ITWO ($53 lose)) Clarifies Its Guidance to the Street
By Joe Bousquin
Senior Writer
1/17/01 9:55 PM ET
The cat-and-mouse games that companies play with financial analysts are a time honored tradition on Wall Street, except when they go wrong. And boy, did i2 Technologies (ITWO:Nasdaq - news) get it wrong Wednesday night.
After initially rising on news that it had beat analysts' fourth-quarter expectations, i2's stock got clobbered when the company said its first-quarter earnings would come in a penny shy of the consensus estimate.
Problem is, the company now says that's not what it meant to say.
After regular trading closed, i2 put out its financial report, and investors liked what they saw. The company said excluding certain items it earned 9 cents a share, better than the 8 cents a share analysts expected and the year-earlier's 5 cents a share. And it booked revenue of $378 million, again better than the $350 million analysts expected and the year-ago's $175 million.
With that news, the stock rose in after-hours trading.
Then i2 held its conference call, and CFO Bill Beecher said revenue for 2001's first quarter would be higher than analysts expected -- $361 million instead of the consensus estimate of $347.3 million, according to First Call/Thomson Financial. But at the same time, Beecher said the company expected to earn 6 cents a share this quarter. And there was the problem. The First Call consensus was 7 cents a share.
Shortfall?
i2's stock began falling and hit $50.49, off its close of $53.88 during regular trading.
The apparent shortfall was in fact a matter of i2 being too smart for its own good -- or not smart enough.
"Our intent was to look at where the consensus was, and guide flat to that consensus on the bottom line," said Brent Anderson, director of investor relations at i2. "But what happened is that some of them changed their numbers."
The change occurred after i2 last week said that unlike so many tech companies, it didn't have a lousy fourth quarter. In fact, it would report revenue of at least $370 million, well above the $342 million analysts expected.
Figuring the company's strength was building, some analysts used the fourth-quarter guidance to boost their first-quarter earnings estimates, which in turn boosted the consensus, something i2 apparently failed to check and which made its Wednesday guidance look less than spectacular.
Intent
"Analysts were taking our numbers without the full report and adjusting their models," Anderson said. "It wasn't our intention to take the number down."
In any case, that fine little fact will have to work itself out when markets open again Thursday.
Aside from that blunder, analysts said i2's fourth quarter was about as good as it gets given the current atmosphere for technology companies.
"I think if I had to say so, there probably aren't going to be a lot of them that stand out like this one does," said Eric Upin, an analyst at Robertson Stephens who rates i2 a buy. "There was not as much upward guidance as we've seen in the past, but i2 has never been one that really blasts the guidance upwards. I think you have to come away almost saying this is pretty close to the top in terms of ratings." (His firm hasn't done underwriting for the company.)
In addition to higher revenue guidance for the first quarter, i2 upped the ante for all of 2001 on revenue and earnings. For the year, it expects $1.64 billion in revenue and earnings of 37 cents a share. Analysts were expecting revenue of $1.59 billion and earnings of 34 cents a share.
Picking Bones
Still, there were some bones to pick.
While days sales outstanding, or the period of time it takes i2 to get paid after making a sale, dropped to 73 days from 76 days in the third quarter, deferred revenue basically stayed flat at $165.7 million. That compares to $163.6 million from the company's third quarter last year. Analysts had hoped to see deferred revenue grow faster, since that can be a good measure of demand down the road. Deferred revenue is money that a company has been paid, or has commitments from its customers on, but that it hasn't recognized yet on its top line.
But the company said that its deferred revenue wasn't a good gauge of what's in its pipeline, because it only books deferred revenue when it actually gets paid cash upfront by customers.
And the company's $361 million revenue projection for its first quarter is down 5%, on a sequential basis, from the $378 million it just turned in for the fourth quarter. Upin said that was a case of the company "keeping its powder dry" and managing expectations it could beat.
Of course, that's the sort of thing that got it into trouble Wednesday. |
