JD Edwards filing causes stir
Wall Street skitters away from the company after regulatory filings show that it beat earnings targets by improving bill collection, not selling more software.
The stock for the business applications company dipped nearly 20 percent as Wall Street absorbed the news, closing at $11.41, a 15 percent drop.
The company exceeded earnings in the third quarter by 2 cents a share by reducing its reserve related to risky accounts, according to documents filed with the Securities and Exchange Commission on Thursday. The reserve--funds set aside from earnings for future use--come out of the company's revenue. The company had already publicly disclosed the reserve in its balance sheet when it reported earnings on Aug. 21, but the company did not explicitly discuss it during its earning call.
Without that reserve reduction, which resulted in an additional $4 million in revenue, the company would have earned closer to 5 cents per share, rather than its reported 8 cents per share.
Although fluctuation in the reserve from quarter to quarter is not unusual, $4 million is a rather large jump, said Richard Allen, chief financial officer of JD Edwards. In hindsight, the company should have discussed the issue during its earnings call, he said.
"We underestimated the impact and importance of this for our investors," Allen said.
However, although Thursday's disclosure took some by surprise, the news was not altogether negative because it indicates the company is doing a better job of managing parts of its operations, said Patrick Walravens, a financial analyst at JMP Securities, which gives the stock a strong buy rating.
"The fundamental story is intact for JD Edwards," he said. "But things aren't progressing as fast as people thought they were."
He pointed to the company's decision to eliminate excessive employee vacation buildup through an incentive program that encourages workers to take vacation. That resulted in an additional $2.3 million in reported operating income last quarter.
"These types of efficiencies are exactly what they're trying to accomplish at this company," Walravens said.
JD Edwards, which makes software designed to help companies manage their books, fill orders and operate factories, has been on the upswing--despite the tough economy--after a string of losses and declining revenue in recent years.