Convergys Boosts 3Q Earnings View; Shares Up

NEW YORK -(Dow Jones)- Convergys Corp. has raised its third-quarter earnings guidance, lifting shares to a four-year high, but the billing and customer-management company offered no explanation for the upside surprise.

The Cincinnati company said it now expects to earn at least 30 cents a share on revenue of more than US$700 million. The company previously forecast earnings of 27 cents to 28 cents a share.

The 20 analysts surveyed by Thomson First Call expect, on average, earnings of 28 cents a share on revenue of $695 million.

Convergys will release its third-quarter results on Oct. 25. Numerous calls to the company weren't immediately returned.

Shares of Convergys were recently up 71 cents, or 3.5%, at $20.99, with 1.2 million shares traded, around one and a half times average daily volume. Shares earlier reached $21.72, their highest since June 2002.

Robert W. Baird & Co. analyst David Koning said several scenarios likely account for Convergys' positive guidance.

"We consider it possible that the source of upside was from customer care, given continued industry momentum; the newer international billing contracts; (and) higher-than-expected professional services revenue from the Sprint migration," said Koning, who rates the stock at neutral due to obstacles that could remain through 2008 and because he believes the current valuation is reasonably fair.

In January, Convergys announced that Sprint Nextel planned to end its billing relationship with the company. Since then, Convergys has assisted Sprint in migrating subscribers off the existing Convergys platforms throughout the year and into 2007.

Convergys said at the time that its information management group generated about $100 million in revenue from the communications company, with profitability levels comparable to the average of that unit.

But while the end of the Sprint deal will cut into Convergys' earnings long-term, Koning said that, in the near term, it "can help because they can get some professional services revenue from assisting with the migration."

Analyst Marianne Wolk of Susquehanna Financial Group questioned the timing of the announcement.

"Is this a positive or negative signal regarding guidance? Convergys has no public events scheduled this week, leaving us baffled as to why they released this news today ahead of its earnings report on Oct. 25," she said.

She agrees that restructuring benefits added to Convergys earnings, but noted that the company's revenue guidance of $700 million is "only $5 million" above the average analyst estimate. That increase, she said, equates to earnings of less than a penny a share.

Wolk said the 3-cent increase in the earnings estimate will come from better profitability "stemming from restructuring benefits taken in the fourth quarter of 2005."

Wolk rates Convergys shares at negative and says the close of contracts with Sprint and AT&T will have a negative affect on earnings in the long-term.

Separately on Tuesday, Convergys said it won a five-year contract to provide the UK's BT Group with billing and customer-care software.

Under the order, BP will use Convergys' Infinys product to support all of its consumer, business and wholesale customers that include more than 27 million public-switched network customers.

Financial details of the order weren't disclosed.

(Robert W. Baird & Co. and Susquehanna or its affiliates expect to receive or intend to seek investment-banking-related compensation from the company within the next three months.)

-By Erica Owen, Dow Jones Newswires; 201-938-5393; erica.owen@dowjones.com

(END) Dow Jones Newswires"

Posted to the site on 11th October 2006