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Manhattan Associates: Sales Disappoint Despite Strong Earnings

By Dan Caplinger – Oct 18, 2016 at 8:31PM

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The supply-chain management specialist gave investors a mixed performance this quarter.

Supply-chain logistics specialist Manhattan Associates (MANH -0.06%) has aimed to give its customers everything they need to build out pathways that get necessary goods from suppliers to retail locations for final sale to end-buyers. For several quarters, Manhattan Associates has delivered record results, and coming into its third-quarter financial report on Tuesday, Manhattan investors again hoped for even better financial performance. Although the company did a good job of meeting earnings expectations, Manhattan didn't manage to get its sales figures as high as most had wanted to see. Let's look more closely at the latest from Manhattan Associates and whether it can jump-start its sales in the near future.

Image source: Manhattan Associates.

Sometimes, record results aren't good enough

Manhattan Associates' third-quarter results continued its string of setting new records. Revenue rose by 7% to $152.2 million, but even though that was a new all-time high, it was still less than the 10% growth rate that investors were looking to see. On the other hand, net income picked up 20% to $33.5 million, and after allowing for some one-time charges, adjusted earnings of $0.50 per share were $0.04 better than the consensus forecast among investors.

Looking more closely at the company's numbers, growth in Manhattan Associates' major sources of revenue got turned on its head this quarter. The services segment grew at a relatively slow 6% clip during the quarter, and that was far slower than the 13% growth in the software licensing business. Hardware revenue gains amounted to 6.5%, slowing down from the second quarter but still representing improvement over declines further in the past.

As we've seen in past quarters, Manhattan Associates got the bulk of its growth from its key Americas geographical segment. Revenue there rose by 8%, compared to sales declines of more than 10% for the Europe, Middle East, and Africa segment. The Asia-Pacific region saw the biggest jump on a percentage basis, rising by nearly a third, but the region accounts for less than 5% of total sales. In terms of adjusted operating income, the results were similar, with Asia-Pacific operating income nearly doubling from year-ago levels, while the Americas posted more modest gains and the Europe segment saw substantial declines.

Manhattan Associates did see a small uptick in the number of new high-volume licensing revenue contracts, bringing in five such relationships with sales of $1 million or more during the quarter. The company did bring in its usual array of new customers, and expanding relationships with companies like J. Crew and the supply-chain unit of United Parcel Service represented wins for the company.

CEO Eddie Capel once again expressed his satisfaction with Manhattan Associates' results. "We delivered another good quarter of financial performance," Capel said, "growing our business with solid customer activity and competitive win rates." The CEO also pointed to its efforts to build up omni-channel solutions as well as helping customers with retail store and distribution management needs.

What's ahead for Manhattan Associates?

Manhattan Associates made some changes to its guidance, reflecting a more pessimistic view on the top line but expecting greater earnings going forward. The company's new revenue guidance calls for $603 million to $609 million in sales, down $11 million to $12 million from its previous guidance range. However, Manhattan now believes it will earn between $1.82 and $1.84 per share on an adjusted basis for the full year, up $0.03 to $0.04 per share from what it expected before.

Buyback activity also continued for the supply-chain specialist. The company said that it spent $25 million to buy back just over 420,000 shares. Earlier this month, Manhattan made yet another addition to its repurchase authorization, giving it another $50 million to work with in the future.

Nevertheless, investors in Manhattan Associates focused almost exclusively on the top-line performance for the company, and they therefore bid the stock downward by almost 9% in after-hours trading following the announcement. To stay in investors' good graces, Manhattan Associates will have to demonstrate that it can avoid letting its sales growth deteriorate while still producing outstanding results on the bottom line.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Manhattan Associates. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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