Press Release Archive
FT. LAUDERDALE, Fla.,
Cinda Hallman, President and CEO of Spherion commented, “We are pleased that gross profit margins remained relatively consistent this quarter and that the actions we took early in the first quarter to adjust our cost structure improved operating margins in all three business segments. However, based on the cyclical nature of our current business mix, demand for our services has been significantly impacted by our customers’ reduction in spending on flexible staffing and new information technology initiatives.”
Commenting on Spherion’s business strategy, Hallman continued, “I am pleased with the results of the strategy work and operational reviews of our largest businesses undertaken during the second quarter. We will immediately begin implementation of several business transformation initiatives to position the business for increasing shareholder value.”
Earnings for the second quarter, excluding the gain on the sale of Michael Page, were $4.3 million and related earnings per share (EPS) were $0.07. During the same period in 2000, the Company reported earnings per share of $0.42, including $0.14 from Michael Page. Comparable cash EPS (EPS plus after-tax intangible amortization) for the second quarter of 2001 were $0.20 versus $0.56 in 2000, including $0.19 from Michael Page. EPS for the second quarter of 2001, including the gain from the sale of Michael Page, were $2.83. Revenues for the second quarter were $646.1 million. Excluding Michael Page revenue in prior periods, second quarter revenue declined 17.7% compared with the same period last year and 4.3% compared with the first quarter of 2001.
For the first half of 2001, earnings, excluding special items, were $14.7 million and related EPS were $0.24, including $0.18 from Michael Page in the first quarter, as compared with $0.79, including $0.26 from Michael Page, in the first half of 2000. EPS for the first half of 2001 were $2.46, including the gain on the sale of Michael Page, restructuring and other charges and a charge related to a change in accounting. Cash EPS, excluding special items, were $0.54 and $1.07 for the first six months of 2001 and 2000, respectively, including $0.23 and $0.35 from Michael Page in both periods. Revenues for the first half of 2001 were $1.5 billion, including $0.2 billion from Michael Page. Excluding Michael Page revenue in 2000, first half revenues declined 16.8% compared with the same period last year.
During the second quarter, the Company authorized a share repurchase program for a total of 3 million shares over the next year. The Company did not repurchase any shares under this authorization during the quarter.
Segment Review—Second Quarter 2001
Commercial Staffing reported revenue of $336.1 million for the second quarter of 2001, a decline of 21.0% compared with the same period in 2000. On a sequential quarter basis, revenue declined 3.8%. Segment gross profit and operating margins were 20.6% and 2.5%, respectively, compared with gross profit and operating margins of 21.1% and 2.3% reported in the first quarter. The Company consolidated certain branches during the quarter, resulting in some loss of business. The elimination of the under-performing operations yielded net savings to the Company and improved operating margins. Information Technology Information Technology revenue was $160.4 million in the second quarter of 2001, a decline of 17.4% and 5.8% compared with the second quarter of 2000 and first quarter of 2001, respectively. Consistent with trends experienced in previous quarters, the sequential decline in revenue is primarily attributable to our Solutions business, as client companies continue to defer the start of new IT projects. Gross profit margin for the second quarter 2001 was 31.0%, compared with the 31.4% reported during the first quarter of 2001. Second quarter segment operating margin increased to 4.6% from 3.7% in the first quarter of 2001. The decline in second quarter gross profit margin is primarily attributable to European operations, while operating margin improvement reflected the impact of cost containment actions initiated at the end of the first quarter throughout the technology operations.
Professional Services reported revenue for the quarter of $149.6 million, a decrease of 9.4% from the second quarter of 2000 and 3.7% on a sequential quarter basis. Gross profit and segment operating margins during the second quarter of 2001 were 36.2% and 3.9%, respectively, compared with 35.4% and 3.0%, respectively, in first quarter 2001. The slowing economy resulted in a reduced demand for professional recruitment services. Expense management and the incremental contribution of increased outplacement business were primarily responsible for the 90 basis point improvement in segment operating margins during the quarter.
