January 27, 2009 / 2:07 PM / 10 years ago

UPDATE 2-Convergys Q4 earnings top analyst estimates; shares up

* Q4 adj EPS $0.30 beats estimate by 11 cents

* 2009 EPS view $0.90-$1.10, vs estimate of $1.03

* Cash balance $240 mln at Q4 end

* Shares rise 25 percent; top gainer on NYSE (Recasts, adds details, analyst comments, share movement)

BANGALORE, Jan 27 (Reuters) - Convergys Corp CVG.N reported a fourth-quarter profit, excluding certain charges, that trumped market estimates, as revenue from its call center business rose, sending its shares up 25 percent.

The company, which also forecast a 2009 profit range broadly in line with market estimates, posted a loss of 24 cents a share for the quarter, including a charge of 54 cents due to goodwill impairment and restructuring costs.

The company, which also handles billing and HR management, pushed towards its goal of $200 million in free cash flow by 2009, ending the quarter with $240 million in cash balance. Free cash flow in the quarter was $99.1 million.

This assuaged investor concerns over the company’s ability to generate the targeted free cash flow, with senior notes worth $250 million due for maturity towards the end of the year.

“Our strengthened cash balance combined with expected 2009 free cash flow is sufficient to invest in the business and pay off the $250 million bond due in December,” Chief Executive David Dougherty said in a statement.

Also, a major contract that Convergys signed in 2007 was implemented in early January, making it the second big contract to go live in six months.

“Reaching this ‘go live’ milestone is... one of the variables that will determine if Convergys can reach its goal of approximately $200 million of free cash flow in 2009,” said Credit Suisse analyst Kevin McVeigh, in a note dated Jan 22.

McVeigh initiated coverage on Convergys with a “neutral” rating.

Shares of the Cincinnati, Ohio-based company were trading up 24.96 percent at $8.83 in midday trade, making them the biggest gainer on the New York Stock Exchange.


The company, which has been looking to spin off its billing software unit since last September, said it was not likely to separate the business in the near term, given the turmoil in capital markets.

In its last quarterly report, the company had said revenue from its biggest client in the segment — AT&T Inc (T.N) — would be down by about $40 million in 2009 and by about $65 million in 2010 from 2007.

Revenue from Sprint Nextel Corp (S.N) would be down by about $50 million in 2009 from 2008, the report had said.

Many large call center clients, like Sprint Nextel Corp (S.N), are bringing more of their call center work in-house, Kaufman Bros Equity Research analyst Karl Keirstead said in his pre-earnings note dated Jan 26.

He maintained “hold” rating on Convergys’ stock.

For alerts, please double-click [ID:nWNAB4037] (Reporting by Sayantani Ghosh in Bangalore; Editing by Saumyadeb Chakrabarty)

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