Corel reports strong 2Q, annoys analysts

Last year's restructuring is paying off, said Corel Corp. (Nasdaq: CORL), which on Monday reported second quarter earnings double what analysts expected.

In fiscal second quarter results released after market close Monday, the maker of office productivity and graphics software posted net income of $9.2 million, or 14 cents a share -- the highest quarterly earnings for the company in four years. First Call's survey of four analysts predicted earnings of 7 cents a share for the quarter ended May 31.

The company on Monday also unveiled a new Nasdaq ticker symbol, CORL. That announcement also came after market close.

As the company preannounced last week, second quarter sales were $70.5 million, up almost 12 percent from $63 million a year earlier. "Notwithstanding the first quarter shortfall, when both versions of our flagship products were at the end of their cycles, Q2 is an important sign that Corel will continue to benefit from the significant restructuring changes it implemented throughout 1998," CFO Michael Reilly said.

But analysts said Corel's credibility is hurt because of the radical difference between their estimates -- which are based on company guidance -- and the quarter's actual results. Some analysts said the company had guided their expectations down a month earlier from about 12 cents per share profit.

"It discourages me," said Jean W. Orr, analyst with Nutmeg Securities Ltd. in Connecticut who was expecting a profit of 4 cents per share. "I always get discouraged when I am off on expectations by a significant amount one way or the other."

Management's failure to properly direct analysts undercuts confidence, said Duncan Stewart, a partner at Tera Capital Corp. who manages the Navigator Canadian Technology Fund. "(It) tends, in fact, to erode stability of the stock and erode the ability of institutional analysts to cover the stock," he said.

Corel has a recent history of mismatched expectations, including last quarter when it fell short of estimates. And though flagship products Corel WordPerfect Office 2000 and CorelDraw 9 debuted near the end of the quarter to positive reviews, the company also has yet to prove bets such as Linux-based projects will pay off. Corel has previously failed to deliver on earlier promised hot technologies, such as network computers and Java-based office suites.

The company also faces continued challenges breaking into the OEM market, where the majority of office productivity software is distributed. Corel got more than 43 percent of its second quarter revenue from retail sales, and more than 19 percent from corporate licenses.