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PeopleSoft Profit Misses Forecast, Oracle Takeover Bid Cited

By Reuters
Published | Updated

NEW YORK – PeopleSoft Inc. (PSFT) Wednesday said quarterly earnings missed its prior forecast by a wide margin, saying a hostile takeover bid by Oracle Corp. (ORCL) hurt its business.

The warning initially sent PeopleSoft shares down as much as 8 percent. But the stock rebounded to trade up 3 percent as investors bet PeopleSoft's weak performance could help Oracle make a stronger case to PeopleSoft's board for its $7.7 billion bid.

The shortfall came less than a week after closing arguments of an antitrust trial that will determine whether Oracle's bid for PeopleSoft can move forward. It also followed a spate of profit warnings from other software makers such as Veritas Software Corp. (VRTS).

PeopleSoft said based on preliminary results, it expects earnings per share of 13 cents to 15 cents, excluding certain items, down from its prior forecast of 20 cents to 22 cents per share. Analysts on average expected earnings of 21 cents per share, according to Reuters Estimates.

The company blamed Oracle for the shortfall.

"The extensive publicity of the antitrust trial during the last month of our quarter was impossible to completely overcome," Chief Executive Craig Conway said in a statement. "We believe the adverse impact to our business has been substantial, with even greater impact this past month."

Conway said PeopleSoft was looking forward to returning to normal business soon and recovering these damages.

Analysts, however, said PeopleSoft's problems went well beyond the impact of the Oracle bid and reflected the integration of PeopleSoft's own acquisition last year of J.D. Edwards.

"While it would be convenient to blame this miss completely on the Oracle trial, we think it affirms our fundamental thesis that there are no synergies from the J.D. Edwards/PeopleSoft merger," said Merrill Lynch analyst Jason Maynard.

Charlie Di Bona, an analyst with Sanford Bernstein, agreed. "Their integration with J.D. Edwards has been our concern all along," he said.

The company said uncertainty over the merger attempt could make existing and potential customers hold off placing orders until an outcome is reached. PeopleSoft's legal costs had mounted to $55 million in April since Oracle launched its bid last year.

PeopleSoft shares, nonetheless, rose 58 cents to $17.40 in midafternoon trade on Nasdaq, after earlier falling to $15.39, their lowest level since Oracle initially launched its offer for PeopleSoft in June 2003.

"I think people have overdiscounted the Oracle bid," Di Bona said. "Now they are thinking more seriously about it."

PeopleSoft company expects second-quarter total revenue between $655 million and $665 million, with license revenue in the range of $129 million and $133 million. Analysts expected total revenue of $691.6 million.

It sees second-quarter net income of 3 cents to 5 cents a share, below its April forecast of 10 cents to 12 cents a share.

The company, which will announce final results on July 27, has also suffered from from overall weak technology budgets and its own novel anti-takeover defense strategy.

A year earlier, PeopleSoft stunned the market with far better-than-expected results stemming from its pledge to refund its customers up to five times the value of any software purchased if the company was acquired.

"Because of the poison pill, people have bought more software than they needed," said Trip Chowdhry, an analyst with FTN Midwest.

Shares of SAP, PeopleSoft's biggest rival in software which manages financials and payrolls, fell 2.3 percent in Frankfurt. Oracle rose 4 cents to $11.24.