Nicole Volpe
NEW YORK: Oracle Corp., the world's biggest database software maker, on
Thursday posted first quarter profit that beat Wall Street estimates on improved
margins as the company continues to cut its costs.
The Redwood Shores, Calif.-based company also announced a two-for-one stock
split, which will entitle each stockholder of record on Sept. 25 to receive an
additional share for every share owned.
First quarter net income rose 111 per cent to $501 million, or 17 cents per
share, compared with a net income of $237 million, or 8 cents per share a year
earlier. Sales rose to $2.3 billion from $2.0 billion, meeting analyst
expectations for revenue.
Analysts on average had expected Oracle to earn 13 cents a share, according
to First Call/Thomson Financial, which tracks such Wall Street estimates.
"They were good strong numbers, in the range of what was expected,"
said Hoak Breedlove Wesneski & Co analyst Gregg Speicher. "But yet
there may have been a wide range of expectations, with some expecting even
stronger numbers out there. It's hard to tell what the stock will do in the near
term."
The company reported after the close of trade, and the stock fluctuated after
hours. Shares closed up $3-1/8 at $84-15/16, and shot up in after hours trade to
$87 following the report to reach within striking distance of a year-high of
92-15/16. Shares then fell below the closing price to about $82-3/4, according
to the Island electronic trading system.
Executives said in a conference call that sales of applications software,
which includes its new 11i e-business suite, were not as strong as they would
have liked.
Sales of application software increased 42 per cent to $156 million. Analysts
had a wide range of expectations for application software sales due to the wild
card of a new product offering. One analyst put the consensus for sales growth
near 60 per cent.
Executives said they expect sales of the software suite, which allows for
business functions such as payroll, human resources and accounting to be carried
out on the Web, to get stronger in the second quarter.
"We came out with 11i (the Oracle 11i e-business suite) at the end of
the fourth quarter," said Larry Ellison chairman and chief executive in the
conference call, adding that the new suite of software did not come in as high
as expected. "Selling the suite is a large complex sale."
He forecast that sales of the new software would "be spectacular"
in the second quarter.
The company has beaten Wall Street profit expectations for the past three
quarters, and chief financial officer Jeff Henley told Reuters he expected to
meet or beat second quarter estimates as well. Consensus analyst estimates for
the second quarter are for share earnings of 19 cents, compared with prior-year
actual share earnings of 13 cents.
"There is no reason that with good margin improvement and license growth
that we couldn't do that (meet estimates) or hopefully better," he said in
a telephone interview. However, he cautioned analysts on a conference call,
saying "that doesn't mean everyone should hike their models."
He said he expected continued operating margin improvements to come from an
ongoing efficiency plan, in which the company is moving it's own operations onto
the Internet with the goal of cutting expenses by $1 billion per year.
First quarter operating margins were improved over the year earlier by 11.7
percentage points, to 29.1 per cent from 17.4 per cent.
Database software sales rose by 32 per cent to $585 million, beating analyst
expectations of 25 per cent growth.
Total software license revenue was up 28 per cent to $807 million. License
growth, or sales of new software, is watched closely by analysts and investors
to gauge future profit growth.
Analysts said they were watching the quarter closely for any signs of trouble
resulting from the abrupt departure of chief operating officer Ray Lane,
announced in late June. Ellison assumed his duties.
It also came to light during the quarter that Oracle had hired a private
detective agency to investigate allies of Microsoft Corp., the world's biggest
software firm.
(C) Reuters Limited 2000.