J.D. Edwards Beats Profit Predictions

Back-office software vendor J.D. Edwards & Co. reported flat second-quarter sales Wednesday, but came in ahead of analysts' profit estimates. The company posted net earnings of $1.7 million, or 2 cents a share, for the quarter ending April 30, not including charges for acquisitions. When charges are factored in, losses were $2.3 million, or 2 cents per share. Analysts had been expecting a loss of 11 cents per share.

The company reported that total revenue for the quarter was flat--$231 million, compared with $231.6 million in the same quarter of 1999. However, software revenue was up 22% in the quarter to $81.7 million, compared with $67.2 million in the same period last year.

The company says it is primed for a return to growth after two consecutive quarters of less-than-stellar financial results. "We have generated enough new software sales for the third quarter that it will drive revenue up in the quarter. And software sales drive growth in services, training, and maintenance revenue," says Michael Schmitt, senior VP of business-to-business E-commerce. "There may be no overall growth in the ERP market, but the market is not shrinking. With the failings of so many ERP vendors in the last 18 months, there is still a much bigger piece of the pie available for us," he says.

J.D. Edwards (JDEC-Nasdaq) this week revealed a cost-cutting restructuring under which it plans to lay off 800 workers worldwide--250 at its Denver headquarters, 250 more around the United States, and 300 in its worldwide operations, particularly Germany and Japan, where company officials said expenses had outpaced revenue. Many of the U.S. layoffs are in training, although the company would not specify how many. The company plans to close its regional training centers in favor of offering customers less-costly computer-based training and training at customer sites. Office space will be reduced by consolidation, and a $75 million construction project on the company's Denver campus has been cancelled.

J.D. Edwards' co-founder C. Edward McVaney, who recently returned as chief executive, said the company also is abandoning its plans to host Internet marketplaces and exchanges and is refocusing on complex collaborative data interchanges between businesses.

AMR Research analyst John Bermudez says J.D. Edwards needs software revenue growth above 20% to remain healthy. He says the company appears to be ready to step in and take a larger share of the enterprise resource planning market and begin to show increased revenue from software sales and related services and maintenance. But communication with potential customers is still lacking, he says. "They have not done a very good job of getting the message out about how well equipped their software is to run across the Web," he says. "They have their software equipped to run on a browser with very little functionality loss." Bermudez says J.D. Edwards has an opportunity to pick up business from Baan and other ERP vendors that have faltered.

Benchmarking Partners analyst David Dobrin notes that the company's revenue was nearly $1 billion in 1999, and revenue for the first two quarters this year is on track for another billion-dollar year, at a time when ERP vendors are struggling. "You take the top eight ERP vendors from two years ago, half are off the map," he says, specifying that two that have struggled are Software Systems Associates and Baan. "The marketplace is not saturated," he says. "There is plenty of room for growth by selling more software to the same customers and in the replacement market for SSA and Baan."