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PeopleSoft posts strong results

The business software maker announces improved second-quarter revenue and moderate earnings growth in the thick of a hostile takeover bid by Oracle.

PeopleSoft on Thursday announced improved second-quarter financial results and raised its outlook for the third quarter, despite being in the thick of a hostile takeover bid by Oracle.

The results were largely expected. PeopleSoft earlier this month announced that its quarterly results would be better than analysts' expectations. The Pleasanton, Calif., company met analysts' revised earnings estimates but managed to exceed their updated revenue forecasts, according to First Call.

For the second quarter, which ended June 30, PeopleSoft posted revenue of $497.4 million, an increase from the $482.2 million that it posted in the same period last year. Analysts' revised revenue estimate was $493 million for the quarter, according to First Call. PeopleSoft's revised revenue range was $490 million to $500 million.

PeopleSoft's net income reached $36.5 million, or 11 cents a share, during the second quarter. Last year, the enterprise software company posted earnings of $36 million, or 11 cents a share. For continuing operations, the company reported earnings of 14 cents a share.

Based on PeopleSoft's revised forecast, analysts expected net income of 14 cents a share for the quarter, according to First Call. Previous estimates had been for earnings of 11 cents to 12 cents a share from recurring operations.

"When we pre-announced our second quarter, on the surface, the results appeared strong. But as you look below the surface...they're even stronger," Craig Conway, PeopleSoft's chief executive, said during a conference call with analysts.

PeopleSoft also raised its third-quarter earnings guidance to between 13 cents and 14 cents a share. Analysts had been expecting the company to earn 12 cents a share for the third quarter, according to First Call.

Shares of PeopleSoft rose slightly in after-hours trading, to $17.97. During the regular session Thursday, the company closed up 1 cent, or about 0.5 percent, to end the day at $17.90.

Conway noted that battling Oracle in its hostile takeover bid during the second quarter cost the company $14 million, which mostly came from general and administrative expenses.

Wall Street had been expecting a lackluster second quarter from PeopleSoft, given the distraction the company faced in fighting off Oracle's hostile takeover attempt and the hesitation its customers may have felt about signing new contracts.

But last month, PeopleSoft came up with a strategy to ease customers' concerns. It began offering customer-protection guarantees in its contracts, under which customers would receive two to five times their money back if PeopleSoft were to be acquired and the new owner were to participate in one of three actions. One of those three is if the buyer announces plans to discontinue support services before the end of PeopleSoft's normal support term.

Earlier this month, Conway said roughly half of the contracts signed in the quarter included these guarantee clauses. And he noted that about 30 percent of license revenue came from new customers.

Erick Brethenoux, an analyst with Lazard Freres, said PeopleSoft's earnings "show the company has not resigned contracts at a lower price, as one would expect. It shows they can still sell software even in light of a hostile bid from Oracle."

In addressing rumors that Oracle competitors IBM and Microsoft helped PeopleSoft's financial performance by buying its software, Conway said his company did not do any business with the two companies in the quarter. He also refuted rumors that PeopleSoft "drained its pipeline."

"The truth is we are a strong company," Conway said. "Even odds makers have to conclude, 'This is a very strong horse.'"

During the second quarter, PeopleSoft increased its maintenance revenue to $205.6 million, up from $171.3 million a year ago. Professional services revenues increased slightly, to $180.2 million in the quarter, up from $179 million the previous year. But license fees dropped to $111.7 million in the three-month period, compared with $131.9 million a year ago.

PeopleSoft is expected to close its tender offer to acquire J.D. Edwards--a move that prompted Oracle to launch its hostile bid against the company--by midnight Thursday. Brethenoux said he favors the merger between PeopleSoft and J.D. Edwards.

The deal between the two companies on Monday received the green light from federal antitrust regulators to move forward. The companies need 90 percent of J.D. Edwards shareholders to tender their shares by midnight to close the deal. Should PeopleSoft close the merger next week, the company's third-quarter results will largely reflect the combined entities.

CNET News.com's Alorie Gilbert contributed to this report.