As a kid, did you ever have a bad report card or a note from the teacher that you were afraid to show your parents? Today, you can watch a company go through the same excruciating experience.
Business software company Mercator (Nasdaq: MCTR) late last Friday warned its investors that "Due to higher than forecasted sales and marketing expense during the quarter, on a pro forma basis and excluding amortization of intangibles, earnings per share is expected to be below published Wall Street consensus expectations at approximately $0.04 per share." In other words, the company is not doing as well as it was expected to.
Mercator's shares got absolutely punished when the markets opened today. After closing at $62.625 on Friday, the shares traded as low as $23.25 this morning, losing more than 60% of their value since the open. This is also significantly down from the high near $150 made just this past March.
The timing of the announcement is a bit puzzling to say the least. The company put out its warning on Friday at 6 in the evening, well after those who would be analyzing the deal closely had anything but work or investing on their minds.
Perhaps the company was hoping that after the weekend, cooler heads would prevail. Unfortunately, this appears to not have worked. If anything, it may have exacerbated the situation by making those wishing to hit the exits wait almost three days. Moreover, the peculiar timing raised a cloud of suspicion, and any sort of increased management mistrust is never a good thing.
It's interesting to note that Mercator's press release on Friday was about 40% substance and 60% legal mumbo jumbo. Ironically enough, the company just this morning also announced the hiring of a new general counsel. This is probably just a coincidence, but it does appear that Mercator is circling the wagons to protect itself from the class action lawyers that like to prey on companies in difficult situations such as this.
Moving forward, it is uncertain whether today's events will be anything but a slight bump in the road in the company's growth. Mercator simply appears to be a growing company that got slightly ahead of the ball in its expansion plans. There's no doubt that the increased staffing will decrease profits in the short-term, but the long-term view seems to be relatively unchanged.
Your Turn:
Imagine you are in charge of releasing information to investors in your company. If you received word of some bad news on a Friday, when would you choose to release it? Take our poll.
Related Links:
What Season Is It? Warning Season, Fool on the Hill, 6/9/00
Mercator discussion board
