How AHL Makes Its Financial Performance Look Better Than It Really Is - TheStreet

How AHL Makes Its Financial Performance Look Better Than It Really Is

Also, Lason's loopy logic and more on splits.
Publish date:


From the Quality of Earnings Department:

How was I supposed to know that Howard Schilit's

Center For Financial Research and Analysis

would come out with a report on

AHL Services


the same day I was writing up AHL? Well, that's just what happened Friday, but that's no reason for this column to avoid the story, especially since it deals with issues apparently not mentioned by Schilit, whose report I haven't seen. However, I'm told he delved into a number of balance-sheet items, including a continuing cash-flow deficit, weaker-than-apparent revenue growth and increased debt.

I stumbled on AHL last week when talking to one of my short-selling sources, who had mused how the company's shares shot up last month after announcing a new deal involving its

, which was created just a month earlier. Atlanta-based AHL is in the business of providing blue-collar workers to handle such jobs as baggage handling at airports. However, this new dot-com -- which, as a Web site, is little more than an advertisement -- appears to be just an e-name for the company's

Gage Marketing Services

, which provides staff for such e-commerce chores as manning phones to filling orders in a warehouse.

But it's not the sudden e-fatuation with AHL over e-commerce that attracted short-sellers to the company's stock


Schilit's piece and long before the creation of e-fulfillment. It was those balance-sheet items, plus one issue that Schilit didn't mention.

Herb's Latest: Join the discussion on

TSC message boards.

The shorts' concern was the way the company boosted its operating margin (earnings before interest and taxes as a percentage of revenue) from around 3.3% a year and a half ago to 7.3% as of the end of the last quarter. The rise, however, can largely be attributed to a nonoperating item: The company lowered the reserve it set aside for workers' compensation claims.

Had the reserve stayed the same, at 4.85% of revenue, the operating margin would've grown to only 5.4%, rather than 7.3% -- which means that AHL's earnings before taxes wouldn't have been quite what the company reported.

AHL officials did not return several calls for comment.

Who knew what when, a week and a half ago,



issued a news release addressing the recent weakness of its share price? In the release, the outsourcing company said it had no idea why its stock had fallen by nearly 15% the day before, and why it was down almost 50% from early November: "We are concerned about our stock price drop and its volatility, and we are not aware of any reason for Lason's share price decline," declared CEO Gary Monroe. (A year ago Lason was the

focus of an item here headlined, "Is Lason Printing Fiction or Nonfiction Earnings?")

Fast forward to last Friday: After the market closed, Lason issued a news release with a number of announcements, including that the company is exploring the idea of spinning off its e-commerce biz and discontinuing some operations and services, which it says "are no longer consistent with Lason's long-term growth strategy."

Oh, and by the way, it said also, way down at the bottom of the release, that earnings


discontinued operations and other charges will be 31% to 38% lower than analyst estimates.

And they didn't know


bad news a week ago? Well, somebody obviously did.

Lason officials did not return our call seeking comment.


Just a note of thanks to the dozens of you who emailed your approval and disapproval of my comments

here last week, in response to


, on the issue of stock splits. Wished, however, that you'd posted your thoughts on the

boards with others who did. That would have helped investors form their own opinions on what is always an emotion-filled topic.

Herb Greenberg writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.