Convergys Reports Third-Quarter EPS of $0.30
Customer Care revenues of $462.9 million were up 2 percent compared to the same period last year. Strong growth from several existing clients in the Communications vertical contributed to the revenue growth. Customer Care operating income and operating margin were $40.4 million and 8.7 percent, respectively, compared to $54.5 million and 12.0 percent in the prior year. The impact of revenue growth and cost saving initiatives was offset by increased labor costs, capacity expansion costs incurred to support the anticipated growth of existing and new clients, and additional foreign exchange related expense due to the weakened US dollar of approximately $3 million net of hedges.
Information Management revenues of $177.6 million were down 10 percent compared to the same period last year. Strong growth in international operations partially offset the anticipated declines in revenue from North American client migrations. At the same time, operating income was up $2.8 million, or 9 percent compared to the prior year period. Operating margin increased to 19.2 percent compared to 15.9 percent in the same period last year. This significant improvement resulted from our continued focus on reducing costs. Operating income for the third quarter includes a $3.4 million restructuring charge related to a facility closure in the United Kingdom to better align cost structure to future business needs.
Employee Care revenues of $63.2 million increased 24 percent compared to $50.8 million in the same period last year. This reflects growth with clients in early-stage, live operation. Employee Care operating loss of $8.3 million improved 3 percent compared to the prior year. Additional costs incurred during the early stages of new client programs were offset by improved employee productivity.
- Convergys incurred approximately $3 million in long-term compensation expenses compared to approximately $8 million in the same period last year. This decrease reflects the impact of recent share price performance and Convergys' pay-for-performance policy.
- The effective tax rate was 32.8 percent, compared to 34.5 percent the same period last year. The lower tax rate was due to a benefit from improved international performance.
- The increase in deferred charges, net of amortization and implementation revenue received in the quarter, was $23.4 million.
- Convergys repurchased 5.1 million shares during the quarter at a cost of $88.7 million for an average price of $17.23 per share.
Forward Financial Guidance
- Earnings of $0.89 per diluted share in the first nine months of 2007 keep Convergys on track to achieve full year EPS of approximately $1.20. We expect to achieve this guidance despite a second quarter charge of $6 million related to a large HRO implementation, a third quarter restructuring charge of $3 million, and additional currency impact in the second half of the year of approximately $4 million net of hedges due to the weakened US dollar.
- Not included in this guidance is the potential for additional cost actions to further streamline the business.
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