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Acxiom falls on warning, downgrades

    Acxiom shares lost a quarter of their value, sliding to around $15 a share, just where analysts said they should be following a profit warning and news of an accounting change.

    Shares in the marketing information services firm were off $6.63 to $14.25 Monday morning. The company provides computer-based marketing information services, with databases holding information on 95 percent of U.S. households.

    Acxiom (Nasdaq: ACXM) warned late Friday night that it would miss estimates for the first and fourth quarters, blaming cost-cutting among clients dented by the recession. But that's far from the worst of it. Analysts said accounting changes could indicate problems ahead. Furthermore, the company isn't going to have a conference call about its earnings until Wednesday, a move that may aggravate selling, analysts said.

    The company said it could achieve earnings per share between 10 cents and 12 cents from continuing operations in its fourth quarter on revenue of $250 million to $260 million. That's well off First Call's consensus estimate of 36 cents a share.

    Acxiom now sees first-quarter earnings at 8 cents to 13 cents per share, also well below First Call's forecast of 27 cents per share.

    "This revision is much more severe than the market anticipated and (we anticipate) that shares will suffer significantly," wrote William Blair analyst Troy Mastin, one of several analysts who downgraded the stock and reduced its price target to $15 Monday.

    Mastin downgraded the stock to "hold" from "long-term buy" and revised his estimates.

    Credit Suisse First Boston analyst Anthia Christian also downgraded the stock to "hold," noting the numbers for the company's fourth-quarter earnings are a whopping 70 percent below her previous estimates.

    The delay of a conference call until Wednesday was also panned by analysts. The delay is expected to "fuel additional pessimism, as it appears there will be no venue to address investor concerns for two full trading days," Mastin said.

    "We feel that this two-day "quiet period" is not very shareholder friendly and could indicate that the company's affairs are even worse than expected," wrote Morgan Stanley Dean Witter analyst Michael Russell, who downgraded the stock to "underperform" from "neutral."

    Acxiom's news also initiated a round of estimates cuts for competitors.

    "Although Jack Henry, Acxiom, Lionbridge, Predictive Systems and to an extent, Cognizant operate in different arenas from the digital consulting space, they are NOT immune from the economic downturn," said CIBC Oppenheimer analyst John Schneller, who reduced projections for all those companies.

    Schneller maintained a "strong buy" on Jack Henry (Nasdaq: JKHY), and said its core business will be the least affected by the economy due to a high client retention rate. Cognizant (Nasdaq: CTSH) is also resistant to economic woes.

    Acxiom was also maintained at a "strong buy" rating, though Schneller reduced his price target to $42 from $60.

    All other companies had their price targets and projections cut, and Proxicom (Nasdaq: PXCM) and Sapient (Nasdaq: SAPE) also had their estimates cut.

    Accounting Issues

    In addition to its lowered projections, Acxiom said it will take charges in the fourth quarter and full year to comply with new federal revenues recognition rule SAB 101. It will also have to readjust earnings for the prior quarters of the fiscal year.

    Management said that adopting the changes would negatively affect revenue and earnings. It made no comment on fourth-quarter revenue, but estimated a charge of 2 cents to 3 cents a share for the quarter. For fiscal 2001, the change will impact revenue by $32 million to $38 million and dent earnings by 12 cents to 16 cents.

    "We are alarmed by the significant impact on earnings per share as this restatement suggests that the company was accounting for various service revenue too aggressively," Mastin wrote.

    In other words, the restatement of past earnings could be dramatic. Mastin estimates that up to $25 million of the restatement resulted from recognition of upfront fees for services and potentially software contracts.

    Though the company was vague about what exactly it has to restate, Mastin now estimates the impact of SAB 101 will make 2000 earnings 88 cents a share, (as opposed to the previously reported $1.00 a share).

    Acxiom also said it would write-off up to $35 million related to the Montgomery Ward bankruptcy proceedings, more than the previously estimated $30 million.

    Among other charges, the company also said it will take a write-down of up to $13 million in the quarter for Internet and other technology investments and would record other nonrecurring charges of $3 million to $6 million.

    "We are not encouraged to see these additional charges, as the nature of the charges in unclear," Mastin wrote.

    Analysts were hard-pressed to find a bright side to Acxiom's news, but saw hope in the accounting changes and its AbiliTec business, the company's proprietary data integration technology.

    A Silver Lining?

    Merrill Lynch analyst Thatcher Thompson noted on the bright side that the accounting changes were "welcome," though he reduced estimates due to the news. The company has been criticized for years, and is now finally bring more conservative practices to its accounting methods.

    Mastin also called the move "an encouraging development, and noted that "in time this will pay dividends and the market will reward the stock with a higher valuation."

    AbiliTec was also cited as a strong point for Acxiom.

    "On a more positive note, the company continues to see strong demand for AbiliTec," Christian wrote. Management expects fourth-quarter AbiliTec sales to exceed $30 million. This is ahead of the analysts' $24 million estimate. >