Computer Associates Earnings Hurt By Higher Costs

FRAMINGHAM (07/21/2000) - As expected, software maker Computer Associates International Inc. Thursday reported a 69.1% plunge in operating profits in its first-quarter results.

The disappointing numbers appear to be the result of costs increasing much faster than revenues, according to the Islandia, N.Y.-based company's financial report. The quarter ended on June 30.

The company had issued a profit warning in early July saying it would not meet analysts' estimates.

Excluding special items, net operating income was $84 million, compared to $272 million in the 1999 quarter, a 69.1% drop. Net operating revenues were $1.14 billion, an increase of 7.6% from the 1999 quarter, when net revenues were $1.06 billion. But the company's costs rose dramatically in this quarter, soaring to $1 billion, compared to $623 million in the 1999 quarter.

"Although this was a difficult quarter for CA, we have not changed our view of the long-term prospects for the company," said chairman and CEO Charles B.

Wang, in a statement.

Including special items, CA posted net profits of $23 million, compared to a loss of $432 million a year ago. Total revenues were $1.28 billion in the quarter, compared with $1.22 billion in the 1999 quarter.

Earnings were 14 cents a share before special items and 3 cents a share after special items, which were both far lower than the 55 cents a share predicted earlier by a survey of Wall Street analysts by First Call/Thomsen Financial.

Paul Rodriguez, managing director at C.E. Unterberg, Towbin in New York, said today that CA's results showed the effect of the drop-off in business after corporate Y2K worries ended in January.

"People bought capacity ahead of Y2K," he said, and then the demand came to a halt. "Now that that's over with, people are working to grow into their [product] mix."

Rodriguez said he expects many deals that didn't close in the last quarter to be completed in the next quarter, helping the company's financial recovery.

But he said, "I think it's going to be tough."

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