Sterling Software, Inc. (NYSE: SSW) said Friday that its fourth quarter earnings will be lower than expected. To cushion the blow, the company said it would buy back 5 million shares.
Shares in Sterling fell 1 15/16 to 18 3/16 in early trading. The company specializes in software and services for application development, business intelligence, and information and network management, and is headquartered in Dallas, Texas.
Before one-time acquisition-related charges, earnings will be about 47 cents a share. First Call consensus was expecting Sterling to earn of 52 cents a share for the fourth quarter ended Sept. 30.
The completion of Sterling's acquisition of Information Advantage, Inc. was announced this week. Sterling said it does not expect significant revenue from the former Information Advantage business in September. The acquisition should be dilutive to earnings per share in September, but accretive thereafter, the company said.
In addition, company's recent reorganization of its application development business will also affect fourth quarter results. Application management revenue will be down slightly from the third quarter, with operating profit margins for the segment in the low 20 percent range.
"We currently expect to be within the range of First Call EPS estimates for fiscal 2000, with bottom line growth over fiscal 1999 approaching 20 percent, or in excess of 20 percent when calculated before amortization charges for intangibles associated with acquisitions," said Sterling L. Williams, president and chief executive officer of Sterling Software, who said he believes Sterling shares are undervalued in a statement. "We also currently expect top line growth in fiscal 2000 in excess of 20 percent," he added.
To back up his claim that shares are undervalued, Williams also announced a buy back plan. Sterling Software currently has about 84.3 million shares of common stock outstanding.