J.D. Edwards lowers earnings expectation for 2001

During a Monday afternoon conference call with analysts, J.D. Edwards CFO Richard Allen predicted a profit of 20 cents to 25 cents per share for the software company's fiscal year, which ends in October. Analyst consensus predicted a 2001 profit of 27 cents per share for J.D. Edwards, according to earnings tracking company First Call.

First Call consensus was predicting revenue over $1 billion for 2001.

License and services revenue for the year will be roughly the same as it was in 2000, Allen said. J.D. Edwards, a seller of supply-chain-management software for mid-size companies, generated about $1 billion in 2000 revenue, including $419.1 million from license fees.

Executives for J.D. Edwards announced several moves designed to cut costs. Among other steps, the company plans to reduce the number of management levels to six from nine; make its services unit a separate division; increase the number of representatives per sales manager to eight from five; boost the number of consultants per marketing consultant manager to 10 or more; reduce global sales areas to two from three; and cut the number of sales regions in the Americas to four from 10.

"We've been too top-heavy," Chief Operating Officer Hank Bonde said.

The company declined to provide a financial forecast for the current quarter, which ends in April. However, executives said they expect sales to fall in the first half of the fiscal year.

"We realize it will take some time to get the organization mobilized again...We expect that these changes may have a negative effect on our short-term financial performance," Allen said. "Again, we are optimistic about the long-term growth and profitability of J.D. Edwards."

J.D. Edwards could report a second-quarter loss of a few pennies per share, said Brent Thill, analyst with Credit Suisse First Boston. Thill isn't optimistic about J.D. Edwards' ability to meet its earnings goal for the year.

"I think their numbers are speculative," said Thill, who has a "hold" rating on J.D. Edwards. " This is something that's not going to be turned around in one or two quarters. There are a lot of cumulonimbus clouds on the horizon."

The company repeatedly has said its disappointing results stemmed from poor sales and service, not bad products. The organizational changes announced Monday will resolve those issues, executives said.

"We've acted boldly to restructure J.D. Edwards for new leadership and improved sales effectiveness," Chief Executive Officer C. Edward McVaney said. "We are clearly poised for profitable growth in the future."

Thill wasn't convinced. J.D. Edwards has a fundamental problem with its offerings, he said. "There's something deeper, and I think it's a mixture of execution and their product line," Thill said. "The market has moved away from them."

While rivals such as Oracle promote software packages that include technology that deals directly with customers and suppliers, J.D. Edwards relies heavily on selling back-end applications that partners must combine with other companies' products, Thill said.

"The midmarket looks for an integrated, end-to-end suite of products," he said. "But J.D. Edwards has to cobble together all these disparate pieces. I think Oracle is doing very well against them."

Shares of J.D. Edwards traded at $9.88 in after-hours activity on the Island ECN trading network, immediately following the release of quarterly results. J.D. Edwards stock fell 31 cents to $9.75 in Monday's regular trading ahead of the news.

J.D. Edwards reported fiscal first-quarter net income of $191,000, or break-even on a per-share basis. Last month, J.D. Edwards said it expected to lose 1 cent to 2 cents per share. First Call predicted a loss of a penny per share.

First-quarter revenue of $217.7 million was near the high end of J.D. Edwards' expected range of $201 million to $218 million, and down from $231.7 million in the year-ago period. License fee revenue of $82.7 million was within the company's forecast of $79 million to $84 million.

"We're not just working to improve our performance, but the consistency of our performance as well," Bonde said.

It's a necessary step, Thill said.

"They've got to get back to periods of predictability," the Credit Suisse First Boston analyst said. "Investors can't see that right now."