SAN FRANCISCO -- Outsourcing company
boosted shareholders' spirits with plans to increase its stock buyback by $350 million.
Convergys, which supplies services to help companies manage customer care and employee programs, said Tuesday that it will repurchase as many as 20 million of the 140 million shares outstanding. That would reduce the company's share count by more than 14%.
Investors reacted warmly, recently bidding up shares 15 cents, or 0.9%, to $17.79.
The new buyback plan takes advantage of the weakness in Convergys' shares while possibly setting a floor under its earnings-per-share figure as it struggles to maintain profit growth.
Convergys' stock has treaded water for most of the year, but nose-dived in late July after reporting second-quarter results that missed sales and profit forecasts. Shares were off more than 30% for the year and set a new 52-week low before the latest buyback was announced.
, a human-resources and payroll company, is up about 18% this year. That's partly due to the company's plans to sell itself to
and the insurer
Fidelity National Financial
The company's profitability is suffering under the weight of heavy project start-up costs. In the last quarter, its gross margin shrunk from 9.1% to 8.2%.
Convergys has also abandoned its plan to reach break-even in its human-resources services business, indicating that its profitability will be under pressure for longer than anticipated.
The company has not set a specific timeline for the buyback, saying only that it will make repurchases "from time to time." Depending on fluctuations in the stock price over the course of the buybacks, the final number of shares may vary from the 20 million targeted for repurchase.
But Convergys' track record suggests that it will not hesitate to put its buyback plans into action, and possibly succeed in mopping up the 20 million shares before any significant changes in its stock price occur.
In the past six weeks, the company has spent $42.2 million buying back about 2.4 million shares.
A Convergys representative could not say if the company would use debt to finance the buybacks or use cash on its balance sheet or cash from operations. In the last quarter, the company generated $40 million in cash from operations and finished the period with about $222 million in cash on its balance sheet.
Scott Sutherland, an analyst with Wedbush Morgan, expects Convergys to spend about $55 million per quarter buying back up to 3 million shares. This could add about 3 cents to EPS each quarter for the remainder of the fiscal year, Sutherland estimates. Wedbush Morgan makes a market in Convergys shares.