Manu's Bad News Could Be Tiding of Things to Come

The company held up as others saw sales plunge. Now it's time to play catch-up.
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In July,

Manugistics

(MANU) - Get Report

was teetering on the edge. Today, it tipped.

The supply chain software company issued the kind of warning Wednesday afternoon that tends to turn denial into rage on Wall Street. Instead of the 3-cent profit analysts were expecting, Manu said investors should expect a loss of 14 to 16 cents a share.

Software sales for its fiscal second quarter ended Aug. 31 should be around $24 million to $25 million, down from the $45 million in software the firm tallied during its May-ending quarter. The company said it expects total revenue of $68 million to $70 million, down from the $89.8 million it previously projected and some 22% lower than the $90.6 million analysts were expecting.

"Despite the strong revenue growth and market momentum we have achieved over the last seven quarters, general market conditions and economic uncertainty adversely impacted our second-quarter financial performance," CEO Greg Owens said in a statement. "Late in the quarter, companies across many of our market segments, including segments that appeared robust, became even more cautious and deliberate regarding commitments to capital expenditures, which resulted in lengthened sales cycles and unanticipated order delays."

Shares got hammered. After closing down 61 cents, or 5.3%, at $10.96 in regular trading, the stock fell $3.78, or 34%, to $7.22 on Instinet after hours.

Investors can read a simple yet disturbing message into the news: The tech slaughter isn't over yet, and it might be even bloodier than expected.

"It's gone from bad to worse. International is poor, and the outlook for the September quarter is not good," says Bob Austrian, an analyst with Banc of America Securities who rates Manugistics a buy. "This just proves how bad it has been since July 1." (His firm has done underwriting for Manugistics.)

Yesterday, Austrian took down numbers on a bevy of software names, including Manugistics. He lowered his earnings estimates on the firm to 15 cents from 20 cents for the calendar year ending in November 2001, and cut revenue expectations to $365 million from $375 million. For the year ending in November 2002, he lowered revenue expectations to $430 million from $490 million, and earnings estimates to 33 cents from 45 cents.

What's particularly troubling about Manugistics' projected loss now is that it reverses the momentum the company was able to maintain early on. Manugistics

met expectations for its May quarter, even as other software companies disappointed the Street. Yet, acknowledging the toughness of the economic environment, Manugistics said then analysts should expect earnings of just 3 cents per share at the end of August, instead of the 4 cents they had expected.

Turns out now that hedging wasn't nearly enough.

"Ninety percent of what you need to know is that in this environment, companies in general are coming up short, and companies that had given optimistic or ambitious forecasts are missing them by a lot," Austrian says.

Even more discouraging is the fact that Manugistics reports its results a month earlier than most other software firms, so its numbers are looked at by some as an indicator of what other software firms will report when earnings season gets into full swing come October. With speculation running rampant that database giant

Oracle

(ORCL) - Get Report

will report crummy numbers next week, software bulls have been hard to find lately. Manugistics reports official results for its August-ending quarter Oct. 3.

Manugistics did offer a ray of hope, though. On a conference call following its bad news, the company's management said it expects sales to grow during its fiscal third and fourth quarters, though it didn't say by how much.

With the outlook for software and technology continuing to erode, however, that's a thin reed for investors to grasp at.