Youth Services International Inc. announced yesterday that it expects to report earnings for the quarter ending June 30 and the rest of the year that are substantially below expectations, sending its share price plummeting 54 percent.
The Owings Mills operator of facilities for juvenile offenders, which is in the midst of an acquisition spree, has experienced delays in opening new and expanded facilities, said Timothy P. Cole, YSI's chairman and chief executive.
"When you have a company that has grown like this, it's susceptible to short-term swings," he said. "This is a minor blip that companies experience and it won't have an impact on the long-term success of this company."
Youth Services stock shed $9.2188, closing at $7.7813 yesterday after touching $7.50, a 52-week low. On April 3 the stock had closed at a 52-week high of $20.375.
According to analysts, YSI had been expected to earn 12 cents a share in the second quarter, and 53 cents a share for the year. It earned $887,000 or 9 cents a share in the second quarter last year on revenue of $29.1 million. For all of 1997, the company posted a $16 million loss, equivalent to $1.59 a share, on $108 million in revenue.
Yesterday's stock price decline "doesn't mean anything more than it's a tremendous buying opportunity," Cole said. "I'd say its real bargain."
Jerry L. Robinson, an analyst with Stephens Inc. in Little Rock, Ark., disagreed. Yesterday, he downgraded his recommendation of YSI's stock from "buy" to "neutral."
"Clearly the market is disappointed," Robinson said. "People's expectations were that Youth Services was going to grow very rapidly. When a company misses that expectation, it is going to have problems."
YSI said that while it expects the third and fourth quarters to show improvement over the second, revenue and earnings for them and the full year would still be substantially below expectations.
Meanwhile, it is the "job of management" to try to lessen the decline by "accelerating activity," Cole said.
The lower earnings projections are not due to the company's recent withdrawal from the behavioral health business to refocus its core business on juvenile justice programs, nor to its spate of acquisitions, Cole said.
There have been occupancy problems at two projects in the Midwest that have been affected by a recent trend among states to retrieve their juvenile offenders from out-of-state facilities and place them in their home state, said Kimberly E. Nichols, YSI's vice president of finance and investor relations.
There also have been delays in the opening of facilities in Minnesota and Illinois. Both were supposed to open in January, but the Minnesota facility didn't open until April and the Illinois facility still hasn't opened, Nichols said. The projects have been hampered by construction and licensing delays.
Another project in Michigan is also behind schedule. The 100-bed facility was scheduled to be expanded to 200 beds this year, but the project has not begun, Nichols said.
"A lot of these reasons are beyond our control," Nichols said. "It just so happened all of these events happened at the same time."
Robinson, the analyst, said YSI has long-term potential, but it's currently a risk.
"Value is in the eyes of the investor and I think this company has to get those facilities [occupied] and re-establish a solid earnings pattern before we see the stock move," he said.
To buy CCI
In other news yesterday, YSI said it signed an agreement to buy Community Corrections Inc. (CCI), a privately held corporation that operates five Texas residential boot camp facilities with approximately 350 beds and provides services for youths in Georgia who have been sentenced by a court.
CCI will receive $6.75 million in shares of YSI common stock.
"This allows us a significant geographic presence in a large state," Cole said. Currently, YSI has two small facilities in Texas. The merger also will put YSI in Georgia for the first time.
YSI expects that CCI will generate annual revenues of approximately $9 million. CCI's principal executives will stay on.
Also, YSI announced that it has entered into final contract negotiations with Hendricks County, Ind., to design, build, finance and operate a juvenile detention center. Initial capacity would be approximately 40 beds. Construction of the $3 million center could begin in August, Cole said.
Pub Date: 5/29/98