DiamondCluster International Inc. on Tuesday revised financial projections for its fourth fiscal quarter and next year despite revenue growth of more than 100% for the third quarter of fiscal 2001, ended Dec. 31. Citing a slowdown in demand for its E-consulting services as well as costs associated with the merger of Diamond Technology Partners Inc. and Cluster Consulting to form the company in November, DiamondCluster reported revenue of $73.6 million for the quarter, but a loss of $1.2 million, or 4 cents per diluted share.
In preparation for what DiamondCluster chairman and CEO Mel Bergstein believes will be a year without accelerated growth in the services market, the company also revised its fiscal projections for the fourth quarter and next year. DiamondCluster, which had originally projected revenue of $105 million for the fourth quarter, now calculates revenue will be between $93 million and $97 million. This would be slightly above the $90.3 million pro forma revenue for the third quarter, which takes into account the combined revenue for Diamond and DiamondCluster during that period. Revised fourth-quarter earnings-per-share estimates are about 30 cents, down from 35 cents.
For fiscal 2002, DiamondCluster is projecting revenue between $440 million and $460 million and earnings per share of $1.38 to $1.46, down from the estimates of about $560 million and $1.72 per share, respectively.
DiamondCluster is banking on a rebounding economy and strong growth in Europe to help the company increase headcount by 35% without any layoffs in North America, all while increasing revenue by about 30%. Lehman Brothers analyst Karl Keirstead says he's skeptical an economic upturn will arrive in time for DiamondCluster to make its financial projections for 2002. Keirstead also notes that Cap Gemini Ernst & Young and other competitors offering IT and consulting services to European telecommunications companies have recently cut their growth-rate estimates for the year.
Keirstead says reduced demand for E-services in the next quarter will cause most E-service providers to see a 5% sequential decline in revenue. Included in this group is Sapient Corp., which last week reported revenue of $139.2 million for its fourth quarter, ended Dec. 31, up $81.8 million from the same quarter a year ago. The E-service provider's net income for the quarter was $8.1 million, or 6 cents per share, down $1.4 million from the fourth quarter of 1999.