APAC's 2Q Shares Off 33 Percent

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Falling short of analyst's expectations again, APAC TeleServices Inc., Deerfield, IL, this month reported a loss of 7 cents per share in its second-quarter earnings, including a restructuring charge of $9 million linked to the $155.2 million acquisition of ITI Marketing Services Inc., Chicago, a provider of customer capture and care solutions.

Excluding the charge, APAC, a premier provider of outsourced customer service and sales, saw second-quarter profits at 4 cents per share, significantly lower than the 11 cents that analysts were expecting. Management further adjusted second-half earnings estimates to 16-18 cents per share.

There is nothing out of the ordinary in the company's write-off caused by the ITI acquisition, said Mike Petsky, investment consultant for the direct marketing industry. At the time of the deal, APAC said it would be dilutive to earnings for the remainder of 1998. What is at issue is the core business, which is less than what it should have been.

"One more bad announcement doesn't bode well," said Laurie Kolbeins, managing director at Texada Capital, an investment banking firm, Wayne, PA. "Analysts now lack a great deal of confidence in the public statements issued by management."

The company however, continues to be hopeful. In the company's statement, Theodore G. Schwartz, APAC's chairman and CEO, said it is fully committed to achieving profitability objectives. "APAC is focused on the successful integration of ITI and the realization of our synergistic opportunities," he said.

With revenues around half a billion, the company is in the process of rationalizing its operations. "They may lose some clients," Kolbeins said, but he added that it may not be a bad buy at this price.

The company's stock has gone from a peak in October 1996 of $59 per share to the current price of $5 per share. The company's initial public offering was $8 per share.

"They are in process of a full customer improvement integration program that is taking longer and is more expensive to implement than they anticipated," Petsky said. "It is likely, however, that the business will be profitable at the end of the year."

According to Petsky, the company's subsidiary, Paragren Technologies, Inc., Reston, VA, a database marketing solutions provider, is the one thing that may save the company. It can enter into the client's database offering value-added services with data warehouse consulting and market research.

"Long term, it is going to be the way many of these firms will go," Petsky said.

APAC said it plans to close four customer contact centers with job losses expected.
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