Business Objects Beats Expectations

Updated from 4:46 p.m. EDT

Business Objects ( BOBJ) beat Wall Street's earnings expectations for the second quarter, but fell a bit short on the top line and issued disappointing guidance for the third quarter and the rest of the year, the company reported after the closing bell on Wednesday.

Shares were recently up 36 cents, or 2%, to $20.15 in after-hours trading; in the regular session, the company's stock rose a penny to $20.15.

In the June quarter, the French-owned software company earned a pro forma profit of $18.2 million, or 20 cents a share on revenue of $222.2 million. Analysts polled by Thomson First Call were expecting a profit of 18 cents and revenue of $224.61 million. On the same basis a year ago, the company earned $23.6 million, or 26 cents a share, on sales of $129 million.

According to generally accepted accounting principles, the company earned $11.4 million, or 13 cents a share. In the same quarter last year, the company earned $11.5 million, or 18 cents a share.

Looking forward to results for the third quarter, the company expects to earn between 14 cents and 18 cents per share on a pro forma basis, with revenue of $215 million to $220 million. Wall Street was expecting EPS of 21 cents on sales of $228.64 million.

For the full year, the company said to expect earnings of 80 cents to 85 cents a share on sales ranging from $905 million to $915 million. Analysts were projecting earnings of 86 cents on sales of $933 million.

The company blamed the strengthening dollar for the lower-than-expected revenue estimate, saying that currency will cut approximately $16 million from the top line. The remainder is due to caution in light of the tighter spending environment experienced throughout the software industry, the company said.

Business Objects also announced that Chief Operating Officer John Olsen will be leaving the company at the end of the quarter to pursue other interests, but that he will remain on the board of directors.

Although disappointing guidance issued by other technology companies has been punished by a drubbing recently, Wall Street's reaction was mild, probably because shares of Business Objects have already been hammered below that of their competitors' shares, said Rob Tholemeier, a vice president at Halpern Capital in Aventura, Fla. "It's not reasonable for Business Objects to trade at such a big discount," he said. (His firm does not do investment banking with Business Objects.)

Business Objects has underperformed its major competitors and the Nasdaq as a whole this year, with shares off 24% since January. It is trading at 23.7 times forward earnings, according to Baseline. Much of the damage occurred in April, when the company missed first-quarter earnings expectations and offered disappointing guidance for the June quarter.

Cognos ( COGN), by contrast, is up about 10% this year and is trading at 31.5 times earnings, and Hyperion Solutions ( HYSL)is up 33% and is trading at a premium of 28.2 times earnings. On Wednesday, Congos closed at $33.50 a share; Hyperion closed at $39.84 a share.

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