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Manugistics sinks despite solid quarter

Shares tumble for the supply-chain software vendor, which met estimates in its first quarter but hasn't make the grade with investors.

    Supply-chain software vendor Manugistics met estimates in its first quarter but didn't make the grade with investors. Shares tumbled Friday as analysts downgraded the stock.

    Though most software companies have suffered in the grip of the economic downturn, missing estimates and slashing jobs, Manugistics has been sailing along so far. But shares fell $8.67, or 23 percent, to $27.70 despite meeting estimates on the top and bottom lines. Manugistics makes software that corporations use to manage raw materials, supply and inventory.

    Manugistics' stock did exactly the same thing after a solid fourth quarter last year. But that time around, analysts were more upbeat on the company. This quarter, Manugistics' report earned the stock some downgrades.

    The company met estimates, with adjusted net income for the quarter ended of $2.2 million, or 3 cents a share, compared with a loss of $800,000, or 1 cent a share, a year earlier. First Call had predicted earnings of 3 cents a share. Revenue of $89.8 million was also in line with predictions, analysts said.

    But "it was the all-important license revenue line that came in somewhat below our estimate and the Street consensus," wrote Deutsche Banc Alex Brown analyst Christopher Mortenson, who lowered his rating to "buy" from "strong buy."

    License revenue grew 74 percent year over year, to $45.1 million, but it came in short of analysts' consensus expectations of $46.8 million. Mortensen said the shortfall was due to the lengthening of sales cycles as customers pushed back purchases because of the jittery economy.

    Merrill Lynch analyst Craig Wood lowered his rating to "neutral" from "buy," citing only concerns about the economic environment, rather than any internal problems.

    "Sales cycles are lengthening. But an increase in volume...may offset the more difficult process of consumating deals," wrote Woods, who maintained his long-term "buy" rating.

    Goldman Sachs analyst Thomas Berquist sounded a similar note; the analyst cut estimates for fiscal 2002 and 2003 based on lower license revenue, but predicted any economic improvement in the first half of calendar 2002 could provide an upside to his estimates.

    One analyst also cautioned investors to watch out for "quality-of-earnings concerns." According to Mortenson, this quarter contains two "yellow flags" to investors: Manugistics acquired a business unit from PartMiner while also booking revenue from a software sale to the parent, and made an equity investment in Converge, a high-tech trade exchange, which also bought software from Manugistics during the quarter.

    The transactions "raise questions about their 'arms length' nature," said Mortenson. "We are not questioning Manugistics' accounting for these transactions, but note that these kinds of two way transactions have, in other situations, raised quality-of-earnings concerns."