Pointing AwayBy Larry Barrett | Posted 2003-01-17 Print
Agilent blew $70 million on a software project. Was that a cause of its financial problems? Or an excuse?
Agilent Technologies is blaming a botched software deployment for recent poor financial performance. But analysts and investors aren't buying.
No one, inside or outside companies, is rooting for information system projects to go awry. But what's infuriating to investors and the Wall Street analysts, brokers and other professionals who make their living discerning fact from fiction in financial reports, is the recognition that no oneincluding the top officers at the companies in questionis proving whether the explanation is valid or a diversion.
"This looks like just another example of a company shifting blame for Wall Street's sake," says Gartner Inc. analyst Brian Zrimsek. "But I think after what we've seen in the past couple of years, people are getting smarter. At some point these companies need to start looking at themselves."
Here's what we do know in this case: In November, Agilent Technologies put the finishing touches on the worst fiscal year in the company's brief history as a standalone entity. The maker of electronic test and measurement equipment posted a net loss of $1.03 billion on sales of $6.01 billion. That followed a net profit a year earlier of $174 million, on sales that were 28% greater, at $8.4 billion.
Yet some analysts, such as Robert W. Baird International's Richard Eastman, hailed Agilent's fourth-quarter sales of $1.74 billion as an "upside surprise" and a step toward returning to profitability.
As Eastman put it in his research report, the results were "stronger than expected, impressive considering the widespread concerns about a possible earnings miss."
That's because Agilent executives told analysts to expect sales just north of $1.6 billion during its conference call following the meltdown that occurred in the third quarter.
Agilent still posted a net loss of $236 million in the quarter, including a $92 million noncash goodwill and amortization charge and a $256 million restructuring charge. Excluding those charges, it lost $2 million, or breakeven on a per-share basis. Analysts projected Agilent would come in somewhere between a loss of 12 cents a share and breakeven.
Agilent shares shot up $3, or 22%, to $16.60 on volume of more than 13.2 million shares. But that "upside" surprise traces back to complications from Agilent's newly installed Oracle 11i E-Business suite, which resulted in a backlog of orders that it was finally able to close in the fourth quarter. The same amount of orders was filled over the six-month span, but Agilent was unable to complete the sales in the third quarter, which ended July 31, and reported them in the fourth.
In its third quarter, Agilent posted a wider-than-expected net loss of $143 million, or 31 cents a share, on lower-than-expected sales of $1.39 billion. Consensus estimates pegged Agilent for a loss of between 10 cents and 20 cents a share in the quarter on sales of between $1.5 and $1.6 billion.
CEO Ned Barnholt says sales fell short by $105 million and operating profit was depressed $70 million by the fallout from the Oracle rollout. The project, which covered 50% of the company's production and material procurement processes, and virtually all of its financial processes, went live June 12 after almost two years of planning and preparation.
Agilent says that had the software project come off without a hitch, it would have posted a loss of roughly 22 cents a share, or nine cents better.
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