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SAP warns on earnings
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March 25, 1999: 11:56 a.m. ET
German software designer sees significant drop in 1Q profit
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LONDON (CNNfn) - German software maker SAP warned investors Thursday it expects first-quarter pre-tax profit to "fall significantly."
The company took some sting out of its message, however, saying it still will meet its full-year forecast for sales growth of 20 to 25 percent and see a slight annual earnings improvement.
The company's shares in Frankfurt fell 2 euros to 274.
"According to the current indications that sales growth in the first quarter will be slightly below our previous year on year rate of 20 to 25 percent, we expect pre-tax profit to fall significantly," SAP co-chairman Henning Kagermann said.
Kagermann said it is too early to forecast software license growth for the first quarter, claiming customer buying patterns are less predictable than in previous quarters.
SAP's comments on first-quarter performance led Morgan Stanley to downgrade the company's stock.
The brokerage lowered its recommendation from outperform to neutral. "We interpreted the comments at the press conference as a profits warning, when they said they weren't going to make the first-quarter earnings forecasts," said London-based software analyst Martina Bilmayer
Morgan Stanley slashed its 1999 earnings estimates for SAP to 3.65 euros per share from 6.32 euros. The brokerage also cut 40 percent off the 2000 earnings per share figure to 4.70 euros.
"The second half won't be as strong as we thought due to a delay in product releases," Bilmayer added.
SAP stock suffered after the company revealed preliminary figures in January that showed 1998 pre-tax profit had trailed expectations.
Dutch rival Baan put further pressure on SAP's shares after it warned off a massive fourth-quarter loss.
SAP also confirmed its final 1998 results. Revenue rose 40.7 percent to 8.47 billion marks ($4.72 billion) and net profit rose 13.7 percent to 1.05 billion marks. 
-- from staff and wires
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