FreeMarkets Sinks on Outlook, Downgrades

FreeMarkets (Nasdaq: FMKT) fell US$1.19 to $9.10 in morning trading Tuesday after lowering its outlook for the current quarter. Analysts at three firms reportedly downgraded the stock of the business-to-business (B2B) online marketplace operator.

FreeMarkets said that it might have to reclassify revenue it receives from Visteon (NYSE: VC), its largest customer. The company said it is in talks with the U.S. Securities and Exchange Commission (SEC) about whether the revenue should be recorded differently, because Visteon holds a warrant to purchase FreeMarkets shares.

The Pittsburgh, Pennsylvania-based company said that results for the second half will include a $3 million to $4 million restructuring charge for the closing of the company’s Austin, Texas operations and the relocation of its asset-recovery business to Pittsburgh.

FreeMarkets pegged full-year revenue at about $150 million, up 65 percent from last year but below previous guidance. The company said it still expects a loss of 22 cents per share in the second quarter and a loss of 73 cents for the year.

“We remain confident that we will reach our operational breakeven point in the first quarter of 2002,” FreeMarkets said.

Analysts at JP Morgan, Prudential Securities and Merrill Lynch reportedly downgraded FreeMarkets shares following the news.

For the first quarter ended March 31st, FreeMarkets said that revenue soared 205 percent from a year earlier to $33 million.

The loss before one-time charges totaled $9.3 million, or 24 cents per diluted share, 2 cents better than analysts expected and smaller than the 27 cents reported for the fourth quarter.

“While our revenues fell slightly short of our expectations due to longer sales cycles driven by a softening economy, we are very encouraged by the deals we signed late in the quarter, which should enable us to achieve sequential revenue growth of 10 to 15 percent in the second quarter,” said chief financial officer Joan Hooper.

FreeMarkets said that it created 2,275 online markets during the first quarter, covering more than $2.6 billion worth of goods and services. There were 11,100 suppliers participating in the FreeMarkets B2B in the quarter, up from 9,300 in the fourth quarter of last year, the company said.