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Great Plains shares plummet on earnings warning

Investors trample the shares of the accounting software maker after it says upcoming fiscal fourth-quarter earnings will fall far short of analysts' expectations.

Investors trampled the shares of Great Plains Software after the accounting software maker said its upcoming fiscal fourth-quarter earnings will fall far short of analysts' expectations.

The Fargo, N.D.,-based company said yesterday it expects to post earnings between 5 cents and 10 cents per share in the quarter. Analysts surveyed by First Call previously said they expected the company to earn 32 cents a share.

Great Plains shares plunged $18.75, or 46 percent, to close at $21.63 on extremely heavy volume of 5.7 million shares.

The shares also hit a 52-week intra-day low of $22.50, compared with a high of $83.50 during the same period.

Despite the decline in earnings, the company said it still expects to generate record revenue of about $58 million for the quarter, compared with $40.1 million in the year-ago quarter. Great Plains makes accounting software for small- to medium-sized businesses.

Analyst Jim Pickrel of Chase H&Q wrote in a research note that the company has made significant investments in its e-business and Great Plains/Siebel front-office products.

"Management expected to be able to cover these additional costs through an increase in revenue in relation to Street estimates," Pickerel wrote. "But new customer addition rates were lower than anticipated for the quarter, leading to the shortfall in earnings."

Pickrel lowered the stock from a "buy" to a "market perform." An analyst with First Albany also downgraded the company to a "neutral" from a "buy."

Great Plains agreed last month to buy privately held Solomon Software for about $142.3 million in stock and cash. Great Plains will issue about 2.6 million shares and pay $35 million in cash for the company. The transaction is expected to be completed this month.

Analysts said the acquisition presents challenges and opportunities for Great Plains.

"Overall, we believe that the company's focus on key areas of market demand . . . will provide it with the opportunity to increase its market share in the long term," Pickrel said in his report. "But we believe that the company must demonstrate the ability to successfully address its more immediate transition and integration issues in order to fully realize this opportunity."