IRE shares tumble for the second day in a row Earnings in quarter were less than expected

August 14, 1996|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

Shares of Integrated Resource Engineering Inc. plummeted yesterday for the second straight day, as the White Marsh computer security company continued its market whipsawing after a second-quarter earnings report that fell short of some expectations.

IRE fell $2.125, to $14.625, after a $1.625 drop on Monday, when the company said it lost $225,743 during the three months that ended June 30 -- a figure that works out to 4 cents a share, compared with 11 cents in the same months of 1995.

Chairman Anthony Caputo said the results were expected, but the Baltimore brokerage firm Ferris, Baker Watts Inc. had expected IRE to break even.

However, even Ferris Baker analyst Bill Loomis dismissed the stock's plummet as an aberration, caused by the company's size and by volatility in the market for small technology stocks in recent months.

"It's probably equivalent to a one-eighth [of $1] move in AT&T," Loomis said. "Sure it went down, but this is a stock that was at $21.75 [on July 9] and then was at $11.50 [July 25], and then was at $18.375 [last Friday]."

For the moment, IRE's story is good news, bad news. Caputo said the good news is that sales more than tripled during the quarter to $5.1 million, led by growing sales of IRE's modems that scramble data transmissions to deter computer theft. The bad news, Loomis said, is that the company's gross profit margins -- the gap between what it costs IRE to make the modems and their selling price -- was smaller than he expected.

But the company has devised a new way to make the modems that Loomis said will boost the profit margins by up to 20 percent. And Caputo said the company is adding a line of products in which the expected margins are as high as 75 percent.

The company loses money because its administrative expenses are more than the gross profits. But the overhead is expected to grow much more slowly than sales, allowing the company to enter the black soon.

"The revenue increases are really dramatic. The second part is the increase in gross margins and that's happening right now," Caputo said. "No one is growing the way we're growing. And we're not taking big losses to do it."

Caputo said the company expects to be profitable during the second half of the year, and the one analyst's projection published by Bloomberg Business News says IRE will make $1.11 a share in 1997. "What I like is that the company is well-positioned to capitalize on an industry that most sources are looking to be a multi-billion-dollar business, said Steven Bronson, an analyst with Barber & Bronson in Fort Lauderdale, Fla. He said the second quarter was in line with his estimate, and blamed the drop on profit-taking.

Pub Date: 8/14/96

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