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Pegasus Solutions plummets on profit warning

Pegasus Solutions shares plunged $5.50, or 46 percent, to a 52-week low of $6.63 Tuesday after issuing a profit warning and announcing layoffs.

Company officials said it now expects to post sales of between $47 million to $48 million in the quarter and earnings between 7 cents to 9 cents a share.

It also lowered fiscal 2001 sales guidance to between $220 million to $230 million and earnings of between 60 cents to 65 cents a share.

First Call Corp. consensus was expecting a profit of 19 cents a share in the fourth quarter and 82 cents a share in fiscal 2001.

Making matters worse, Pegasus Solutions (Nasdaq: PEGS) also said it will take a $1 million restructuring charge in the quarter.

Company officials blamed lower-than-expected sales in its hospitality and application service processing businesses.

"We intend to do everything necessary to improve the performance of our hospitality group and ASP business," said CEO John Davis. "We have already taken significant steps to improve profitability."

On Tuesday, Bear Stearns cut the stock from a "buy" rating to "neutral."

Chase H&Q lowered its sales and earnings estimates for the fourth quarter and fiscal 2001, saying "REZSolutions, last year's acquisition, appears to be the biggest culprit."

"With its large presence in Europe, REZ's results have been hampered by continued currency deterioration and recently sluggish reservation volumes overseas," the firm said in a research note. "We believe the merger has made Pegasus more vulnerable to business cycles in the lodging sector."

Last quarter, it raked in $4.8 million, or 19 cents a share, on sales of $52.4 million.

The stock peaked at $48.38 last December before falling to a 52-week low of $8.63 earlier this month.

All five analysts following the stock rate it either a "buy" or "strong buy."