RSA expects to miss estimates

RSA Security joined the list of security companies that have warned of disappointing results and declining sales, saying it would miss estimates for the rest of this year and into the next.

The news sent the stock of the Bedford, Mass.-based company falling more than 14 percent Friday, down $4.25 to $25.70 by market close. Analysts were quick to lower their estimates on the stock Friday morning following its warning.

Credit Suisse First Boston analyst Todd Raker gave RSA a "hold" rating, while Deutsche Bank Alex Brown analyst Michael Carboy downgraded the stock to "market perform" from "buy."

RSA's disappointment follows similar cautions from Internet Security Systems and Check Point Software. Those companies had previously been seen as somewhat protected from downturns in the economy, because it was thought that companies would still want to spend money to protect themselves. But apparently, that's not the case.

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"We believe investors had already anticipated this weakness; however, guidance was worse than expected as management aggressively took down expectations to reflect a slower economy and further potential weakness expected in Europe," wrote Lehman Brothers analyst Israel Hernandez. But Hernandez did maintain a "buy" rating on the stock.

On Thursday, RSA reported second-quarter results that were slightly below consensus estimates, posting an operating profit of $10 million, or 17 cents a share, up from $9.4 million, or 14 cents per share in the year-ago quarter. Analysts had been looking for an 18 cent per-share profit, according to First Call. Including the results of its venture capital arm and special charges, the company posted a profit of $13.3 million, or 22 cent per share.

But what was of more concern to analysts and investors Friday was the company's outlook.

RSA said it now expects third-quarter earnings for its core business to be between 3 cents and 9 cents per share, fourth-quarter earnings to be 11 cents and 20 cents per share, and 2002 earnings to be between 50 cents and 75 cents per share.

Analysts had been looking for the company to post a 20 cent per-share profit in the third quarter, a 23 cent per-share profit in the fourth quarter and a $1.02 per-share profit in 2002.

Revenue will also fall short of expectations. The company now sees third-quarter sales coming in between $72 million and $80 million, fourth-quarter sales between $78 million and $90 million, and 2002 sales between $350 million and $400 million. That compares to a Wall Street consensus of $91 million for the third quarter, $101.2 million for the fourth quarter, and $449.8 million for 2002.

Part of RSA's problem is that two of its businesses, encryption and public key infrastructure (PKI), which allows the transfer of secure data through a public network, are not seen as essential to corporations right now.

Those businesses "will face a tough road due to the lower relative priority," said Robinson Humphrey analyst Christopher Hovis.

But he noted that the PKI business should pick up in 2002, when he expects customer spending to improve. He maintained a "neutral" rating on the stock.