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No Slouch, But Manhattan Associates’ EPS Growth May Have Eased To 15%

Investors are hoping fast-growing supply-chain software developer Manhattan Associates ( MANH ) will say something Tuesday to help re-accelerate growth. Not that Manhattan is any slouch, but the 15% improvement in first-quarter earnings that it’s expected to disclose after Tuesday’s market close would be its slowest year-to-year growth rate in 15 quarters. Six of those 15 quarters have topped 30% earnings growth, including Q3 and Q4 2015, and all but two of the last 15 topped 20%. While still 25% off a record high 77.75 set Dec. 7, Manhattan Associates stock was up more than 1.5% in afternoon trading in the stock market today , near 58 and 31% above its 44.27 nadir hit Feb. 8 during this year’s software slump. Most of its bigger enterprise-software rivals have been faring better, with the biggest, Oracle ( ORCL ) up fractionally, 9% off recent highs. Enterprise software maker SAP ( SAP ) was also up fractionally and just 2% off a recent high, while Salesforce.com ( CRM ) was up more than 1%, just 7% off its recent high. The entire IBD Computer Software-Enterprise industry group, which does not include Oracle as a member, is about 9% off its Nov. 9 high. Oracle is a member of IBD’s Computer Software-Database group, which is 22% off an August high. Among the re-accelerants that management might discuss Tuesday is just how much its new distribution management (DM) tools announced last week might contribute to revenue. Its new DM Mobile platform gives users “the ability to address any operational issues, including inventory issues, directly from the floor via their tablet devices, increasing mobility and driving productivity and efficiency,” the company announced at the MODEX supply-chain management show in Atlanta. On Feb. 3, just before Manhattan stock tanked more than 20% in three trading sessions, William Blair analyst Matthew Pfau said in a research note that “the 2016 EPS guidance that management provided is conservative, and through a combination of revenue growth, operating expense leverage and share repurchases we expect Manhattan to continue to increase its EPS in excess of 15% over the next several years. “We recommend shares to long-term investors looking for a midcap software company with a strong record of execution and sustainable earnings growth opportunity.” By consensus, Pfau and four other Wall Street analysts polled by Thomson Reuters expect Manhattan to deliver Q1 earnings up 15% to 39 cents per share minus items, on revenue up 8.9% to $145.5 million. That would be a record quarter in hard dollars, but the year-over-year rate would be only slightly better than Q4’s 8% growth to $141 million and only the third time in 15 quarters that its sales growth had slipped into single digits. Over the past five years, it’s averaged 14% sales growth annually and 15% earnings growth. Manhattan guided full 2016 non-GAAP EPS to a range of $1.69 to $1.72, the midpoint slightly below analysts’ $1.71 consensus, or up 12.5% from 2015. It guided 2016 sales to a range of $609 million to $615 million, its midpoint coinciding with analysts’ $612 million consensus, up 10% from 2015. “Although the retail environment remains challenging, Manhattan has not seen a material change in IT purchasing trends from retails and the pipeline is still strong,” Pfau said. “However, we believe that management’s guidance takes into account a cautious retail IT spending environment for 2016.” While Manhattan’s core software manages warehouse inventory, its visualization tools allow users to see everything from the manufacturer’s supplies to the consumer’s purchase at the checkout counter. Pfau noted that 70% of its total license revenue comes from its basic warehouse management systems (WMS) license revenue, so WMS is a “leading indicator for sales of Manhattan’s other solutions.” License revenue, however, amounts to only 14% of its total revenue. Most of its sales, 77%, come from services related to its software licenses. “We will continue to be a serial investor in innovation,” Manhattan CEO Eddie Capel said in February.