FileNet Stock Falls 37% on Prospect of Lower Earnings : Reaction: Officials predict 2nd-quarter net of 5 cents per share, far below company’s, analysts’ expectations.
FileNet Corp.’s stock price plunged 37% Monday after the maker of document processing systems said its second-quarter earnings will be below analysts’ and the company’s expectations.
The stock fell as low as $10.50 a share in heavy trading on the NASDAQ market but recovered to close at $12.25, down $7.25 a share. On Thursday, the last trading day before the long Fourth of July weekend, it closed at $19.50.
The company said earnings for its second fiscal quarter, which ended Sunday, will be about $600,000, or 5 cents a share. That compares with a profit of $2.2 million, or 20 cents a share, for the same period last year. Analysts had said they expected earnings of about 25 cents a share for the latest quarter.
Revenue for the period just ended is projected at $34.5 million, the company said, up 20% from $28.8 million a year earlier but still below expectations. James Reynolds, an analyst at Wedbush Morgan Securities Inc. in Los Angeles, said he had predicted revenue of about $38 million for the quarter.
Mark St. Clare, chief financial officer, said FileNet shipped 21 computer systems during the quarter, compared with 26 in the same period a year earlier.
“We identified 11 potential deals that didn’t get closed during the quarter because of funding delays among customers,” St. Clare said. “We missed our revenue targets.”
At the same time, the company continued to expand its U.S. and international sales force. The company now has 90 sales representatives, compared with 64 a year ago. FileNet also spent more money on product development, St. Clare said.
Ted Smith, chief executive, said in a statement that financial and economic concerns in the United States continue to hamper revenue growth, contributing to delays in anticipated orders.
Smith cited several other factors for the earnings decline. A new-product introduction shortened the available selling time during the quarter because the company had to take extra time to train its employees. Also, a weak market in France and lower-than-expected sales through distributors cut international revenue.
Reynolds said that a punishing stock drop can be expected whenever a company reports lower earnings than anticipated. FileNet’s price will likely bounce back, he said, because the company has a leadership position in one of the computer industry’s fastest-growing segments: document processing.
Analyst Steve DeLuca at Cruttenden & Co., an investment bank in Irvine, said the stock’s decline is probably an overreaction.
“When you have a company selling high-ticket computer systems, you run the risk of having quarters where there are delays in sales,” DeLuca said. “We’ve seen this in the past with FileNet.”
Although the company did not release information on the expected earnings shortfall until Monday morning, St. Clare said, the stock price had begun falling on Thursday, when it lost $3.75 a share to close at $19.50. A number of other technology industry stocks also have declined recently, DeLuca said.
FileNet’s stock has surprised investors before. In September, 1990, it took a dramatic 43% drop in a single day after the company reported that its sales would be lower than expected.
A month later, an angry shareholder filed a lawsuit against the company alleging that it had misled investors about its financial prospects. The company denied the charges, and the suit was settled out of court in July, 1991.
FileNet’s Stock Tumbles FileNet Corp’s stock plummeted 37% to $12.25 a share on the NASDAQ market after the company announced its revenues and earnings would be lower than expected for the second quarter ended July 5. Jan. 3, 1992: $24.25 July 6, 1992: $12.25 Source: IDD Information Services, Tradeline
