At RoweCom, CFO's Hiring Puts Numbers in the Spotlight

And investors don't necessarily like what they see as the new executive cuts estimates sharply.
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hiring of Paul Burmeister as chief financial officer seemed to be just what the company needed.

The Westwood, Mass.-based business-to-business supplier of library and subscription resources had been having trouble with its numbers. In January, the stock plunged 20% in a day after an analyst pointed out a mistake in a regulatory filing. The plunge threatened to jeopardize a major deal to acquire



by drawing heavy criticism from

high-powered investors in that company. To top it all off, RoweCom didn't have a permanent CFO and thus lacked a point man to explain the numbers crises away.

Enter Burmeister. A former CFO at


, he immediately commanded the credibility that investors wanted to see. On Feb. 3, the day of his appointment, the stock rose 3 3/16, or 9%, to close at 37 5/8. The next day, it continued to climb, pushing into the mid-40s, near its January levels.

The relief didn't last for long. The stock again sold off sharply late last month as Burmeister, uncomfortable with the revenue estimates floating around in the market, issued a forecast that fell some 20% short of analysts' estimates. His story could stand as a lesson about hiring a new CFO: While investors may applaud taking charge of the numbers, doing so often comes at a price, at least in the short term.


When Burmeister arrived at RoweCom in February, he was greeted with almost universal praise from analysts. "We believe the addition of a full-time CFO is a major positive for the company," wrote Jim R. Waggoner, an analyst for

Sands Brothers Investment Research

who rates the stock a buy and whose firm hasn't done underwriting for the company.

Burmeister himself certainly seemed pleased. "I'm fortunate to join RoweCom at such an exciting time," he said in the company's press release. "I'm excited to be a part of the senior team charged with leading the company forward."

It wasn't long, though, before Burmeister gave analysts an indication he wasn't going to tell them what they wanted to hear. During RoweCom's fourth-quarter conference call a week after Burmeister's arrival, the new CFO didn't come out pounding the table about the company's projections. Instead, analysts said Burmeister wanted to fully review the numbers before signing off on them.

Then, on Feb. 23, he did. Burmeister shocked analysts at a

J.C. Bradford

investors conference in Atlanta last week by slicing revenue estimates dramatically. He slipped a slide into his presentation that put 2000 revenue at around $550 million, as much as $150 million less than what at least one analyst was expecting.

Long Time No See

"Basically the company hadn't provided guidance to the market really since the October time frame," Burmeister said in an interview. "As time goes by, projections change. I wasn't comfortable with the kinds of projections that were out there."

Waggoner, who had been so pleased with Burmeister's appointment, wasn't amused. He had forecast 2000 revenue at $703 million.

"The guy came in and told the Street that the existing management was full of ---- with the numbers," he fumed. The fact that Waggoner had a price target of 80 on the stock, and that Burmeister's announcement knocked it down to the low 20s, probably didn't help. "Here's a classic opportunity for a company to shine in the market, and they couldn't have screwed it up more greatly."

Other analysts noted disappointment as well. Ironically, Mike Hughes, the J.C. Bradford analyst who originally knocked down the stock with his comments on the company's regulatory filings -- the company has since re-filed those documents -- says Burmeister's announcement may actually help the stock.

"When they officially came out and said $550 million is the number at our conference last week on one of their slides, the stock caught somewhat of a relief rally," says Hughes. He rates the stock a strong buy. (His firm has done investment banking for the company, meaning it stands to profit if RoweCom goes up.) Since closing at 20 3/8 the day after Burmeister's announcement, the stock has closed higher in four of its last five sessions, and was recently trading at 26.

"I think Paul came in, and as a very conservative person, wanted to put some numbers out on the Street he was comfortable with," Hughes says. "I don't think anything's fundamentally changed at the company that has caused him to pull in the numbers."

Never Surrender

For his part, Burmeister doesn't make any apologies.

"I've got one chance to establish credibility with the Street, and once I've established it, then I have to maintain it," Burmeister says. "My credibility's on the line every time I provide guidance."

He maintains that since joining RoweCom, he has only become more enthusiastic about his decision to join the company, and that nothing in the company's numbers has discouraged him going forward. He says his revenue projection -- which doesn't include revenue from the expected NewsEdge acquisition, which is still going ahead -- isn't engineered to set RoweCom stock up for a jump when the results exceed the lowered expectations.

"It's simply a number I'm comfortable with," he says.

Maybe RoweCom's most fundamental change isn't the numbers themselves, but the man watching over them.