The Cambridge, Massachusetts-based IT services company said yesterday that its first quarter earnings per share would range between 12 cents and 14 cents, far below the 24 cents expected by a consensus of analysts polled by First Call.
The firm's stock today plunged 9.625, or 46 percent, to close at 11.375. Cambridge's shares have traded as high as 58.38 and as low as 13.38 during the past 52 weeks.
Responding to the news, JP Morgan analyst Raimundo Archibold lowered his first quarter earnings estimates for the company to 13 cents per share from 23 cents, and cut his estimates for the year to 60 cents from $1.11 a share.
"The magnitude [of the lowered expectations] was a surprise," said Archibold, who cut his rating on the company's stock last fall.
However, the competitive environment for systems integrators is becoming more difficult overall, he said. These new challenges caused Cambridge to announce a restructuring last fall, under which the company is shifting its sales strategy to a unified services line-based model instead of a geographically based selling strategy.
"Directionally, they're doing the right things," Archibold said. "But getting there from here has proven to be more of a challenge than anticipated."
The company was quick to admit this problem today. Cambridge executives said the firm has yet to reap the expected benefits of the North American reorganization. Analysts agreed, saying the restructuring is moving slower than expected, and that some key managers weren't in place until last month.
In addition, sales growth for the first quarter was lower than forecasted. The company said a slump in market demand for Enterprise Resource Planning (ERP) software licenses dampened demand for its ERS package implementation offerings.
Cambridge said it expected first quarter revenue would range between $148 million and $151 million for the quarter, below analysts' expectations of between $163 million and $170 million.
Analysts don't see the company recovering solidly until the second half of next year.
Tucker Anthony downgraded the stock to a "market perform" from "strong buy" today, stating in a research note that the predicted shortfall creates a "credibility problem for Cambridge management," that can only be fixed by a series of strong quarters that meet expectations.
Meanwhile, BancBoston Robertson Stephens maintained its "buy" rating on the stock, noting that while the current quarter's shortfall is larger than expected, the company should rebound in 2000.
For the year, Cambridge expects to report earnings of 72 cents to 74 cents a share, on revenue of between $660 million and $675 million.
Those numbers also fall short of expectations. Analysts had predicted Cambridge would earn $1.06 and $1.15 a share for 1999 on revenue ranging from $750 million to $795 million.
Cambridge is slated to report first quarter results April 15.
Reuters contributed to this report.