J.D. Edwards Warns of Q2 Operating Loss

FRAMINGHAM (05/05/2000) - J.D. Edwards & Co. yesterday said it expects to report an operating loss of up to $25 million for its second fiscal quarter ended April 30, due mainly to lower-than-expected profit margins on sales of its business applications.

The Denver-based software vendor said the sale of some equity investments should leave it with an unspecified net profit for the second quarter.

But the operating deficit is still a step backwards for J.D. Edwards after the company beat Wall Street expectations in its first fiscal quarter by reporting a $3.6 million profit instead of a forecasted loss.

The warning about the second-quarter operating loss came just three weeks after J.D. Edwards announced that chairman and co-founder C. Edward McVaney was reassuming his old jobs as president and CEO. McVaney had given up those positions to Douglas Massingill in late 1998, but Massingill has left the company (see story).

A year ago, J.D. Edwards appeared poised to become the clear No. 3 vendor in the market for enterprise resource planning software behind SAP AG and Oracle Corp., said Joshua Greenbaum, an analyst at Enterprise Applications Consulting in Berkeley, California. Rivals PeopleSoft Inc. and Baan Co. were consumed with internal problems, leaving the door wide open for J.D. Edwards, he noted.

But so far the company hasn't been able to take advantage of the opportunity, Greenbaum said. "This has basically been a textbook case of how to do it wrong," he said. "They should have been able to do better than they have."

In yesterday's announcement, J.D. Edwards said marketing and sales investments also contributed to the expected operating loss.

Software license fees are expected to grow 20 percent compared with last year's second quarter, the company said. But it added that total revenues will be similar to the year-earlier figure of $232 million, ranging between $225 million and $235 million.

J.D. Edwards noted that it "remains very healthy" from a financial standpoint, with about $400 million in cash and investments on its balance sheet. The company, which plans to report the second-quarter numbers on May 24, declined through a spokesman to provide any outlook for the current quarter and beyond.

"As expected, this has been a transitional quarter for J.D. Edwards and the enterprise software market," McVaney said in a statement. "As the market continues to recover post-year 2000, I am pleased that we were able to record such healthy license fee growth."

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