PeopleSoft profit dips over take-over costs

Spencer Swartz

SAN FRANCISCO: PeopleSoft Inc. stuck with its full-year profit outlook despite reporting a 37 percent dip in quarterly profit and growing legal costs stemming from its effort to stop a hostile takeover bid by rival, Oracle Corp.

PeopleSoft said its legal costs were now around $55 million since Oracle launched its $9.4 billion bid last June. U.S. antitrust officials have sued to block the takeover.

PeopleSoft Chief Executive Craig Conway - a former Oracle executive - told analysts in a conference call that Oracle's hostile takeover bid could make existing and potential customers hold off placing orders as they await the outcome.

PeopleSoft estimated that its legal costs challenging Oracle's bid have so far chopped about 10 cents off net earnings per share since June. Ongoing legal costs are expected to cut into GAAP earnings again in the current quarter and beyond.

The Pleasanton, California-based company said it remained confident about its 2004 outlook due to increases in deals with new and existing customers for its software that automates business functions like accounting and human resources.

Shares of PeopleSoft slipped about 3 percent in after-hours trade after the company reported a big drop in first quarter net income stemming from charges on its purchase of J.D. Edwards. The profit was at the low end of Wall Street forecasts.

PeopleSoft reported first quarter net income of $24.2 million, or 7 cents per share, compared with $38.5 million, or 12 cents per share, a year earlier. Excluding accounting adjustments related to its purchase of J.D. Edwards, PeopleSoft said its earnings would have been $62 million, or 17 cents per share.

Revenue was $643.1 million, up from $460.3 million, said PeopleSoft whose customers include privately held U.S. agricultural company Cargill and General Motors .

Analysts on average had been expecting earnings per share of 18 cents, within a range of 16 cents to 19 cents, and revenues of $643.6 million, according to Reuters Research, a unit of Reuters Group Plc.

OUTLOOK

PeopleSoft, citing its outlook, said it also expected to get a lift from rising technology spending, an improving U.S. economy and further gains from its J.D. Edwards purchase despite taking charges that concerned analysts. PeopleSoft said its integration of the company was "generally complete."

Some analysts, however, were skeptical PeopleSoft would make its full-year outlook.

"I don't think they're going to get the synergies on the revenue side or on the cost side from the J.D. Edwards purchase," said Bernstein analyst Charlie Di Bona, who does not own PeopleSoft shares.

Analysts also noted PeopleSoft license revenue, a widely watched industry barometer of future growth, came in at $131 million for the first quarter, at the low-end of analyst expectations of $130 million to $140 million.

The company estimated second quarter revenue between $675 million to $695 million. Net earnings per share were pegged at 10 cents to 12 cents -- including legal costs -- or 20 cents to 22 cents excluding items.

Full-year revenue was kept at $2.8 billion to $2.9 billion, while net earnings per share were still seen between 62 cents and 65 cents, or 92 cents and 95 cents excluding items.

PeopleSoft has rejected several offers from Oracle, arguing the bid undervalues the company and is aimed at financially weakening PeopleSoft.

PeopleSoft's results come at a time when its rivals are posting upbeat quarterly results.

Earlier Thursday, Germany's SAP, the world's biggest company in the enterprise software market, reported its first quarterly rise in new license revenues in almost three years on strong U.S. sales.

Shares of PeopleSoft, down about 17 percent this year, slipped to $18.28 in after-hours trade after closing at $18.89, up 73 cents, on the Nasdaq.

© Reuters