CSG Plunges After Comcast Ruling - TheStreet

CSG Systems

(CSGS) - Get Report

plunged 30% Wednesday after an arbitration setback slashed its earnings and revenue forecasts.

The ruling came in a dispute with cable giant


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over a customer-care outsourcing contract. CSG entered that arrangement in 1997 with AT&T Broadband, a cable operator that Comcast acquired last year. Comcast, which has engineered a swift turnaround of the once-laggard AT&T systems, had sought to end the deal, while CSG sought to extend its reach to Comcast's other systems.

On Wednesday, the companies said an arbitrator ruled that Comcast didn't have the right to terminate the deal, but neither did CSG have the right to extend it. Moreover, the arbitrator ruled that CSG should pay Comcast $120 million, to bring the big Philadelphia cable operator down to the rates that CSG's other big customers foot. CSG said it will seek to have the award reduced by $50 million.

The Englewood, Colo., company said the revised terms of its dealings with Comcast will reduce quarterly revenue and operating income by $8 million to $14 million -- which means a revenue cutback of at least 20% and an operating income reduction of at least 40%. CSG expects an EPS shortfall of 9 to 16 cents.

Wall Street projects third-quarter earnings of 25 cents a share and fourth- quarter earnings of 27 cents a share. The Street also predicts total revenue of $144.5 million for the third quarter and $146.1 million for fourth quarter.

CSG paid a steep price for the loss, as its shares fell $4.70 to $10.80. Comcast shares slipped modestly, dropping 42 cents to $31.81, as Merrill Lynch analyst Jessica Reif Cohen called the arbitration outcome a "split decision" for the cost-conscious cable juggernaut. The analyst noted that the award isn't likely to have any impact on Comcast's profits because of reserves the company established, and pointed out that "the ongoing dispute with CSG is likely to impede Comcast's goal of taking in-house 100% of video customer care calls."