Reuters: Global Markets: Nuance forecasts weak profit on higher costs, lower margins

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Nuance forecasts weak profit on higher costs, lower margins Apr 30th 2013, 12:46 Tue Apr 30, 2013 8:46am EDT (Reuters) - Nuance Communications Inc (NUAN.O), whose software powers the Siri voice recognition feature in Apple Inc's (AAPL.O) iPhone, forecast a much weaker-than-expected third-quarter profit, hurt partly by costs of integrating recent acquisitions. Nuance shares fell 12 percent to $20.46 before the bell. Nuance is also facing weak demand for its products in Europe, Middle East and Africa and margins are falling as the company shifts to a subscription-based model that does not allow for chunky, upfront payments. Nuance expects margins to fall 4 to 4.5 percentage points this year. It forecast a third-quarter profit of 30 cents to 34 cents per share, excluding items, compared with analysts' estimates of 49 cents per share, according to Thomson Reuters I/B/E/S. The company said the integration costs from recent acquisitions, increased hiring for research and sales, and advertising and promotional costs were hurting results. Nuance said that while it will continue to invest in mobile and healthcare research, it has implemented some cost-saving measures, including job cuts and has slowed planned hiring. The company acquired several small companies in the past year, including VirtuOz, Ditech Networks, J.A. Thomas and Associates, SafeCom, Transcend Services and the Quantim division of Quadramed Corp FRANSQ.UL. Nuance has often been the focus of takeover rumors and activist investor Carl Icahn disclosed a roughly 9.3 percent passive stake in Nuance earlier this month. "We think the weakness that the shares likely will encounter today could lead to two things - investor Carl Icahn will go from passive to active or the recent chatter of a strategic alternative becomes even more of a possibility," Oppenheimer analyst Shaul Eyal said. The company's enterprise customers include Bank of America (BAC.N), Barclays PLC (BARC.L), Walt Disney Co (DIS.N), FedEx Corp (FDX.N), PG&E Corp (PCG.N) and US Airways Group Inc (LCC.N). The company reported a net loss of $25.8 million, or 8 cents per share, for the second quarter, compared with a profit of $890,000 a year earlier. Excluding items, Nuance earned 34 cents per share. Costs rose 13 percent. Adjusted revenue from the company's enterprise business fell nearly 19 percent to $74.5 million. Adjusted revenue rose 16 percent to $484 million. Analysts on average expected an adjusted profit of 40 cents per share, on revenue of $516.5 million, according to Thomson Reuters I/B/E/S. (Reporting by Sayantani Ghosh in Bangalore; Editing by Supriya Kurane) Link this Share this Digg this Email Reprints

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