BEA Systems shares tumble despite strong earnings, outlook

The company tops analysts' estimates in its fourth quarter, leaves its fiscal 2002 sales targets unchanged and raises its earnings estimate for the year.

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BEA Systems topped analysts' estimates in its fourth quarter Thursday, left its fiscal 2002 sales targets unchanged and raised its earnings estimate for the year, but the stock still took a beating in after-hours trading.

In the quarter, it earned $43.6 million, or 10 cents a share, on sales of $256 million. BEA Systems develops e-business software for a range of companies, including financial, communications and utilities companies.

First Call consensus pegged the software developer for a profit of 9 cents a share on sales of $251.8 million.

However, BEA Systems shares fell to $35.72 in after-hours trading after losing $3.88 at $41.94 in the regular trading session.

Investors apparently weren't impressed with the $251.8 million in sales, which represents a 72 percent improvement from the year-ago quarter when it earned $17.2 million, or 5 cents a share, on sales of $149.2 million.

It didn't help that Sun Microsystems drastically reduced sales and earnings estimates for the fiscal year, considering that 70 percent of BEA Systems' software is sold on Sun platforms.

Greg Vogel, an analyst at Banc of America Securities, predicted the company would earn 10 cents a share on sales of $280 million.

"The perception is the company is doing very well, but the question is can they meet what have become very high expectations from Wall Street," he said ahead of the earnings report. "I wouldn't be surprised if they beat my estimates."

In the quarter, BEA Systems recorded licensing sales of $158.9 million, up 24 percent from $128.2 million in the third quarter. That marks the fourth consecutive quarter BEA Systems has improved its licensing sales.

"We've just concluded best year so far and we're excited about prospects for fiscal 2002," Chief Executive Officer Bill Coleman said during a conference call with analysts. "Our results, pipeline and visibility into first half of 2002 continued to improve. The trends we see continuing in our customer base increase our confidence about the first quarter and the fiscal year."

Coleman told analysts to expect a higher mix of licensing sales in fiscal 2002, resulting in an additional 3 cents to 4 cents a share in earnings in fiscal 2002. It now expects to earn between 39 cents and 41 cents a share in the fiscal year.

First Call consensus was expecting a profit of 37 cents a share on sales of $1.2 billion.

Analysts said the stock's sharp decline after the bell is likely a reaction to BEA Systems missing the so-called whisper sales estimate of slightly more than $260 million.

Licensing sales surged to $159 million in the quarter, or 72 percent of total sales, at gross profit margins of 96 percent. Services sales rose to $97 million, representing 38 percent of total sales, down from 45 percent of sales in the first quarter.

More impressive, operating margins jumped more than 5 percent from the year-ago period to 16.3 percent.

Chief Financial Officer Bill Klein told analysts that its services sales will represent a smaller percentage of the company's sales in fiscal 2002. He said the company now expects an additional $40 million to $50 million in license sales this year, bringing the total to around $687 million.

"We see significant growth opportunities despite the challenging economic conditions," Klein said.

In the fiscal year, BEA Systems pocketed $109.2 million, or 25 cents a share, on sales of $819.8 million compared with a profit of $37.4 million, or 11 cents a share, on sales of $464.4 million in fiscal 2000.

Last quarter, it topped analysts' estimates when it posted a profit of $31.3 million, or 7 cents a share, on sales of $224 million.

The stock moved as high as $89.50 in October after slumping to a low of $25.50 in April.

Twenty-one of the 22 analysts tracking the stock rate it either a "buy" or "strong buy."