Manugistics Sinking After Warning

Updated from June 4

Shares of Manugistics(MANU Quote - Cramer on MANU - Stock Picks) plummeted Wednesday as at least four analysts downgraded the stock after the supply-chain software maker announced that first-quarter revenue will fall about 12% short of Wall Street estimates.

Shares of the Rockville, Md., company fell $2.19, or 27.6%, to $5.75 in recent trading. Manugistics was among the top 20 most heavily traded stocks, according to Instinet.

Pacific Growth analyst John Ederer and ThinkEquity analyst Mark Verbeck lowered their buy ratings on Manugistics to a market perform and hold, respectively. U.S. Bancorp Piper Jaffray analyst Tim Klein lowered his rating to market perform from outperform. Several other analysts lowered their numbers and price targets following Manugistics' announcement. Pacific Growth, ThinkEquity and U.S. Bancorp Piper Jaffray haven't done any banking business with Manugistics, and their analysts don't own any of the company's stock.

After markets closed Tuesday, Manugistics said it expects to report revenue of between $71 million and $73 million for its fiscal first quarter, which ended May 31. The company said it expects to report an adjusted operating loss of $16 million to $18 million and adjust loss before income taxes of $18 million to $20 million. Final results will be reported June 27.

The Wall Street consensus called for Manugistics to report a pro forma loss of 2 cents a share on $82.1 million in revenue, according to Thomson Financial/First Call.

After beating fourth-quarter estimates in a climate in which other software companies struggled, Manugistics took the unusual step of raising guidance in March for the first quarter. At that time, the company said it expects total revenue to increase sequentially about 4% or 5% to reach between $84 million and $85 million. The company said it expected to post a pro forma net loss of about 2 cents a share in the first quarter.

In the first quarter last year, Manugistics posted pro forma net income of 3 cents a share on $89.8 million in revenue.

Manugistics' warning Tuesday followed a similar disappointing preannouncement from integration software maker Tibco Software(TIBX Quote - Cramer on TIBX - Stock Picks), which also stood apart last quarter in not lowering guidance. Tibco shares declined only 9 cents, or 1.7%, to $5.29 in recent trading.

In a press release, Chairman and CEO Greg Owens said the enterprise software sector worsened late in the quarter. "Unfortunately in the last month of our quarter, we saw our customer and prospects become increasingly unwilling to commit to large capital expenditures, which adversely affected our performance," he said.

In the release, Manugistics company said it will lay off employees to reduce costs. The company declined to disclose the extent of those layoffs, but said cost containment measures will lead to a charge to earnings during the quarter that ends Aug. 31.

"This is not a broken model. The economic downturn is preventing the sales from happening. This is an economic situation," Owens said on a conference call. "This is not a competitive issue."

During a conference call Owens said the company closed 21 deals in the quarter. That compares to 22 in the same period a year ago and 30 in the fourth quarter.

Based on previous comments from Manugistics, ThinkEquity's Verbeck figured that Manugistics recognized less than $5 million in business in the last month of the quarter, which is typically the most important month for most software companies.

"With $250 million in convertible debt outstanding and a lack of positive cash flow, the company's net cash balance is becoming a potential source of concern in our opinion," Verbeck said in his note. The company reported $233.06 million in cash on Feb. 28. "We are skeptical the company can generate positive cash flow for the remainder of this fiscal year," Verbeck said.

However, another analyst, Tim Dolan with Deutsche Banc Securities, forecast that Manugistics will break even in the fourth quarter of the fiscal year, which ends in February 2003. Dolan maintained his buy rating on Manugistics, saying in a note that he believes the company has among the highest degrees of upside when IT spending picks up because of its relatively small revenue numbers and large sales pipeline. His firm has done banking with Manugistics.