Manugistics shares fall 39% to $29.25 Wall Street recoils at surprise projection of quarterly loss

May 23, 1998|By Sean Somerville | Sean Somerville,SUN STAFF

Manugistics Group Inc. shares continued a plunge yesterday that wiped out 48 percent of the company's value in two days, as investors struggled to make sense of an unexpected loss.

A day after the Rockville-based manufacturing software maker said it will report a loss -- not the widely expected profit -- for its latest quarter, shares fell yesterday $18.625, or 39 percent, to close at $29.25.

That put the two-day drop at $27.50 -- a tumble that cut Manugistics market capitalization by $657 million, from $1.356 billion to $699 million.

The company said yesterday that revenue for the quarter that ends in May -- Manugistics' first quarter -- will still be higher than a year ago. The company also said it was too early to "accurately estimate" first-quarter results.

"To be perfectly frank with you, I'm both embarrassed and disappointed by our poor execution in the first quarter," William M. Gibson, chairman and chief executive officer of Manugistics, said in a telephone conference call during which he took no questions.

Stock analysts had projected earnings per share for the company's fiscal first quarter at between 11 cents and 14 cents, creating an unusually wide gap between expectations and performance.

Gibson blamed the loss on the execution of "several key initiatives" launched over the past six months.

"It is my preliminary assessment that in combination, these sizable initiatives took more focus than we anticipated, and we did not achieve the appropriate balance between our short-term execution and longer-term goals," he said.

He said the company's hiring of sales representatives -- about 85 in the fourth and first quarters -- delayed deployment and the assignment of sales territories. He also that said the company was occupied with working on its sales and marketing, and that its management was preoccupied with trying to negotiate acquisitions. Finally, he said the bigger deals being sought by the company took longer to close.

Gibson insisted that Manugistics' product pipeline is strong and that its market remains healthy. "While this had a negative impact on our closing transactions in our first quarter, we believe the results of these initiatives will enable us to achieve our current fiscal year and longer-term growth targets," he said.

He said the company needs to spend more time on short-term execution.

Investors remained unimpressed. "We're not buyers here," said Eric B. Upin, a San Francisco-based analyst for BankAmerica Robertson Stephens, who lowered his rating Thursday from "buy" to "long-term attractive" -- essentially a drop from a No. 2 rating to a No. 3.

"We remain highly cautious in the near term in light of twin concerns," Upin said. "This is a major surprise that has shaken our confidence in the management team and execution of the business. Second, considerable uncertainty remains, which makes it difficult to value the stock because we don't know the magnitude of the operating loss, the revenue shortfalls."

Adding to the frustration, Upin said, was uncertainty about what specifically caused the shortfalls: "We can't even do the Monday morning quarterbacking at this point."

Manugistics' two-day tumble was more spectacular than its one-day climb a little less than two months ago. On March 27 shares jumped 40 percent, by $15.1875 to $53.1875, on then-record volume of 9.27 million shares traded. Yesterday's volume totaled 11.9 million shares.

The company's announcement of a loss came less than two months after Manugistics insiders sold more than 100,000 shares for between $54.125 and $63.125. Gibson sold 45,000 shares in early April for about $2.7 million, leaving him with 5.34 million shares. Peter Repetti, the company's chief financial officer, sold 3,616 shares for $210,632.

Despite the stock slide, some investors were not ready to leave Manugistics for dead. "This represents more of management misstep than a change in the opportunities for the company." Upin said. "This is still a real company with real value."

Pub Date: 5/23/98

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