Updated from June 25

Shares of the Manugistics Group ( MANU) continued to slip Thursday amid heavy trading as investors reacted to the company's lukewarm outlook for the rest of the year.

In recent trading, the stock was off 35 cents, or 6.7%, to $4.86 a share. By 2 p.m., more than 2 million shares had changed hands, nearly triple an average day's volume. Total volume Wednesday was 2.6 million shares, the third highest this year.

During the May quarter, its first quarter of fiscal year 2004, Manugistics lost 26 cents a share as revenue dropped 12% year over year, the company reported after the market closed on Wednesday.

Manugistics, which sells supply-chain management software that helps large businesses track products and materials as they move from suppliers to consumers and automate related transactions, has now lost money for eight straight quarters. It did, however, show a pro forma profit of $462,000 in the second quarter.

In a conference call after the earnings announcement, the company said it is seeing signs of increased business activity and that it expects results to improve in the latter part of the year. But after-hours reaction was negative, with Manugistics off 10.6% to $4.65, after it lost 78 cents during regular trading.

For the first fiscal quarter of 2004, the company lost $18.5 million, or 26 cents a share, compared to a loss of 39 cents a share a year ago, according to generally accepted accounting principles. Total revenue was up a bit sequentially, to $65.6 million, about 5% better than analysts had expected but was still 12% below last year's revenue of $74.6 million, the company said.

The company reported an operating loss of $15 million in the quarter, compared with a loss of $24.8 million a year ago.

On a pro forma basis, the company lost 4 cents a share, compared with Wall Street's expectations of a 9-cent pro forma loss. That loss did not include a $10.1 million charge relating primarily to expenses from downsizing.

Looking forward to results for the August quarter, the company said it expects a GAAP operating loss of $5 million or 7 cents a share on revenue ranging from $61 million to $62 million, a bit below consensus estimates of $63.2 million. The company did not give guidance on net income for the quarter, but indicated there would be a small pro forma profit. Further out, the company expects earnings to improve in the second half of the year.

Revenue from new software licenses was off 19% year over year, dropping from $24.5 million to $19.9 million, but up 9% sequentially. Since the normal seasonal pattern would be for a sequential drop in license fees, management and some analysts called the license numbers "a sign of stabilization."

Analyst Brian Skiba of Deutsche Bank Securities downgraded the company to sell late last month on valuation and several high-profile management departures. Manugistics appreciated 77% between May 1 and June 24, the day before the earnings, more than eight times the gain of the Nasdaq as a whole.

This morning, Skiba said he was maintaining his sell rating, and noted that it appears the quarter's sequential growth in license revenue was concentrated in a few large deals within the aerospace/defense sector. According to Skiba, public sector deals, which are "notoriously" difficult to time, make up much of what is in the company's pipeline.

Deutsche Bank has an investment banking relationship with Manugistics.

Manugistics' problems are not just of its own making. According to Gartner, a market researcher, the SCM market declined from $2.7 billion in 2001 to $2.1 billion, or 20.5%, in 2002 as companies sharply cut back spending on information technology. And Gartner analyst Chad Eschinger expects the SCM market to shrink another 10% this year.

On Monday, Manugistics hired industry veteran Jeremy Coote as president to replace Richard Bergmann, who resigned last October. Coote also will fill in for Jeff McKinney, who ran Manugistics' operations in the U.S., Canada and Latin America until resigning in May.

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