Administaff Shares Drop Sharply

Administaff shares were down 22.5% on Monday, after the HR services company blamed cancellations from mid-sized customers and higher benefits costs.

The company had previously said it expected 2007 unit growth of 12% to 16%. When it cut that forecast to 10% or 11% during an investor conference call, the shares dipped suddenly.

During the call, CEO Pail Sarvadi explained that the company had run into significant challenges in November and December, leading to “short-term dampening on our growth rate.”

The remaining two months of 2006 included the termination of seven accounts, totaling about 2,000 employees. Six took the HR function back in-house, and one went to an Administaff competitor, the company said.

“The root cause of the change in our outlook is the difference between our expectations and results in the sales and retention in our developing mid-market segment,” Sarvadi said.

The company defines the mid-market segment, a new unit for Administaff, as clients with at least 150 employees.

“We believe mid-market sales and retention is more weighted to year-end,” Sarvadi added.

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However, the company also announced a 22.2% increase in fourth quarter net income to $13.4 million in the 2006 period from $10.9 million in the 2005 period.

For the year ended December 31, 2006, the company reported net income and diluted net earnings per share of $46.5 million and $1.64, compared to $30.0 million and $1.12 for 2005.

The company said diluted earnings per share increased 46.4% over 2005.

The stock dropped $9.70, or 22.5%, to $33.38 in afternoon trading on the New York Stock Exchange. The stock averaged $30.30 to $58.99 over the past year.

Elaine Rigoli has nearly 15 years of experience managing content and community for various B2B and consumer websites. Elaine has written thousands of business and technology articles and has been quoted in The Wall Street Journal and eWeek, among other publications.

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