards for an ever-larger portion of their spending on goods and services. Concord, whose stock is up 11% this year, completed its acquisition of the STAR ATM network, which adds a major link toward delivering a seamless nationwide processing network for debit and ATM transactions. The Concord stock issued to a consortium of banks in payment for STAR is scheduled for sale to the public in a secondary offering this quarter.

First Data each reported strong first quarter earnings gains of 18%. Consumers continue to use credit card and debit cards for an ever-larger portion of their spending on goods and services. First Data is your best performing stock this year, up 34%, as investors came to recognize the company’s return to consistent double-digit profit growth.

Harte-Hanks

Harte-Hanks reported earnings per share growth of 12% despite curtailed spending by technology and retail customers on direct marketing initiatives. UPS reported a decline in earnings of 9% as the company reacted slowly to declining shipping volumes in the US. Neither stock has budged much this year.

Harte-Hanks reported earnings per share growth of 12% despite curtailed spending by technology and retail customers on direct marketing initiatives. The stock has not budged much this year.

UPS

UPS reported a decline in earnings of 9% as the company reacted slowly to flattening shipping volumes in the US. The stock has not budged much this year.

Express Scripts

Strong growth in mail prescription volume and fulfillment services for drugs requiring special handling in their delivery to patients, contributed to Express Scripts’ earnings per share growth of 21% over the first quarter of 2000. The stock price has declined 9% so far this year.

Mettler-Toledo

Mettler-Toledo reported another strong quarter with earnings per share growing 21%. The company continues to see strong growth in automated chemical synthesis, in-process analytical instruments and weight and volume dimensioning products for the transportation industry. Mettler-Toledo’s stock has declined 15% since the beginning of the year.

Merck

Combined year-to-year sales growth of 30% for the five key drugs Merck has introduced in the past five years produced all of the company’s 13% earnings growth. In spite of Merck’s continued delivery of double-digit earnings growth, its stock price has declined 18% this year because many analysts expected more than 30% quarterly sales growth for Vioxx, Merck’s new pain-relieving drug.

Dendrite

Dendrite reported earnings per share of 4¢, significantly lower than its forecast, because of a delay in signing a large license from Pfizer, its largest customer. The company expects the signing will occur imminently. This revelation caused a drop in Dendrite’s stock price bringing the decline since the beginning of the year to 46%. Siebel Systems has successfully entered the pharmaceutical sales force management business, complicating Dendrite’s selling process.

Intel

Intel’s first quarter earnings of 16¢ per share were 56% below the results of a year ago. The stock is selling less than 1% below its price at the start of the year. In adhering to its plan to increase spending on plant and equipment as well as research and development, the company’s management has told investors that they must implement advanced manufacturing technologies to achieve the maximum performance for their new microprocessors. The management also reminded investors that recoveries from declines in technology product sales never are achieved by resuscitating of existing products, but only by launching new ones.

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.

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2001 – 2nd Quarter EARNINGS LETTER 2000 – 4th Quarter EARNINGS LETTER