Updated from April 22

PeopleSoft ( PSFT) narrowly missed Wall Street's expectations for first-quarter earnings and revenue, the company reported after the bell Thursday.

Guidance, the subject of much fretting in the days before the announcement, was a bit light but not very far off the mark.

Traders were mildly disappointed by the report; the business software maker shares were recently off 78 cents, or 4.1%, to $18.11.

Although the market could have been tougher on the stock, shares are now well below Oracle's ( ORCL) $26 per share hostile offer.

The Pleasanton, Calif., company posted revenue of $643 million, up 40% from a year ago and higher than its own guidance of $625 million to $635 million, but lower than the $645.79 million predicted by analysts polled by Thomson First Call.

Excluding charges, the company earned $62 million, or 17 cents a share, a year-over-year increase of 62%. That number met PeopleSoft's guidance, but undershot Wall Street by a penny. Including $38 million in charges largely related to the acquisition of J.D. Edwards, the company earned $24 million, or 7 cents a share, well below last year's net of $38.5 million, or 12 cents a share.

The key metric of license revenue was $131 million, a year-over-year increase of 61%, consistent with the company's guidance.

"We announced a growth objective for 2004 that was by far the most aggressive in the enterprise application software business, and we are delivering to that plan," said President and CEO Craig Conway in a prepared statement.

Looking forward to the results for the second quarter, the company said it expects to earn 20 cents to 22 cents a share (excluding charges) on total revenue of $675 million to $695 million. License revenue will range from $150 million to $170 million. Analysts were expecting a 22-cent profit on sales of $696 million.

PeopleSoft's organic growth, as opposed to growth linked directly to the acquisition of J.D. Edwards has been an issue for some time, but the company no longer breaks out J.D. Edwards revenue. Analysts are now saying that the toughest part of melding the two companies is now complete and the takeover is on the road to success.

"We continue to believe that the J.D. Edwards acquisition was a very solid acquisition and that PeopleSoft is garnering both cost as well as revenue synergies." Lehman Brothers analyst Neil Herman wrote Friday. (Lehman has a banking relationship with PeopleSoft.)

First Albany's Mark Murphy was more cautious about the integration of the two companies, but was pleased enough overall to retain his buy rating on the stock. "PSFT's balance sheet progressed nicely, with $116 million in operating cash flow, very low days sales outstanding and an 8% sequential increase in deferred revenue, indicating growth in PSFT's worldwide active installed base of customers." (First Albany does not have a banking relationship with PeopleSoft.)

During a call with analysts after the announcement, Conway sounded defensive, even a bit resentful. "Well I guess there's material in the earnings report for the glass-half-empty crowd," he said.

Conway, who has fought bitterly against Oracle's attempted takeover, said the battle has cost his company $55 million, or 10 cents a share, since it began in June of 2003. In the just-completed quarter, PeopleSoft spent $12.8 million defending itself against its larger rival. Without that expense, PeopleSoft's GAAP earnings in the March quarter would have been 2 cents higher.

There's been talk on Wall Street for months that PeopleSoft may trim its guidance for the full year. One sign of that skepticism: Consensus estimates for earnings and revenue are below the company's ambitious guidance of 92 cents to 95 cents a share in earnings on sales of $2.8 billion to $2.9 billion.

In March, a bevy of sell-side analysts trimmed their outlook for PeopleSoft's fiscal 2004 performance. Consensus is now 91 cents a share on revenue of $2.8 billion, according to Thomson First Call.

But PeopleSoft stuck to its earlier projection, a move that probably kept the stock from being hit harder than it was after hours.

Why is the market looking so skeptically at 2004? Simply put, many on Wall Street believe that PeopleSoft, desperate to fend off Oracle's unwelcome advances, may have sacrificed future business to bulk up recent quarters.

"PeopleSoft may well have convinced certain customers to advance their sales, perhaps with aggressive pricing," said Nathan Schneiderman of Wedbush Morgan Securities. "I think the market will stay skeptical until the Oracle deal is dead."

That won't happen before summer. A court battle between Oracle and the Department of Justice, which is attempting to block the takeover on grounds that it would be anticompetitive, won't start until June and is expected to last about three weeks.

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