Cendant says earnings top analysts' estimates First-quarter results 'preliminary,' await audit of irregularities


Continuing efforts to calm investors, Cendant Corp. said yesterday that "preliminary" first-quarter earnings topped Wall Street's estimates.

The company reported preliminary first-quarter net income of $229.5 million, or 26 cents per share. The consensus estimate by Wall Street analysts was 25 cents. The earnings statement omitted results from the year-ago quarter.

The huge service company also postponed its annual meeting -- originally scheduled for May 19 -- while it assesses the damage to earnings caused by "potential accounting irregularities" discovered last month.

The company said results from 1997 and the first quarter of 1998 are subject to change after an investigation by the audit committee of Cendant's board of directors.

"Clearly, we're in a wait-and-see mode because the earnings are subject to change," said Lewis H. Alton, managing partner for L. H. Alton & Co. in San Francisco. "I think management is being clear and forthright and is willing to communicate as much as it can."

"The critical issue here is what will be the impact of" the irregularities, Alton said. Yesterday's release marked Cendant's first financial disclosure since the company said accounting problems will cut up to $115 million from 1997 net income and also affect 1998 results. That news sent shares plummeting 46 percent April 16, from $35.625 to $19.0625.

The irregularities were discovered in the former CUC International Inc. of Stamford, Conn., which merged last year with Parsippany, N.J.-based HFS Inc. to create Cendant Corp. The company, which includes discount shopping clubs and franchises for real estate, hotel and car rental companies, employs about 40,000 employees worldwide and claims to make more than 100 million customer contacts annually. Its holdings include the former PHH Corp. in Hunt Valley and O'Conor, Piper & Flynn-ERA in Timonium.

Cendant's audit committee has retained Willkie, Farr & Gallagher of New York as special legal counsel, which has in turn hired Arthur Anderson LLP to conduct an investigation. The investigation and any required changes will be completed this summer. Cendant expects to hold its annual meeting in the fall.

Since the disclosure of accounting problems and the subsequent stock plunge, law firms have filed well over a dozen class-action suits claiming Cendant misled investors by disclosing the problems too late.

In its statement yesterday, Cendant said more than 80 percent of its quarterly net income came from businesses not affected by the "potential accounting irregularities."

Net income for those businesses was $189.1 million for the first quarter, a 108 percent increase from the previous year.

Revenue for those businesses was $699.6 million, a 35 percent increase from the year-ago quarter. The company also said its travel and real estate businesses had record sales.

"The Cendant figures were in line with analysts' expectations, but we still have significant concerns about the potential accounting irregularities and whether they are leaking into other operations," said Tom Burnett, director of Merger Insight, an institutional research service in New York.

While Cendant is trying to show that the accounting problems are contained, "the market is not convinced it's done," Burnett said. "Until then, shares are going to trade in the area between $20 and $25."

Yesterday, Cendant shares closed at $24.5625, down 93.75 cents.

Pub Date: 5/06/98

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