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Manugistics lets down the Street

Hit by a 17 percent slump in licensing fees, the software company disappoints Wall Street more than expected.

Manugistics disappointed Wall Street more than expected with its latest earnings report.

The Rockville, Maryland-based vendor lost $8.2 million its first quarter ended May 31 despite a 15 percent increase in revenue over the like quarter last year to $39.8 million.

The maker of logistics and inventory control software warned last month of a sales and earnings shortfall. But the 32 cents a share loss in its latest quarter was almost 17 percent more than the 7 cents a share loss that analysts were predicting.

In afternoon trading, Manugistics stock was off more than 12 percent as more than 2 million shares changed hands.

Analysts are not too worried about Manugistics' first quarter slump, saying the first quarter is typically a sluggish time of year for companies.

"I think it's premature to write off the company as having something structurally wrong," said Douglas Crook, an analyst at Prudential Securities. "There's still value in this company.''

Crook said he has a hold rating on the shares.

Jim Shepherd, an industry analyst at Advanced Manufacturing Research in Boston, said the showings and stock slide are more an indication of an immature industry and neurotic stock market than anything else.

"The market is so volatile that with any kind of a hiccup there is a huge overreaction," Shepherd said. "Manugistics posted a great fourth quarter and there was overraction in the other direction by Wall Street."

The hit was mainly due to a 17 percent slump in software licensing fees to $16.7 million from the $20.1 million posted the like quarter last year. The maker of supply chain management software made $2 million in profits the like quarter last year.

Meanwhile, American Software in Atlanta exceeded analysts predictions. The maker of resource management and business process automation software posted profits of $7.8 million for the year ended April 30, more than double the profits for the previous year.

American's revenue for the year jumped 27 percent to $107.5 million. Fourth quarter profits were up 32 percent from the same period last year to $2.6 million while revenue increased the quarter 19 percent to $29.9 million over the like quarter last year.

Manugistics executives blamed the slump on not balancing long-term goals with short-term sales and on a new sales force that grew too fast.

"Coming on the heels of a banner fourth quarter and fiscal year, we are particularly disappointed with the first quarter results," said William Gibson, the firm's chief executive. "However, we have put into place clear plans to effectively address these issues and regain momentum in this growing market."

The plans include stepping up management attention on the sales force, particularly field sales representatives and the day-to-day operation of the sales organization, and focusing on consulting partnerships and services to get customers up and running on products more quickly.

Shepherd said this course of action is what Manugistics needs because new sales representatives are too green to accurately judge a good sales pipeline which is why senior more experienced managers need to keep an eye on them more closely.

"To be honest, slowing their growth down wouldn't be the worst thing for them," Shepherd said. "They have a bunch of new products that need to be integrated, new people that need to get up to speed, and a message that needs to be clarified and spread. All the companies in this market need to slow down."

Still, analysts predict the market is due for a shakeout and Manugistics' slump could be an early indicator that the market is starting to crumble under the weight of too many players and not enough buyers.

"Manugistics is in the top five and this game has a long way to go," said Dennis Byron, analyst at International Data Corporation in Framingham, Massachusetts. "When you combine them with the i2 Technologies and SAP's of the world, which we do on an annual basis, they are on the list. They are better aligned in the market than most and poised to gain market share."

Byron said Manugistics and its main competitor i2 Technologies in Irving, Texas, are better positioned than many in the supply chain market to hold off SAP and other enterprise application vendors. SAP, PeopleSoft, and other similar companies are stretching their transactional applications to more decision support markets like Manugistics and i2's arena.

Reuters contributed to this story.