2nd-best stock in S&P 500 was B&D

Local toolmaker's shares increased 24% in 3Q

Ciena was 3rd worst in index

October 02, 2004|By Meredith Cohn and Tricia Bishop | Meredith Cohn and Tricia Bishop,SUN STAFF

Towson toolmaker Black & Decker provided one of the bright spots in an otherwise lackluster third quarter for the Standard & Poor's 500, turning in a double-digit gain to rack up the second-best performance of the stocks in the index.

Also among Maryland companies in the S&P 500 was one of the quarter's worst performers. Shares of Ciena Corp., the Linthicum fiber-optics equipment maker, lost nearly half their value in the three-month period that ended Thursday, making it the index's third-worst performer.

The S&P index is based on the performance of 500 widely held common stocks. The index suffered its first quarterly decline in a year and a half during the July 1-Sept. 30 period, falling 2.3 percent vs. a 2.2 percent gain in the quarter last year.

The decline, however, was less than the Dow's, which dropped 3.4 percent in the quarter, and that of the Nasdaq, which fell 7.4 percent.

"You have a lot of permutations going on with the election and with interest rate fluctuations and with oil prices, so it's a unique backdrop for the equity market," said Gregory H. Barnhill, a partner with Brown Advisory in Baltimore. "It's a more challenging environment - anything that creates uncertainty."

The value of Black & Decker shares increased 24.6 percent in the quarter, an increase largely attributed to the company's agreement to buy the tools unit of Pentair Inc. for $775 million in cash.

The company's shares got a boost in July when it announced the Pentair acquisition as well as a 56 percent increase in second-quarter earnings from continuing operations on record sales of $1.3 billion. Profit of $1.50 a share handily beat analysts' expectations of $1.26 a share.

Black & Decker expects to announce third-quarter earnings Oct. 27. Analysts predict a third quarter profit of $1.31 a share. Shares rose 16 cents to close at $77.60 yesterday.

`A real lift'

Bob Goldsborough, an analyst with Ariel Capital Management of Chicago, which owns 3.3 million Black & Decker shares, believes the share price will continue on an upward trend.

"They got a real lift from the Pentair deal," he said. "They've been in real strong demand. Overall they've been showing some strong focus on their core competencies."

No one at the company was available to comment yesterday.

Ciena, on the other hand, lost 46.49 percent of its value to finish the quarter at $1.98. It was the only one of the eight Maryland companies in the S&P 500 index to post a negative return. Ciena's shares closed yesterday at $2.03.

The Linthicum company's stock has been steadily declining since the giddy days in 2000 when Ciena shares peaked at $230.12.

"Unlike other communications equipment stocks like Lucent and Cisco, which were able to adjust their business model in the aftermath of the Internet crash, Ciena is still waiting for the good old Internet days to come back," said analyst Gene Walton of Walton Holdings LLC in New York.

Too much supply

During the technology heyday, companies were buying fiber-optic cable like crazy, greatly overestimating the need for capacity. And Ciena, like many others, was left with too much supply and too little demand for its product after companies moved toward wireless options. Other companies shifted direction, but Ciena lagged behind, Walton said.

Suzanne DuLong, Ciena vice president of investor relations, disagreed, pointing to strides made in the last 18 months. "Rather than sit on our hands and hope it got better, we expanded into new markets," she said.

Ciena has acquired four companies in the last year, closed a facility in San Jose, Calif., to save money and shifted direction to high-speed data transmission methods such as DSL.

"We have taken a number of important steps toward restoring health and profitability to our business, and over the next several quarters, our focus and execution will be crucial for success," chief executive Gary B. Smith said in an August statement accompanying results of the company's fiscal third quarter. Sales for the quarter that ended July 31 were $75.6 million - $20 million below analyst estimates.

Better 4th quarter

S&P chief investment strategist Sam Stovall said the third-quarter drop in the S&P 500 was on target with the average 2.5 percent decline for the quarter since 1990. He expects the benchmark index to increase in the fourth quarter, when it traditionally has its best showing.

Bloomberg News and Sun staff writer Lorraine Mira- bella contributed to this article.

Maryland companies

Here's how other Maryland companies in the S&P 500 performed in the third quarter:

Company Percent return

Lockheed Martin Corp. 7.10%

Constellation Energy Group 5.12

Marriott International 4.17

MedImmune Inc. 1.28

T. Rowe Price Associates 1.07

McCormick & Co. 1.0

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