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PowerCerv stock takes a beating

PowerCerv Corp. shares tumbled Thursday after the company posted lower second-quarter earnings and an industry analyst lowered his recommendation on the stock.

At the close of Nasdaq trading Thursday, PowerCerv's stock was down 55.55 percent, to $4. More than 1.8-million shares changed hands in the busiest trading day in the company's short public history. The stock traded as low as $3.12{ cents during the day.

"Did we deserve to take a little correction in our stock price? Yes," said Marc Fratello, president and chief operating officer of the Tampa-based company that manufactures applications software and provides customized support services. "Did we deserve to get pummelled? No."

For the second quarter, revenues rose 54 percent, to $10.8-million, from $7-million in the second quarter of 1995. But net income fell 61 percent, to $105,000, or 1 cent a share, from $271,000, or 3 cents a share, for the same quarter a year ago. Analysts had projected the company would earn 4 cents a share.

That prompted analyst Christopher Mortenson, with Baltimore-based Alex. Brown & Sons, to downgrade his recommendation on PowerCerv's stock to a "neutral" from a "strong buy." Investors responded by selling.

The company blamed the earnings results on higher research and development expenses and lower-than-expected revenues from its software sales and service operation. Fratello noted that consultants had been shifted to the research and development department to expedite the release of new application products. As a result, R&D expenses rose and revenues from sales and services fell. But the biggest blow to sales revenues was the loss of about $1-million in anticipated contracts.

Those contracts may still come through, Fratello said. The new products will be out soon, although he declined to give a specific date.

"Nothing has changed in our company or the way we do business," he said. "It was an irrational response on Wall Street."

The increased sales reflected a 150 percent growth in license fees and a 30 percent increase in service fees from the same period a year ago. The company also secured some major contracts, including ones with Barnett Banks and IBM.

Founded in 1992, PowerCerv raised more than $50-million in its first public offering March 1. That day, the stock closed at $15.25. PowerCerv's stock price has fallen nearly 80 percent from its all-time high of $19.25 on May 21.

The company employs 400 people worldwide, 100 of them in Tampa.

_ Information from Bloomberg Business News was used in this report.