Youth Services stock falls 26% Projected earnings for year are below analysts' estimates

September 04, 1996|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Youth Services International Inc.'s common stock price plunged 26 percent yesterday after the Owings Mills-based operator of juvenile delinquent centers announced its fiscal year 1996 earnings would be well below Wall Street projections.

The company blamed the $5 drop in its stock price on the stock market's failure to understand a series of one-time charges stemming from an aborted acquisition, debt retirement and the purchase of a management contract.

Youth Services' stock closed yesterday at $14.375 per share. By comparison, the stock traded at $31.25 per share in late May, after a stock split.

"It's just a classic overreaction," said Timothy P. Cole, who was hired in July as Youth Services' chief executive officer. "The prospects for this company have never been better, and management's ability to respond to opportunities have never been better. The long-term outlook for this company is outstanding."

In the near term, however, Youth Services' earnings will fall far short of analysts' expectations. Instead of the roughly $3.9 million, or 42 cents per share, in earnings that Wall Street predicted, the company anticipates it will report net income of between $2.6 million and $3 million for its 1996 fiscal year, which ended June 30.

For its fiscal fourth quarter, Youth Services expects to report net income of between $279,000 and $372,000. Wall Street had anticipated $1.3 million to $1.67 million.

The earnings will also be adversely affected by Youth Services' decision yesterday to purchase Introspect Healthcare Corp. for $4 million in cash and the assumption of $10 million in debt. The company intends to immediately retire the debt, said Bill Mooney, Youth Services' chief financial officer.

Primarily, though, Youth Services' earnings will be hampered by roughly $800,000 in charges associated with the termination of a deal to acquire Three Springs Inc. for $14.2 million in stock and the conversion of $5.7 million in subordinated debentures, and the loss of management fees from a project in Tucson, Ariz.

"I think the news has been seriously overblown," said Phil Fisher, a Genesis Merchant Group Securities analyst in San Francisco who tracks Youth Services. "The fundamentals of their business remain strong, and I believe the recent turns of events could actually be accretive to their earnings in 1997. What happened today was, momentum sellers see bad news and they just want out. People react without trying to analyze."

Fisher, who said he expects the stock to rebound significantly in the coming weeks, projects Youth Services will report earnings of about $5.6 million, or 60 cents per share, for its fiscal 1997.

The company will officially unveil its fiscal 1996 financial results Sept. 12.

Pub Date: 9/04/96

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