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Sykes stock tumbles again

Published Sep. 26, 2005

Auditing problems shake investor confidence as troubles deepen for the call center operator and its founder.

Are the wheels coming off Sykes Enterprises?

In a week, the operator of call centers that has been one of the Tampa Bay area's fastest-growing companies lost 60 percent of its stock value after delivering a pair of jolts to Wall Street.

On Jan. 25, Sykes warned that fourth-quarter earnings would be at least 40 percent below expectations. Its stock price plunged from $47.25 to $23, erasing three months of gains.

Tuesday, the company again surprised investors by postponing the release of its fourth-quarter earnings by a week. It said auditors were unable to complete a review of 1999 financial results before a company-imposed deadline. This time, its shares hit a one-year low of $17 before closing at $18.56\, down $9.12{.

The auditing problems may turn out to be green eyeshade technicalities. The company wouldn't say. But investors clearly feared the worst, and they clearly have lost confidence in Sykes.

The stakes are high for the bay area, where founder John Sykes is viewed as something of a superhero among business leaders and has become one of the state's leading philanthropists.

Just last Thursday, he and his wife, Susan, said they were giving $28-million to the University of Tampa, thought to be the largest single gift ever to a university in Florida. Sykes is also a prime mover in Florida's ambitious effort to land the 2012 Summer Olympics.

Much of Sykes' wealth is tied up in the company he started. Sykes, who is chairman and chief executive officer, owns more than 40 percent, or about 18-million shares.

Two weeks ago, his shares were worth on paper more than $900-million. After Tuesday, they are worth about $330-million.

In the past year, Sykes, 63, has delegated day-to-day operation of the company to his subordinates. Now, analysts question whether management has lost some control of the high-flying company.

When the company went public in April 1996, it had six call centers and 2,000 employees. Today, Sykes is a global company with 38 call centers and 14,000 employees. More than 200 work at the Tampa headquarters.

"Anytime you grow as quickly as Sykes, it certainly tests the controls and infrastructure you have in place," said Steven Toomey, an analyst at George K. Baum & Co. in Kansas City.

John Sykes moved to Tampa from Charlotte, N.C., in 1993 after separating from his first wife. He brought his company with him, and it found a niche answering consumers' questions about their computers and software. The company also provided help-desk support for large companies.

His customer list boasts some of the biggest names in the technology industry, such as Microsoft Corp., Apple Computer and IBM Corp. Customers calling such companies when their computer crashes may never realize that the "tech support" agent they talk to really works for Sykes.

As his company grew, Sykes created goodwill outside Tampa by opening call centers in small towns from Ponca City, Okla., to Milton-Freewater, Ore. Last July, President Clinton applauded him for building two centers in Eastern Kentucky that would each employ about 200 people. The CEO's motives were not entirely charitable. He extracted millions of dollars in incentives for the company from governments and civic groups to open facilities in their towns.

But the company's growth stalled in the fourth quarter ended Dec. 31, primarily because it could not close three contracts worth $10-million in revenue. Sykes expects earnings per share of 20 cents to 22 cents a share, much less than the 37-cent estimate of analysts.

The latest news about the incomplete audit has analysts even more concerned. "Historically, when a company postpones its earnings release and auditors need more information, the outcome hasn't been good for investors," Brian Maimone of ING Barings LLC in New York told Bloomberg News.

John Mahoney of Raymond James & Associates in St. Petersburg lowered Sykes' rating to "market perform" from "strong buy" until the company sheds more light on last year's financial statements.

Sykes president David Grimes declined to characterize the kind of information auditors requested.

Ernst & Young LLP, the company's auditors, did not return a phone call to its Tampa office.

A Sykes shareholder on Tuesday sued the company, the founder and chief financial officer Scott Bendert, accusing them of securities fraud for artificially inflating the stock price. The plaintiff is seeking class-action status, according to the lawsuit filed in U.S. District Court in Tampa.

Sykes presumably was sensitive to accounting issues after an independent research firm assailed its practices last year. The Center for Research and Analysis in Maryland, which specializes in spotting red flags in the finances of public companies, challenged the way Sykes recognized certain types of revenue. CFRA also predicted the company was due for an earnings shock.

Investors shook off the questions about Sykes' accounting practices the first time, but now they are not so sure.