Investors severely punished
today after the computer services supplier announced that yearly revenues would fail to reach projections.
Unisys lost more than a third of its stock market value, even though the company reported third-quarter earnings that exceeded Wall Street's expectations.
A survey of analysts by
First Call/Thomson Financial
had forecast earnings of 36 cents a share, a total Unisys reported exceeding by 4 cents. But analysts were caught off guard by the revenue shortfall.
"Clearly, they shook us up," said Donald Young, an analyst with
, whose brokerage firm downgraded its Unisys rating from attractive to neutral. Young declined to comment further until he was able to further assess the news.
The company said revenues for the third quarter grew 4% to $1.87 billion, from $1.79 billion a year earlier, and that it expected 4% revenue growth for the year. The company had been projecting an 8% to 10% growth in revenue. It attributed the shortfall to weakness in its network services and NT services businesses as well as to unfavorable foreign currency exchange rates.
The company's net income rose 72%, to $137 million, or 43 cents a diluted share, from $67 million, or 25 cents a share, in the 1998 third quarter. Excluding one-time gains and charges, however, Unisys said its third-quarter earnings rose 60%, to 40 cents a diluted share.
By early afternoon, shares of Unisys had plunged 16 1/4 to 26 on
the New York Stock Exchange
. The 38.5% decline was the largest of any stock so far today.
James Corridore, an analyst with
Standard & Poor's Equity
, termed the stock's decline an "overreaction" by investors.
"The company hit its numbers and they confirmed they will be hitting their numbers for 2000," he said.
While Corridore downgraded his rating for Unisys from a buy to an acquire, he said the Blue Bell, Pa.-based company did not warrant the reception it received on Wall Street. Unisys remains a well-managed company with a sound long-range plan, Corridore said. Still, the company hurt itself upon announcing this morning that it did not intend to buy back any more of the company's stock at this time.
"That definitely didn't help," said Corridore, whose company doesn't do any underwriting for Unisys.
Unisys executives said they clearly needed to develop the company's ability to accelerate growth, especially since the negative effects of unfavorable currency exchange rates had hurt revenue.
"Revenue in the quarter came in below plan primarily due to weakness in our network services and NT services businesses and the impact of negative foreign currency exchange," Larry Weinbach, the company's chairman and chief executive officer, said in a statement. "Our networking business, particularly in the federal government marketplace, is being impacted by intense competitive pricing pressures and unexpected delays in the startup of certain contracts. Our enterprise NT services business, which we believe offers tremendous growth potential over the long term, is developing more slowly than we anticipated in the short term as clients evaluate and test new NT-based systems."