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Novell Earns $3 Million in Q2 on Reduced Operating Expenses

Posted on: Saturday, 3 June 2006, 00:00 CDT

By Bob Mims, The Salt Lake Tribune

Jun. 1--Lower taxes and trimmed operating expenses pushed Novell Inc. $3 million into the black during its most recent quarter, even as its overall revenues dipped 6 percent.

The company reported $278 million in second-quarter receipts, down from $297 million a year ago. Still, Novell rewarded its stockholders with a 1 cent profit per share for the quarter ending April 30. Last year at this time, Novell investors lost 4 cents per share on a net loss of $16 million.

It was the fourth quarter in a row that the Waltham, Mass.-based company, which employs about 1,600 people in Utah, has exceeded or matched analysts' predictions -- and the second straight profitable quarter (Novell reported $1.8 million net income for the quarter ending Jan. 31).

Novell Chairman and CEO Jack Messman said in a teleconference Wednesday afternoon that he was pleased with his company's second quarter, but much work remained to be done.

"While Novell delivered on its financial guidance again this quarter, we have not lost sight of our goal to significantly increase our profitability by the end of fiscal year 2008," he said. "We are engaged in many initiatives to grow revenues, increase efficiencies and lower costs to enhance shareholder value."

Messman also said the continuing slide in sales of the company's former flagship Netware product were more than being offset by Novell's growing business in providing updates and support services for its SUSE Linux software lines.

Messman and other company executives stressed that Novell's sale of its Celerant Consulting holding company during the past quarter would have mixed impact. Although the $77 million sale added a net $51 million to Novell's cash balance, it also will mean about $40 million in Celerant revenues will be absent at the end of the third quarter.

Consequently, Novell restated its guidance for the third quarter to 3 cents per share profit -- excluding 3 cents per share in employee stock compensation -- on revenue of $239 million to $247 million. Analysts earlier had projected 4 cents earnings on revenues near $283 million for Novell, which has operations in Utah County.

Traders seemed more affected by the diluted forecast for next quarter than the profit posted during the second quarter. Novell share closed at $7.73, up a modest 6 cents, but tumbled 8 percent, to $7.07, within an hour of the after-market earnings report.

Nonetheless, Gartner analyst John Enck credited Novell's renewed focus on large, corporate accounts -- the company recently renewed Linux contracts with all of its top 10 clients -- and the impact of a year-over, 10 percent work force cut for a solid second quarter.

"Overall [they had] lower expenses, lower overall revenue due to declines in the broad [installation] base, but strong sales at the large enterprise level," he said.

CEO Messman indicated that the performance helped set the stage for significant earnings growth over the coming year, noting a $400 million stock repurchase program involving 51 million shares had been completed in April.

MIXED BAG FOR NOVELL:

--Novell, marking second straight profitable quarter, earns $3 million.

--Sale of its Celerant Consulting company brings in a net $51 million, but also means a $40 million revenue loss for upcoming third quarter.

--After-market trading sees Novell share prices dip 8 percent.

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NOVL,

Source: The Salt Lake Tribune

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