Stronger-than-expected quarterly earnings reports, particularly in the electronics manufacturing services sector, this week helped drive the EBN/Thomas Weisel Supply-Chain Index up by 1.78%.
The gains, however, were tempered by investors' lack of interest in the other segments of the supply chain, including semiconductors; distribution; and interconnect, electromechanical, and passives (IP&E).
The top-tier EMS index rose 6.41% for the week ended April 28, while the midtier EMS index posted a healthy 5.73% increase.
"It's been driven by earnings reports," said David Parrish of Advest Inc., Hartford, Conn. "[For example,] Flextronics reported results that came in above expectations. The outlook there is quite favorable."
For fiscal 1999, Flextronics International's revenue grew 62%, to $1.8 billion; net income increased 68%, to $56.9 million; and earnings per share climbed to $1.23, up from 88 cents last year.
Flextronics, though, turned out to be the top loser in its segment last week, closing Wednesday at $45.13, off from $45.50 a week earlier but only losing 0.82% of its value.
Parrish added that the top line at Celestica Inc., which reported last Tuesday, came in $80 million better than expected.
Fiscal third-quarter results for SCI Systems Inc., which turned out to be the sector's top winner with an 18.64% gain, beat expectations, according to Parrish.
SCI's net income fell to $32.4 million in the third quarter of fiscal 1999, compared with $34.3 million in the same quarter of fiscal 1998.
The company's basic and diluted earnings per share for the quarter were 54 cents and 48 cents, respectively, compared with 57 cents and 50 cents per share a year earlier. Earnings were 3 cents above consensus estimates.
"The upside surprise on reduced EPS estimates was driven by the first sequential increase in the operating margin in three quarters and a lower-than-expected transaction loss from assets held in Brazil due to the appreciation of the real," said Thomas Hopkins, an analyst at Bear, Stearns & Co. Inc., New York.
Sales at the Huntsville, Ala., company fell to $1.60 billion, compared with $1.69 billion in the same period a year earlier.
Still, SCI management told investors of their growing confidence for better sequential sales and earnings growth based on nearly 12 new programs the company secured recently, including building Silicon Graphics Inc.'s NT workstations.
"There's a lot of momentum in the space right now," Parrish said.
Meanwhile, the week's top gainers among mid-tier EMS providers comprising the index were Sigmatron International Inc. and ACT Manufacturing Inc. However, ACT, whose shares closed at $17.13 Wednesday, up 14.17% from a week earlier, gave back much of its winnings Thursday after Wall Street got wind of its first-quarter net loss of $1.13 million. ACT's sales rose 33%, to $81.2 million.