NEW YORK -- Pinnacle Systems Inc.'s shares fell as
much as 38% Wednesday after the digital media provider reported
weaker-than-expected fourth- quarter earnings and reduced its earnings guidance
Tuesday, which prompted at least three analysts to downgrade the stock.
The earnings guidance was "very disappointing
despite positive market fundamentals and evidence of leadership," wrote J.P.
Morgan analyst Paul Coster, who downgraded the shares to "neutral" from
"overweight" to align with management's guidance.
Pinnacle, which makes video production and
post-production processing tools, reported fourth-quarter net income of $3.46
million, or five cents a share, which includes $3.52 million in amortization
expenses for acquisition-related intangible assets and $1.47 million in income
taxes. A year ago, the company posted a net loss of $8.37 million, or 14 cents a
share.
Net sales increased 37% in the fourth quarter to
$89.3 million, but the company's pro forma earnings of $5.9 million, or nine
cents a share, were below the consensus estimate of 10 cents a share by Thomson
First Call and at the low end of its own guidance of nine cents to 11 cents
a share.
"Better broadcast revenues and margins were
overshadowed by margin pressure in the consumer business and
heavier-than-expected spending on marketing and research and development," wrote
Steven B. Frankel, an analyst with Adams Harkness & Hill, who downgraded the
stock to "buy" from "strong buy."
The Mountain View, Calif., company also guided
lower for the first quarter, now projecting results between break-even to a loss
of three cents a share on revenue of $72 million to $74 million -- well below
Wall Street expectations of earnings of nine cents a share on $82 million.
In late-morning trading on the Nasdaq Stock
Market, shares of Pinnacle tumbled $4.39, or
35%, to $8.10 on volume of 12.2 million shares. Average daily volume is 1.1
million shares. The stock traded as low as $7.79 earlier in the session.
Pinnacle Systems also lowered its fiscal 2004
revenue guidance to a range of $ 380 million to $390 million from $390 million
and said it expects fiscal 2004 per-share earnings of 22 cents to 32 cents. The
guidance was below fiscal 2004 consensus estimates of $390.8 million in revenue
and earnings of 51 cents a share.
In a conference call late Tuesday, Pinnacle said it
lowered its guidance because of the need to increase spending in its broadcast
segment, customer service, consumer video editing and on building its brand.
U.S. Bancorp Piper Jaffray analyst Gene Munster
downgraded the stock to " market perform" from "outperform" Wednesday, saying
the company's reinvestment in its broadcast segment suggests market share loss
to a main competitor, Avid Technology Inc.
"While the company was optimistic regarding
broadcast, we are concerned in the near term that increased investment is an
indication that competitively, Pinnacle's products are losing market share to
Avid," said Munster.
Avid Technology shares recently traded at $45.79,
down $1.35, or 2.9%, on volume of 200,404. Average daily volume is 708,500.
The company "forcefully" stated a case for
increased investment in the short term, said Mr. Coster, the J.P. Morgan
analyst.
"It is difficult to argue with the strategy," he
said, "But, unfortunately, we think shareholders will be disappointed with the
news that they are foregoing earnings in the next two to three quarters."
J.P. Morgan and Adams Harkness & Hill don't
have a banking relationship with Pinnacle Systems, and Messrs. Coster and
Frankel do not own any of the company's shares.
U.S. Bancorp does have a banking relationship with
the company, as well as with Avid Technology, and it wasn't immediately clear
whether or not Mr. Munster owns any shares.
Source: Yahoo.com
