Investors Lay Off Administaff

Shares of the HR services outfit plunged Monday as its quarterly results were dinged by rising healthcare costs

Administaff (ASF) warned Apr. 23 that rising healthcare costs have dented its earnings from selling human resources and insurance services to small and mid-size businesses. The Houston company's stock price plunged after the news.

Administaff now expects to have first quarter 2007 earnings per share of 30 cents, while analysts surveyed by Thomson Financial forecast 37 cents during the three months ended in March.

"This shortfall is due primarily to higher than expected healthcare costs," the company said in a statement Apr. 23. Administaff expects to have an average 104,881 worksite employees paid per month, slightly less than its previous guidance of 105,500 to 106,000. Its average gross profit per worksite employee per month will amount to $216, compared to its initial guidance of $224 to $230.

After the news investors sold the stock 11.5% to $33.21 per share on the New York Stock Exchange.

Roth Capital Partners analyst Timothy Brown lowered the firm's price target on the stock to $38 from $48 per share on Apr. 23, explaining that "continued pressure from healthcare costs and somewhat slower worksite employee growth will pressure results throughout 2007." (Roth Capital does and seeks business with companies covered in its reports.)

It's not the first time Administaff has faced such challenges. In 2002, the company reported its only annual loss in the past decade, as escalating healthcare costs squeezed its profits, Brown pointed out. Since then the company has taken protective steps such as expanding its healthcare offerings.

The company on Apr. 23 announced an agreement with the provider UnitedHealthcare (UNH) to extend its current medical and dental plans for an additional three years, beginning in 2008 through 2010. Under the terms of the agreement, Administaff expects lower services costs to save around $18.3 million, including a $3.3 million credit in May 2007. "This arrangement demonstrates the long-term success of our relationship with UnitedHealthcare and our joint commitment to offer premium healthcare benefits at affordable prices," Administaff president Richard G. Rawson said in a press release Apr. 23.

More affordable health care sounds nice to just about everyone nowadays -- including, no doubt, the higher-ups at Administaff.

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