ERP software woes ding aerospace company's profits

Woodward says the problems have been addressed, but third-quarter profits suffered

Aerospace and energy system components manufacturer Woodward is the latest company to see its profits hurt by costs associated with an ERP (enterprise resource planning) software project, according to an announcement it made.

Woodward issued preliminary numbers for its fiscal third quarter on Monday, warning investors that profits would fall short of expectations, in part due to "ERP system-related issues that have been addressed."

The company expects to deliver profits of $0.40 per share in the quarter and US$460 million in revenue, according to the announcement. Analysts polled by Thomson Reuters on average had predicted $0.60 per share and roughly $491 million in revenue. Woodward will issue full third-quarter results on July 23.

Woodward's aerospace division's performance was hurt by the ERP system problems, as well as by "lower defense sales, and a lower growth rate than anticipated in commercial aftermarket sales," the company said.

The division "has been awarded a substantial number of significant new system programs," it added. "Many of the programs have expanded more than anticipated in both content and complexity, requiring increased new product development and production process investments. This increased investment coupled with lower sales volumes created unanticipated earnings pressure."

Woodward's stock fell 5.83 percent to $33.95 in midday trading on Monday.

The exact nature of the ERP system difficulties, as well as the brand of software being used, wasn't immediately clear on Monday. A Woodward spokeswoman didn't reply to a request for additional information.

However, the project seems to have been substantial in scope. Between Sept. 30, 2010 and Sept. 30 of last year, Woodward recognized roughly $13.5 million in costs linked to the system's development, according to the company's 2011 annual report.

ERP systems are generally put in place with the goal of saving money over time. But companies often experience a range of problems during projects, including cost and time overruns and difficulties stabilizing the new software once it goes live.

The software itself isn't always to blame. Problems can result from factors such as inadequate testing before the new system is turned on, ineffective employee training, inexperienced project consultants and changes to the scope of the project after it is begun.

Woodward is just the latest company to experience ERP problems significant enough to affect the bottom line.

Last week, Pennsylvania construction firm New Enterprise Stone and Lime said profits for its fiscal 2012 would be lower than expected, partly due to costs associated with its "enterprise-wide" ERP project.

New Enterprise had previously announced in May that ERP project issues would force it to delay filing an annual report.

Other companies that have seen ERP implementations drag down profits include Ingram Micro and Lumber Liquidators.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris's e-mail address is Chris_Kanaracus@idg.com

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Chris Kanaracus

IDG News Service
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