Delay in signing up schools triggers 13% fall in EAI stock Contracts expected for 2-3 city schools


NEW YORK -- Investors dumped stock in Education Alternatives Inc. yesterday after the nation's leading manager of public schools failed to announce it had signed up more schools in Baltimore.

At the same time, the Minneapolis-based company announced its quarterly earnings, which were 50 percent below some Wall Street estimates. The combined hit knocked EAI's share price down 13 percent, to $42.25, yesterday from its record close of $48.50 on Friday.

"Part of this is taking profit and part is that investors were expecting the company to announce new signings yesterday. When it didn't happen they sold in disappointment," said Mike Sabann, an analyst with Piper Jaffray Inc. in Minneapolis.

EAI already directly manages nine Baltimore schools under a contract with the city school board.

The company had hinted to investors that it would sign up three other Baltimore schools -- City College, Robert Coleman Elementary and Lemmel Middle School -- under a slightly different arrangement. Although the first two schools are expected to sign within the next day or two, investors had expected the signings yesterday, Mr. Sabann said.

EAI officials did not return phone calls seeking comment.

The delay comes nearly 18 months after EAI signed the initial contract in Baltimore and after several possible new contracts in other school districts around the country did not materialize. Investors have, in part, bid up the stock in anticipation of new contracts.

EAI financial results for the three months ending Sept. 30 showed that it turned a profit of $330,000 on revenues of $5.4 million, compared to a loss of $186,000 on $5.2 million last year. The turnaround, however, was largely due to interest income on capital raised in a stock offering this past spring. Investors paid more than $30 million for the new stock, and that money is now earning interest for EAI.

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