RWD shares plummet on earnings jolt

Stock falls 24% to 12-month low, closes at $9.75

Below analysts' estimates

Columbia-based firm hurt by slow sales of business software

Technology

June 16, 1999|By William Patalon III | William Patalon III,SUN STAFF

Shares of RWD Technologies Inc. plunged 24 percent and touched a 12-month low yesterday after the Columbia-based technology-consulting company warned that its second-quarter profit would fall well short of analysts' expectations.

RWD shares fell $3 each to close at $9.75. At one point during the day, they touched $9.50, their lowest point in a year.

The stock had been in a steady decline even before yesterday morning's disclosure; shares topped out at $26.50 on June 30.

The company attributed the shortfall to a softening of sales by its enterprise resource planning, or "ERP" unit -- which develops extra features and does training for efficiency-enhancing, business-management software installed at such clients as General Motors Corp. The result: It would miss analysts' revenue targets by as much as $3 million and earnings estimates by as much as 10 cents per share.

"Enterprise resource planning vendors benefited from a boom a year-and-a-half to two years ago as companies rushed to switch to a new ERP before 2000" as a way to crush the so-called "Millennium Bug" software problem, said Kevin Yen, an analyst with Adams, Harkness and Hill in Boston. But now, "all the companies that were thinking about switching have already made the switch."

Instead of the $34 million to $35 million in revenue analysts were expecting, RWD said it would generate sales of about $32 million. Earnings per share will likely come in at 14 cents or 15 cents, and not the 24 cents Wall Street was forecasting.

The company said the softness in its ERP unit, one of its four businesses, would continue through 1999. To try and boost its stock price, the company authorized a buyback of 750,000 shares -- about 5 percent of those outstanding.

In interviews last month, RWD leaders acknowledged a slowdown in the company's ERP business, which had grown 100 percent in 1998 over 1997. But they and analysts both hoped that an uptick in some of the company's other three businesses -- such as information-technology consulting -- would be enough to offset the falloff in the ailing division. Indeed, during these interviews, RWD executives said they hoped to boost the company's work force of 1,050 by several hundred people.

RWD executives could not be reached for comment yesterday.

However, in a statement, RWD founder and Chairman Robert W. Deutsch said the firm "began 1999 with the expectation of more modest growth in ERP, which we achieved in the first quarter. However, the significant falloff in demand experienced by ERP software firms this year has reduced demand for ERP services more than we expected. We have also experienced the unanticipated deferral of some of our contracted ERP work."

All the ERP players have suffered: Peoplesoft Inc. has seen its shares sink to about $15 from their July 1998 high of $52. Even the shares of industry giant SAP AG have been nearly halved to about $32.

Enterprise resource planning software was a unique invention because it ties together all a company's disparate units -- marketing, manufacturing, finance and accounting, for instance.

The goal is to let top managers of huge corporations make better decisions because they are better informed. Once those often-costly systems are installed, there are opportunities to upgrade or add features to the system. But those upgrades are far less lucrative for vendors such as RWD than the original installations.

Bloomberg News contributed to this article.

Pub Date: 6/16/99

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