How the VARBusiness 500 Is Faring Financially

Improved results are no doubt the primary reason. For example, Dallas-based Affiliated Computer Services (No. 19 on the 2004 VARBusiness 500) recently reported first quarter fiscal 2005 earnings per share of $94.2 million, or 72 cents per share, compared with $86.8 million, or 62 cents per share, in the prior year's quarter. Revenue was $1.046 billion for the quarter against $1.036 billion for the same quarter last year. The stock, as of Dec. 7, was trading at around $60, near its annual high. Its low was around $46.

In addition, for the third quarter of its 2004 fiscal year, Kansas City-based Cerner (VAR500 #62) recorded earnings of $14.7 million, or 41 cents a share, against $12.0 million, or 34 cents a share, for the same quarter last year. Revenue checked in at $231.1 million for the three months vs. $206.3 million for the same quarter last year. Stock is trading at close to its yearly high of $54 (as opposed to its 52-week low of about $35).

And Cognizant Technology Solutions (VAR500 #102) saw its stock climb to almost $40 during the past year -- its low was a shade under $20 -- while, for its most recent quarter, the Teaneck, N.J.-based solution provider posted net income of $26.0 million, or 20 cents per basic earnings per share, up significantly from $15.9 million, or 12 cents per basis earnings per share, from the same quarter a year ago. Sales climbed to $155.4 million from $98.1 million.

Then, you've got those companies that go against the grain. Take EDS (VAR500 #2), for example. Despite announcing a plan to voluntarily reduce head count and a third quarter net loss (the announcement of which was delayed twice) of $153 million, or 30 cents a share, its stock price has climbed in recent months. From a price hovering in the $17 range in the dog days of August, one share of EDS can now be purchased for upward of $22. Analysts speculated that investors might be thinking that the worst is over -- that EDS has seen the worst of its troubling Navy Marine Corps Intranet contract -- and that the stock may, indeed, be undervalued, as CEO Michael Jordan recently suggested to VARBusiness.

Some VAR500 companies losing money have seen their stock prices dip to near yearly lows, even if they appear to be headed in the right direction. Take Atlanta-based Verso Technologies (VAR500 #301), as an example. It lost $7.3 million for its third quarter of 2004, or a loss of 5 cents per share -- which is not as bad as the same quarter one year ago, when it lost $11.6 million, or 12 cent per share. Its share price as of Dec. 7 was 79 cents, with an annual range of 38 cents to $3.95.

In a similar situation is Navisite (VAR500 #282), which acquired another VARBusiness 500 company in June, Surebridge (VAR500 #364). The Andover, Mass.-based company posted a net loss of $11.5 million for its fourth quarter of fiscal 2004, compared with a net loss of $32.1 million for the same quarter a year ago -- a dramatic improvement, yes, but still a loss. Investors are apparently not convinced it's enough since Navisite is currently trading in the neighborhood of $2.40, against its yearly high of $9.20 and yearly low of $1.32 per share.

Clearly, acquisitions, with their attendant costs, can hurt the bottom line. Along those same lines as Navisite, though not as severe, Herndon, Va.-based ePlus completed its acquisition of most of Manchester Technologies' (VAR500 #121) assets during the most recent quarter, and its earnings dipped slightly, to $2.5 million, or 28 cents per basic common share, for the three months ended Sept. 30. That's down from $2.7 million, or 29 cents a share -- despite the fact that the Manchester acquisition caused sales to increase dramatically for the latest quarter, $138.0 million against $70.3 million.

And Minneapolis-based Fair Isaac, which acquired Braun Consulting (VAR500 #404) during the quarter, also saw quarterly earnings drop for its fourth and most recent quarter, to $28.5 million, or 40 cents per diluted earnings per share, from $33.9 million, or 45 cents per diluted earnings per share, during the same quarter last year. Fourth quarter sales climbed to $190.4 million vs. $161.0 million.

Sometimes, however, earnings climb after acquisitions. Digitas (VAR500 #141), which during the third quarter bought Modem Media (with $14.6 million in sales during its most recent quarter), reported net income of $8.2 million, or 11 cents per diluted share, for its third quarter, compared with net income of $3.2 million, or 5 cents per diluted share, during the same quarter last year. Revenue was $59.9 million against $52.2 million.

In other developments affecting VARBusiness 500 companies during the quarter, Covansys (VAR500 #100) reported solid third quarter earnings after Fidelity National Financial bought a 29 percent stake in the company, purchasing 11 million common shares for $121 million. Farmington Hills, Mich.-based Covansys' net income of $6.5 million is up from $4.1 million during the same quarter one year ago. These numbers are prior to a $28.7 million charge. Sales for the quarter climbed slightly to $96.2 million against $94.4 million.

As Valley Forge, Pa.-based Ikon Office Solutions (VAR500 #37) continues its switch to services, in a statement it attributed "slower summer months" to a drop in net income and sales. For its fourth quarter, Ikon posted net income of $25.6 million, or 17 cents per diluted common share, compared with the same quarter last year of $32.4 million, or 21 per diluted common share. Sales were down 2 percent to $1.65 billion against $1.95 billion.

Last, Dearborn, Mich.-based Superior Consultant (VAR500 #215), among the stronger VARs this past quarter, decided to raise its 2004 forecast based on strong consulting and outsourcing performances, with outsourcing bookings climbing 61 percent to $139 million at the end of October, an increase of 61 percent over the same period last year. For its third quarter, the solution provider posted net earnings of $688,000, or 7 cents per share, compared with a loss for the same period last year of $590,000, or a loss of 6 cents per share. Consolidated revenue climbed to $29.6 million for the quarter, compared with $24.5 million for the same period last year.