Business: Investors, analysts wait-and-see on Sykes plan

Investors, analysts wait-and-see on Sykes plan

By SCOTT BARANCIK

TAMPA -- A day after Sykes Enterprises Inc. revealed its latest restructuring plan, Wall Street reacted with a yawn.

If investors were impressed, they didn't show it. The embattled company's stock price inched up just 3 cents Tuesday, to $4.59 a share. And while analysts said Sykes' new plan was welcome, they don't necessarily buy the company's 2001 earnings forecast.

And just how much faith do they have in Sykes' ability to deliver the numbers?

"None," said Prudential Securities analyst Kevin Dyches. "Nobody believes it right now. That's why they're a $4 stock. They've got to show me."

"I'm skeptical because of past disappointments," said Merrill Lynch & Co. analyst Fran Blechman Bernstein.

Tampa-based Sykes started 2000 with a stock price of $43.88 and 11 Wall Street analysts monitoring its every move. It was a leading player in the call-center business, and, because Sykes' primary clients were high-flying technology companies, its growth possibilities seemed endless.

But after a disastrous year marked by accounting errors, leadership changes, shareholder lawsuits, a slowdown in computer sales and the meltdown of dot-coms, the company's stock price plummeted to $4.44 and its pool of analysts to eight.

Most unforgiveable, perhaps, was the fact that the company fell short of its own earnings expectations seven times in an eight-quarter period. That track record leads analysts to view the company's 2001 forecasts skeptically.

"Obviously, guidance coming from a company that's never missed earnings, you have a higher confidence level," said Robert W. Baird & Co. analyst Carla Cooper.

Now, Sykes is trying to refocus its outlook and rebuild its image. As part of that effort, the company announced this week it would close two money-losing divisions and its Tampa call center, firing about 460 workers.

But at the same time, it plans to expand the business for which it is best known: providing technical support via telephone and the Internet to people struggling with hardware or software. Dozens of computer companies around the world pay Sykes to help their customers.

"We are committed, all of us, to executing this plan with the objective of delivering consistent results and maximizing value for our shareholders," chief executive John Sykes said in a conference call Tuesday.

What the company is saying is "We're getting back on track,' " Dyches said. "We'll do what we do well, and we're going to jettison the parts of this ship that don't do well.' They've gotten rid of the baggage."

Sykes is gambling that it can sign up enough new customers -- and get enough new business from existing customers -- to increase its call-center earnings by 11 percent to 18 percent this year.

Toward that end, the company is trying to diversify its client base beyond high-tech companies and said it already has made strides. Telecommunications clients accounted for 1 percent or 2 percent of Sykes' total revenues in 1999 but about 19 percent in 2000. The company hopes to land contracts with banks and other financial service companies this year.

In anticipation of such growth, the company is opening three new call centers this quarter in the United States and may open two more before the year is over. Sykes also plans to add call centers in Italy, Spain, France and Germany. It currently has 38 call centers.

Whether or not Sykes will meet its 2001 forecast -- revenues of $580-million to $620-million, with earnings of 42 cents to 47 cents per share -- remains to be seen.

CEO Sykes and other officials called the forecast conservative. It assumes slower earnings growth than was predicted in prior years, no new contracts involving the company's AnswerTeam software, and a continued deterioration in the health of the company's computer industry clients.

Cooper said the economy's slowdown might actually work to Sykes' advantage.

"Outsourcing becomes very attractive at a time when companies are trying to reduce their own costs," she said. "For example, I believe Apple (Computer) outsourced more to Sykes during difficult times because it was a great way for them to turn a fixed capital cost into a variable expense item."

- Contact Scott Barancik at barancik@sptimes.com or (813) 226-3404.