Mercury Interactive Warns on Earnings, Revenue

It also forms a board committee to explore past option grants.
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Mercury Interactive

(MERQ)

guided second-quarter sales and earnings lower, citing weak European sales and the impact of foreign currency translations.

The software company expect to earn 30 cents to 35 cents a share before items on sales of $200 million to $205 million. Analysts surveyed by Thomson First Call had been forecasting earnings of 36 cents a share on sales of $209.7 million.

Mercury said the new range reflects a revaluation of deferred revenue due to foreign exchange movements and a shortfall in new orders. In April, the company predicted earnings of 33 cents to 37 cents a share on sales of $205 million to $215 million.

"The disappointing second-quarter results are due primarily to a shortfall in Europe," the company said. "Mercury has a large market opportunity, strong competitive position and global customer base. We have also been engaged over the past several months in a thorough review of our business operations and are now taking proactive actions to position us to execute in the second half of 2005."

The shares fell $2.07, or 5.4%, to $26.14 on Instinet.

Mercury also said it has formed an independent committee of directors to investigate past stock option grants in light of an informal

Securities and Exchange Commission

probe. The company said it incurred an extra $1 million in legal costs due to the probe in the second quarter.