Snyder Communications stock dives 28%

Bethesda company surprises with spending forecast

Marketing

July 31, 1999|By Sean Somerville | Sean Somerville,SUN STAFF

Snyder Communications Inc. shares fell 28 percent yesterday after the Bethesda-based marketing company said it will spend far more than analysts had expected on reorganization expenses next year.

Shares fell $7.6875 to $19.375 and 10.6 million shares changed hands -- about 15 times the daily average, as analysts cut their earnings expectations.

George Shipp, a Norfolk, Va.-based analyst for Scott & Stringfellow, slashed his earnings-per-share estimate for 2000 to $1.35 from $1.81. "Everybody's going lower -- that's the bottom line to why the stock is down," he said. Shipp cut his recommendation from "strong buy" to "buy."

Shipp said the company's stock price was suffering because of a restructuring that will improve its position for long-term growth.

The company, which will spin off its health care marketing division into a publicly traded company known as Ventiv Healthcare and issue a new class of stock to track circle.com, its Internet-based service division, will spend about $23 million on reorganization expenses next year. Analysts had expected the projected outlay to be $8 million to $10 million.

Snyder, which had $815 million in sales last year and expects $1 billion this year, will continue to provide direct-marketing and advertising services around the world through its Brann Worldwide division.

Late Thursday, Snyder Communications said second-quarter earnings rose 24 percent on strong sales in all units. Net income on a pro forma basis rose to $23.3 million, or 31 cents a share, from $17.7 million, or 25 cents, in the second quarter of 1998, matching the average estimate of eight analysts polled by First Call Corp. Revenue rose 26 percent to $255.7 million from $202.6 million.

The coming expenses incurred by Snyder include launching the health care piece of the business and buying equipment and hiring staff for the two spinoff companies. "If they are going to compete, they have to do some investing," said William A. Warmington, an Atlanta-based analyst for Robinson-Humphrey.

Warmington, who kept his "strong buy" recommendation on the stock, called yesterday's downturn an overreaction. And, he said, "It's tough to predict the timing of a rebound."

Shipp, the Scott & Stringfellow analyst, said the company appears to be doing what needs to be done. "They've got three strong businesses, and they want to make sure they stay in a position of leadership," he said.

"Management is probably doing exactly what it should be doing for the long term."

Daniel Snyder, the company's chairman and chief executive officer, and some partners bought the Washington Redskins football team in an $800 million deal that closed this month.

That was the largest amount ever paid for a North American sports franchise.

Pub Date: 7/31/99

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