Corel keeps its profit promise

UPDATE Struggling software developer Corel lived up to its promise Thursday, posting a slight profit in its first quarter despite weaker-than-expected sales.

Separately, Corel named Rene Schmidt as its new chief technology officer. He previously served as executive vice president of its Linux products group.

Corel (Nasdaq: CORL) earned $534,000, or 1 cent a share, on sales of $32.5 million in the quarter.

First Call consensus pegged it for a loss of 1 cent a share on sales of $40 million.

Corel shares closed off 13 cents to $2.31 ahead of the earnings report before moving up to $2.39 in after-hours trading.

"A lot has been going on around here in the past couple months," CEO Derek Burney told analysts during a conference call Thursday. "While our overall results are improved, we realize that we still need to grow our revenue."

The $32.5 million in sales marks a 26 percent decline from the year-ago quarter when it lost $12.4 million, or 19 cents a share, on sales of $44.1 million.

Sales of its creative products software, which includes CorelDraw, rose to $20.8 million in the quarter, up from $19.8 million in the year-ago quarter.

However, sales of its business applications, which include WordPerfect, tumbled 48 percent from $22.1 million in the year-ago quarter to $11.6 million, a 48 percent decline.

The sales shortfall "this quarter it primarily attributed to the (decline) in business applications sales, particularly in Europe," Burney said. "This tends to happen ahead of a new product cycle."

Corel plans to roll out its WordPerfect Office 2002 desktop suite this quarter.

Gross profit margins in the quarter checked in at 81 percent up from 67 percent in the year-ago quarter.

"I was expecting a drop-off in WordPerfect sales at the end of the product cycle, but the total sales are still lower than the $40 million I expected," said Jean Orr, an analyst at BlueStone Capital. "They're showing progress. The new management is making progress, and the outlook is better than it's been in a while."

Last week, company executives told analysts it would return a surprise profit in the quarter despite sagging sales of its WordPerfect software.

Eventful year
Corel has struggled since its proposed merger with Inprise (Nasdaq: INPR) fell apart last year. The firm replaced flamboyant CEO Michael Cowpland with Derek Burney in August, and got a boost from Microsoft (Nasdaq: MSFT) in October, in the form of a $135 million cash infusion.

Corel announced a restructuring plan in January, saying it would focus on core products such as the WordPerfect Office desktop suite, the CorelDraw drawing program, and other future "creative" products, especially for the Apple Mac market.

In February, Chief Financial Officer John Blaine said that Corel expected to see a slight dip in revenue in the first quarter, with revenue for each quarter growing over the year-ago figures. Annual revenue growth is expected to be 18 percent to 20 percent, and the company hopes to boost sales 20 percent a year for the next three years.

Looking ahead
During the conference call, Blaine said the company needed to see how the current quarter shakes out before providing guidance for the rest of the fiscal year.

"It's not a lack of confidence in meeting our objectives," Blaine said. "We believe we are still on target to reach those targets. We're reasonably confident we'll be profit in both the second and third quarters."

First Call consensus expects Corel to lose 7 cents a share in the second quarter on sales of $42 million before turning a profit of 3 cents a share in the third quarter.

Last quarter, it lost $8.6 million, or 12 cents a share, on sales of $40.4 million.

Corel shares moved up to a 52-week high of $12 last March before falling to a low of $1.25 in December.