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CA reports lower profits
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July 20, 2000: 6:30 p.m. ET
Software maker's latest results fall within range of earlier warning
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NEW YORK (CNNfn) - Software maker Computer Associates reported a sharp drop in fiscal first quarter profits Thursday, reflecting weakness in the mainframe software sector.
The Islandia, N.Y.-based company earned $84 million, or 14 cents a share in the three months ended June 30, compared to $272 million, or 49 cents a share, in the year ago period. Both periods exclude one-time items. The latest results were a penny better than Wall Street's revised estimates. Net revenue totaled $1.14 billion versus $1.06 billion in the first quarter last year.
The company warned investors on July 4 that there would be a substantial profit shortfall, with earnings coming in the range of 11 cents to 16 cents. Back then, analysts polled by First Call were looking for 55 cents a diluted share.
"Although this was a difficult quarter for CA, we have not changed our view of the long-term prospects for the company," said Charles Wang, CA's chairman and CEO.
Including the one-time items, Computer Associates (CA: Research, Estimates) earned a profit of $180 million, or 30 cents a share, in the first quarter, up from a loss of $374 million, or 70 cents a share in the same period last year.
 Sanjay Kumar, the software maker's chief operating officer, blamed the company's failure to close a number of large deals worth between $10 million and $50 million, a weakness in the mainframe business and soft international sales, for the downtick in earnings.
"The miss in Q1, there's no doubt about it, it was a very big mess. I'm not going to minimize that, I'm not going to sugarcoat it, it was an absolute screw-up. It's a disappointment and I apologize for it. It is not what this organization is going to put up with and stand for," said Kumar in a news conference after the earning release.
Ahead of the earnings release, UBS Warburg analyst Jordan Klein said the Street was expecting the lower numbers, given the warning. Klein has a "hold" rating on CA shares, and was expecting a profit of 13 cents a share.
"I think that with a very soft July and August in Europe, combined with customers sitting on their hands for the next quarter, there's just no way CA can get to the growth rates that they were talking about before and I think that they probably realize that and will be more cautionary about near-term growth," said Klein.
Indeed, Kumar said that the company is targeting 20 percent revenue growth for the second quarter, to about $1.92 billion, compared to $1.60 billion of last year.
"This is a 20 percent growth number compared to current expectations of about 25 percent. We are expecting this number because clearly there are signs of weakness in the OS390 business and without further, in-depth analysis, I think that it's best at this point that we plan for that kind of number."
"It behooves us to be prudent in our outlook, which of course, we would hope to clearly outperform," he said.
"We are looking at everything we can to boost shareholder value," said Kumar. "We are in a show-me mode and are clearly focused on breaking out the pieces of the business."
CA finished trading Thursday down 11/16 to 27. 
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Computer Associates
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