NO FORGIVENESS FROM 'THE STREET'

July 20, 2005

There is probably no less a forgiving place than Wall Street.

Take the news from headset marketer Plantronics after the close of the market Tuesday.

The company announced fiscal first quarter revenues of $148.9 million, up about 13 percent from $131.4 million. But net income fell to $21.7 million, down from $22.3 million last year.

"Revenues were toward the low end of our guidance, with the shortfall primarily in our Office and Contact Center products," the company said. "Much of this was concentrated in Europe where wireless office revenue growth stalled amid slightly weaker economic conditions and a stronger dollar. For the company as a whole, revenues were also limited by delays in achieving volume shipment schedules on our new products. Gross margins came in at 49.1 percent versus our estimate of approximately flat in comparison to the 50 percent gross margin in the fourth quarter. The three principal factors contributing to the difference were the lighter contribution from OCC revenues, costs we incurred to prepare for production ramp on new products, and a return to warranty costs typical of levels a year ago but higher than recent trends had suggested."

The market reacted swiftly, as the $38 closing price Tuesday dropped below $36 in afternoon trading Wednesday.

Also reporting after the close of the market Tuesday was Intel, with president/CEO Paul Otellini proclaiming that "Intel delivered record second-quarter revenue, with growth of 15 percent versus a year ago" in a press release that carried the headline: "Intel Posts Record Second-Quarter Revenue of $9.2 Billion."

But it was reported that the company's profit margin was lower than anticipated. The result: The Tuesday close of $28.71 turned into a Wednesday open of $27.09.

On the other side of the spectrum was Epicor Software. The enterprise software solutions provider posted total revenues for the second quarter of $71 million, compared with $48.6 million in the prior year's quarter, for a growth rate of 46 percent. License revenues amounted to $19 million compared to $12.2 million in the second quarter of 2004, up 55 percent. Service revenues reached $51.2 million compared with $35.6 million in the second quarter of 2004, up 44 percent.

But more important was the report that the company beat its earnings-per-share expectation by a penny. The reward was an increase of almost $2 per share between Tuesday's close and Wednesday afternoon.

Finally, there's the story of Convergys Corp., which provides outsourced customer care, employee care and integrated billing software services. Prior to the market opening on Wednesday it reported an 11 percent drop in second quarter net income, citing an $8.3 million severance charge in its Customer Management Group. The CMG second quarter operating income and operating margin were $7.1 million and 1.7 percent, respectively. This compares to prior-year operating income and operating margin of $29.7 million and 7.1 percent.

"In addition to the severance charge, the decrease in operating margin is largely the result of increased costs related to expansion of capacity, acquisitions, and the company's branding campaign, and higher operating expenses caused by the impact of a weakened U.S. versus Canadian dollar," the company reported.

But the key to Wall Street's reaction was in a report that stated, excluding severance charges, earnings would have been greater than the average estimate of analysts polled by Thomson First Call.

The bottom line: a 4 percent increase in the price of the stock Wednesday.

By Glenn J. Kalinoski, Executive Editor, Customer Interaction Solutions

Tags: Plantronics Intel Epicor Software Convergys Wall Street
Related Tags: second quarter, compared million, million compared, operating margin, million, percent