Shares in electronic design software firm Mentor Graphics Corp fell more than 11% Wednesday after the company’s stock was downgraded by several investment banks in the wake of a poor second-quarter earnings report. Mentor dipped $1.0625 to close at $8.3125 as Credit Suisse First Boston, Merrill Lynch, Thomas Weisel all lowered their ratings on the issue. Volume was 4.85 million shares, more than seven times the daily average.
Earlier, Wilsonville, Oregon-based Mentor reported a second- quarter net loss of $317,000 on revenue that was flat with the year-over-year at $119.5m. Excluding one-time charges of $5.3m, earnings were a positive $0.09 per share, still $0.03 under the consensus estimate of analysts surveyed by First Call. In the year-ago quarter, the company posted net income of $804,000, or $0.01 per share, including $4.5m in charges.
Mentor said last month that second-quarter revenues would suffer from the consolidation of its distribution channels last quarter. At the time of the warning, Wall Street had been expecting earnings of $0.14 per share. Despite the top line shortfall, Mentor said overall product bookings for the quarter rose roughly 20% year-over-year as North American software bookings rose about 40%. The company attributed the growth to strong customer response to new products.
But Erach Desai, an analyst at CSFB, said the perceived new product momentum lacks breadth and cited a higher percentage of subscription deals as a factor in the revenue shortfall. The bank had been expecting a further $12.5m in sales for the quarter. Desai lowered his rating on the company’s stock to hold and has slashed estimates for this year and next year. Revenues and earnings projections for 1999 have been cut to $497.1m and $0.41, from $542.6m and $0.66 previously. Likewise, next year’s estimates have been lowered to $530m and $0.65, from $610m and $1.00.
For the six-month period, net loss was $8.7m on revenue up 6.6% at $242.1m, compared to a loss of $6.7m a year ago. Those figures include special charges of $21.8m and $10.3m for the current year and last year, respectively.