The Company completed the sale of its based subsidiary, Michael Page, at the beginning of the second quarter. The transaction resulted in net, after-tax proceeds to the Company of approximately $710 million and an after-tax gain of $186 million, including the gain on foreign currency hedging activities related to the transaction. The Company used approximately $570 million of the cash proceeds to substantially reduce debt and currently holds the balance of the proceeds in short-term, cash equivalents, providing increased liquidity and overall financial flexibility.
Business Transformation Strategy
During the second quarter the Company initiated a thorough review of its operations and development of its business strategy. As a result the Company will undertake a series of business transformation initiatives designed to drive our goals of: increased predictability of revenue and earnings, continuous productivity improvements and enhanced profitability.
What we will do
“Spherion’s goal is to create a sustainable, focused business model concentrated in Recruitment and Outsourcing,” Hallman said. She further explained how the Company will achieve its goals:
- We will immediately begin a focused effort to further define and dramatically increase our Outsourcing business. Since multi-year agreements are typical within the outsourcing arena, increasing the proportion of outsourcing services as a percentage of our total business is critical to improving the predictability of the Company’s performance. To be successful, we will leverage current recruitment, call center and administrative service competencies, add talent to broaden our outsourcing knowledge base and aggressively pursue partnership opportunities to complete service offerings, expand delivery channels and increase sales.
- We will disproportionately focus our growth efforts in professional and administrative Recruitment services. We will increase emphasis on our significant local buying and middle market client base, supported by very focused marketing and sales resources. We will immediately begin optimizing our market presence to build dominance in key, strategic US markets, while exiting certain others. We will aggressively review all business that does not meet minimum risk/reward criteria.
- We will refocus the technology business on services that leverage our competencies. We will offer these services as a complement to our Recruitment business and a component of our expanded Outsourcing offerings.
- We will invest in IT systems to support productivity improvements and enhance our ability to drive efficiency within both our field and corporate operations.
- We will dispose of several small, low performing, non-strategic businesses.
- We will measure our progress toward our goals in the three areas of predictability, productivity and profitability and report on them regularly.
- We will measure predictability as the percentage of revenue under multi-year agreements. Our goal is to increase that metric from approximately 17% today to 30% of total revenue in the next three years, effectively doubling the size of our Outsourcing business.
- We will measure productivity by increasing our efficiency and ability to turn gross profit into net profit (EBITA/Gross Profit). We expect continuous improvement in this measurement.
- We will measure profitability by increasing our EBITA% from its current level, while increasing Return on Invested Capital (ROIC).
What we will not do
- We will not attempt to be all things, to all customers, in all markets.
- We will not undertake any major acquisitions at this time.
- We will not focus on increasing domestic revenue or office count at the expense of productivity and profitability.
- We will not invest in major international expansion at this time. We will focus on organic growth of our existing international business and opportunistic expansion in order to serve major global customers.
- We will not undertake a significant share repurchase at this time. We will begin to repurchase shares under the current authorization. We do not anticipate increasing the authorization until we have better visibility on the recovery of the Recruitment sector.
In an effort to accelerate the Company’s transformation, Spherion will exit certain under-performing and non-strategic operations. In third quarter, the Company will record a restructuring charge for costs it will incur related to the business transformation initiatives it has begun. In addition, Spherion will record a primarily non-cash charge in the third quarter for the write down of assets to net realizable value for business divestitures.
Hallman concluded, “I believe we have significant opportunities to succeed within the Outsourcing arena and are fully capable of transforming our Recruitment business into a more efficient and very profitable part of our Company. Spherion’s financial flexibility positions us well to undertake this transformation. I am excited about our plans and looking forward to leveraging the energy and talent already present within our organization, broadening that talent pool where necessary and fostering an environment of continuous productivity improvement to increase value for our shareholders, customers and employees.”
Spherion Corporation provides Recruitment, Outsourcing and Technology services. Founded in 1946, with operations in the ,
This release contains statements that are forward looking in nature and, accordingly, are subject to risks and uncertainties. Factors that could cause future results to differ from current expectations include risks associated with the Company’s ability to implement its new corporate strategy, acquisitions, competition, changing market and economic conditions, currency fluctuations and additional factors discussed in this release and in Spherion’s filings with the Securities and Exchange Commission. The Company’s actual results may differ materially from any projections contained in this release.