PeopleSoft profits catch a chill

Just when the business software maker thought things wouldn't get any worse, along come the Iraq war and SARS. Earnings fall, and the company says it will cut jobs.

Tech Industry
Business software maker PeopleSoft said Tuesday that first-quarter earnings fell, that second-quarter and full-year profits would be lower than the year ago and that it would cut 200 jobs to save costs.

"The Iraq war brought a tremendous chill to the economy here and abroad...and just when you thought things couldn't possibly get any worse, a mysterious virus called SARS has emerged," PeopleSoft Chief Executive Craig Conway told analysts on a conference call.

The company's shares slipped to $15.75 in after-hours trading from a Nasdaq close of $16.04.

Conway said the war and SARS, or severe acute respiratory syndrome, "dropped the temperature another two degrees at corporations around the world," leading the software maker to post a 39 percent drop in software sales from the year ago period. "Everyone simply spent less," Conway said.

Slower spending led PeopleSoft--which makes business software such as human resources and financial systems used by companies to run their operations--to post a first-quarter profit of $38 million, or 12 cents a share, compared with $44.5 million, or 14 cents a share, a year earlier.

The company said revenue fell nearly 5 percent to $460 million from $483.27 million in the first quarter of 2002.

It said software license sales--a key measure eyed by Wall Street--fell to $81 million from $133 million.

And PeopleSoft said software license sales would only grow slightly in the second quarter, to between $85 million and $95 million. It said third-quarter software license sales would be flat with the second quarter, while fourth-quarter software sales would show modest growth, to between $125 million to $135 million.

Brendan Barnicle, an analyst with Pacific Crest Securities, said PeopleSoft's stock would likely come under pressure on Wednesday, because investors who were holding out for positive news in the second quarter and beyond had their hopes dashed.

"We're basically not going to see any earnings growth, and the earnings that we're going to see are largely going to be through cost containment," he said, adding that investors would also be disappointed in the outlook for software sales.

Job cuts, shuttered site
PeopleSoft, like the majority of its rivals including Siebel Systems and Oracle, has suffered as corporations have reined in their technology spending to weather the tough economy.

Earlier this month, the company warned that its first-quarter results would miss Wall Street estimates. It said it expected earnings of 11 cents to 12 cents a share on total revenue of $450 million to $455 million, from an earlier forecast of 13 cents to 14 cents a share.

Speaking on the call with analysts, PeopleSoft Chief Financial Officer Kevin Parker said the business software maker would cut 200 administration and support staff worldwide, or about 2.5 percent of its work force, and shutter its Santa Clara, Calif., office, moving the employees there to its headquarters in Pleasanton, Calif.

He said the company would take a charge of about $12 million, or 3 cents a share, in the current second quarter. Parker also said that the company expected to save about $1 million in operating expenses each quarter between now and the end of 2004, as a result of the initiatives.

The CFO also forecast total second-quarter sales of between $450 million to $460 million, and earnings per share, excluding the charge to cut jobs and close the Santa Clara office, of between 11 cents and 12 cents a share, down from 14 cents a year ago. Including those charges, PeopleSoft forecast earnings of 8 cents to 9 cents a share.

For the full year, PeopleSoft said it expected to book total revenue of $1.9 billion, and earnings before items and charges, of 52 cents to 54 cents a share, down from 60 cents a year ago.

Analysts expect second-quarter earnings of 12 cents a share and revenue of $467.8 million, according to First Call.

For the full year, the analysts are anticipating earnings of 53 cents a share on revenue of $1.9 billion, in line with PeopleSoft's outlook.

Story Copyright  © 2003 Reuters Limited.  All rights reserved.

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