Orange County’s largest software company, Sage Software Inc. in Irvine, brought added annual sales and profits to its parent company in the past year. But the unit’s growth pace slackened a bit.
Britain’s Sage Group PLC, which sells accounting software, said global sales jumped 14% to nearly $1.4 billion for the 12 months ended Sept. 30, compared to the year-ago period. Net earnings jumped 13% to $221 million.
Much of the growth was driven by acquisitions,more than a half-dozen in the past year. Without the acquisitions, sales growth was 6%.
“We were pleased with it, to be fair,” said Adam Shepherd, a London-based stock analyst with Dresdner Kleinwort Wassestein, part of Allianz AG in Germany. “It wasn’t outstanding by any means.”
Sage’s North American operations in Irvine accounted for 41% of the company’s sales, or about $585 million. Ron Verdi, chief executive of the local unit, couldn’t be reached for comment.
The North American unit has turned in a steady performance. But some areas of the Irvine operation were a drag on Sage’s companywide results.
Including acquisitions, North America’s sales growth of 13% was a notch below Sage’s worldwide gain.
Growth from existing operations was in line with the rest of the company at 6%, but slowed from a 7% clip in the first half of the year and trailed results in Europe.
Analysts fingered the small-business piece of North American operations for the slowdown. For the year, sales to small businesses from existing operations grew 4%.
“The slowdown appears limited to the small-business division,” wrote Bear Stearns & Co. analyst Toby McCullagh in a research note.
The company blamed the results on the launch of a stripped-down product that Mountain View-based Intuit Inc. has been pushing to upstart companies, Dresdner’s Shepherd said. The situation wasn’t reassuring, he said.
“The U.S. really should be doing better than 4%,” he said.
Increasing competition from Intuit and more aggressive marketing by Microsoft Corp. could squeeze Sage’s growth prospects in the small-business sector, Shepherd said.
“Microsoft is a phenomenal brand,” he said.
Sales to midsize businesses fared better during the year, posting 7% growth. Much of the gain came from selling more products to existing customers and pushing software services, Shepherd said.
Sage also gained from its approximately $18 million buy of Dallas-based payroll outsourcing company Federal Liaison Services Inc. in November of last year.
One of Sage’s big drivers is customer relationship management software, Shepherd said. Sales grew about 10% in the past year in North America, compared to more typical growth in the single-digits of past years.
Customer relationship software helps companies track customer contacts and analyze client data to better target them for more sales and services. The software didn’t sell as well during the recession, but has rebounded since.
Customer relationship management software “is cyclical,” Shepherd said. “It kind of gets completely neglected in a cost-savings environment.”
Overall, the North American unit’s profit margin was a bright spot, rising to 23% from 22% a year ago. Its core businesses and the $106 million buy of Accpac International Inc. of Pleasanton in 2004 drove the gain, according to Sage.
Sage is expected to grow its global operations with more buying. The company’s acquisitions largely will be in Europe, especially in Germany.
North America doesn’t present as many buying opportunities, Shepherd said. That would be a turnabout for Sage’s North American unit, which has spent more than $1.4 billion on about 15 acquisitions during the past four years or so, Verdi said in a past interview.
The company’s European unit, excluding Britain, posted growth from existing operations of 7% during the 12-month period.
With acquisitions in Poland, France and Switzerland, growth was nearly 19%. The company saw 5% growth from existing businesses in Britain, the slowest pace of any of Sage’s major regions.
Sage got its foothold in the U.S. when it bought Best Software for $445 million in 2000. Best Software changed its name to Sage earlier this year.
