J.D. Edwards Fails to Execute
When the company announces full results on March 5th, it will be important to listen to the changes put into place to ensure J.D. Edwards' execution problems don't occur again. Management will have a long way to go to reinstall investor confidence. Mostly likely many investors will wait for solid results as evidence that the execution problems are remedied.
fool.com
By Mike Trigg (TMF Tonto)
February 6, 2001
Back-office software vendor J.D. Edwards (Nasdaq: JDEC) warned after the market's close yesterday that first-quarter results would fall below expectations because of a lack of execution. Prior to the announcement, the company had been on a roll since founder C. Edward McVaney was reappointed CEO last April. In response to the shortfall, J.D. Edwards announced a shakeup in upper-tier management.
The Denver-based company expects Q1 sales of $208 million to $218 million, compared to $232 million in the year-ago period. License revenue is expected to come in between $79 million and $84 million. When the company announced Q4 (ended Oct. 31) results in December, it forecasted license revenue of $95 million. J.D Edwards expects to post a loss of $0.01 per share to $0.02 per share. The Street was expecting a penny's profit.
J.D Edwards named Hank Bonde COO, replacing David Girard. Bonde spent 17 years in various positions at IBM (NYSE: IBM) and recently served as the CEO of satellite Internet delivery company Tachyon. Les Wyatt was named chief marketing officer. Wyatt spent 20 years at Texas Instruments (NYSE: TXN) in various marketing positions, including director of strategic marketing for Texas Instruments Software.
Lack of execution
There have been a slew of software companies -- from Microsoft (Nasdaq: MSFT) to Inktomi (Nasdaq: INKT) -- that have warned of disappointing results in recent months, citing an economic slowdown and tightening information technology budgets. McVanney, though, said in a conference call last night that J.D. Edwards was not feeling any adverse impacts from an economic downturn, instead blaming a lack of execution among the company's sales force and consultants.
As analysts asked for details about the execution, J.D. Edwards indicated that too much focus on training in November and vacationing in the subsequent holiday season created lower-than-anticipated sales. Such a miss could indicate the company might clean house in inefficient areas. When asked about restructuring, management indicated no across-the-board reorganization was being considered and that it would only make surgical adjustments. Early last year, J.D. Edwards erased 13% of its workforce.
Back-end loaded
Yesterday's announcement comes after the company reported solid Q4 results in December and raised guidance, setting the stage for robust growth in 2001. It's not uncommon for a company to expect a couple of slow months following a strong year-end; in J.D. Edwards' case, November and December were so bad that the company couldn't compensate in January for the poor results. Management did state that January was a strong month, but apparently not good enough.
This news is a good example of the risk of a back-end loaded quarter. In the software sector particularly, many companies will close the majority of deals at the very end of the quarter in order to meet targets. That puts a tremendous amount of pressure on a company's sales force to close deals and prices are often slashed. While it's clear that the J.D. Edwards failed to close enough deals in the quarter, management did indicate that the company hasn't lost any business, but rather deferred it to the next quarter.
Where to from here?
The good news, if any, is that the company continues to hail the success of its supply chain solutions . In May 1999, J.D. Edwards bought supply chain management developer Numetrix. After building a successful base in back-office applications -- think human resources and finance tasks -- J.D. Edwards sought to provide its customers with more advanced supply chain capabilities.
According to the company, it continues to see growth in this area, as customers realize significant value and contributions to the bottom line. Supply chain solutions provide value in a number of ways including increased revenues, reduced inventory levels, and improved cycle times. Management has indicated previously that 40% of its installed base poses the opportunity for supply chain deals.
When the company announces full results on March 5th, it will be important to listen to the changes put into place to ensure execution problems don't occur again. Management will have a long way to go to reinstall investor confidence, and many investors likely won't take management's word for it, waiting for improved results before believing that the execution problems have been taken care of. In the meantime, shares are down roughly 9% in mid-afternoon trading today, as several analysts have downgraded the stock.
Mike Trigg spends his days offering readers what Gordon Gekko called "the most valuable commodity": information. Mike's holdings can be viewed in his personal profile. The Motley Fool is investors writing for investors. |
