KPMG Profits Fall In Face Of Revenue Decline For Fourth Quarter

KPMG Consulting

Blazer said the company is focused on gaining market share as it closes the books on its fiscal year 2002. "I am very proud of the KPMG Consulting team this past year, given the current market environment," Blazer told analysts during a conference call Wednesday.

For its fourth quarter ended June 30, 2002, KPMG reported income, before charges, of $24 million, or 15 cents per share, on sales of $583.2 million. That compares with income, before charges, of $33.5 million, or 21 cents per share, on sales of $722 million for the same quarter one year ago.

KPMG results were in line with Wall Street analysts' estimates of 15 cents per share, according to First Call/Thomson Financial.

Charges for the quarter include post-tax non-operating charges of $23.7 million in "asset impairment write-offs related to equity investments, software licenses held for sale, and costs related to a workforce reduction," according to the company.

KPMG stock was down slightly in Wednesday morning trading following the call, to $9.67 per share, from a Tuesday close of $9.82.

For the fiscal year ended June 30, KPMG reported a loss of $26.9 million, or 17 cents per share, on sales of $2.4 billion. That compares with income of $35 million, or $1.19 per share, on sales of $2.9 billion for the prior year.

The company said the fiscal year's bottom line was affected, in part, by an impairment charge of $80 million related to a change in accounting principles early in the year.

KPMG also reported that Blazer and CFO Robert Lamb Jr. plan to personally certify financial results when the company files its annual report with the Securities and Exchange Commission in September.

In June, the SEC ordered top executives at 945 public companies to certify the completion and accuracy of annual and quarterly financial reports moving forward. The SEC regulations are in response to the wave of accounting scandals and alleged fraud by top executives of several companies, including Enron and WorldCom.

Blazer responded to analysts' questions about how KPMG perceives the ways in which IBM's pending acquisition of PwC Consulting would affect its business.

He said KPMG's competition with PwC Consulting is limited to certain areas and, after the merger, he expects the same competition in "a different color." KPMG will continue to work with and compete with IBM in a variety of areas, he said.

Blazer said while KPMG is not naive enough to think the move would have no effect on its business, IBM and PwC Consulting have their work cut out for them in merging their organizations. "They did a 10-day transaction, so they've got a lot of thinking left to do," he said.

Meanwhile, Blazer said KPMG is committed to focusing on the integration of its own recent acquisitions, including several former member firms of Andersen Business Consulting. "These acquisitions were important for us in order to round out our global footprint and serve key global clients," he said.

Blazer also emphasized plans to boost KPMG's revenue from its new managed services offerings, which now account for 5 percent of the company's overall revenue.

"[Managed services is really a normal extension of the systems integration work we are doing," he said. "We've already seen some key wins in this area and are targeting managed services to become 15 percent of our revenue over the next couple years."

Managed services revenue may be a way of making up for declines in consulting revenue amid an extended market slump. KPMG reported a significant decline in revenue generated by the company's High Technology and Communications and Content business units in an unstable environment. Revenue from the company's Public Services business unit, however, was up 4.8 percent in the fiscal fourth quarter, compared with the same quarter last year.

Blazer also told analysts the company is particularly pleased with a 29 percent revenue increase in the Financial Services business unit, which was hit particularly hard following the terrorist attacks last September.

Utilization rates improved to 71 percent for the fourth quarter, up from 68 percent for the same quarter last year. Workforce reductions during the last year also reduced professional personnel costs by 5.4 percent, to $219 million.

CFO Lamb told analysts during the call that KPMG expects to post earnings of between 8 cents and 10 cents per share for its first fiscal quarter ended Sept. 30.

The estimates include costs of between $20 million and $40 million associated with renaming and rebranding the company. The name change was announced earlier this year, but there is no word yet on the new identity.

KPMG Consulting split from the accounting company KPMG, filing its initial public offering about two years ago.