Daily Research News Online no. 6755 - Harris Looks for 'Bigger Footprint' as Results Disappoint

Harris Looks for 'Bigger Footprint' as Results Disappoint

May 4 2007

Harris Interactive CEO Greg Novak has apologised to shareholders as the company reduced its earnings projections and reported a mere 1% rise in Q3 revenue totals. However, he told DRNO this afternoon that 'Our strategy is working' and outlined the well-targeted acquisitions he believes will help.

The firm now says it expects net earnings for the second half of fiscal 2007 of between 6 cents and 7 cents per share and $108-110m in sales, down from 11-13 cents and $117-$122m forecast in February. Some independent analysts have suggested the company will beat the revised forecast and perform somewhere in between old and new estimates.

Revenue for the company's third fiscal quarter of 2007, which ended March 31, was $52.6m, up marginally from $52.2m for the same period a year ago. US revenue was $41.0m, down 3%, while European revenue, including $1.2m of favorable foreign exchange rate differences, was $11.5m, up 17% from the $9.8m of revenue reported for the third fiscal quarter of 2006. Revenue for the first nine months of the fiscal year is up from $156.0m to $157.1m, also on the back of a strong European rise.

Sales bookings for the third quarter were down 12% on the year to $58.6m from $66.3m, due largely to $9m of contracts which had been expected to be signed during the quarter but have not as yet proceeded.

In a conference call this morning, Novak told shareholders, 'I personally feel like I have let you down and for that I apologise'. Elaborating this afternoon, he told DRNO that despite knowing and saying up front that the turnaround would take time, the business had seemed over the worst after a 'dismal' first quarter. 'The UK got on track, we thought we were on our way to continued revenue growth and issued our guidance accordingly. We got knocked back a big step in Q3 due to the sales shortfall, and now have to reset our revenue expectations and costs.' However, the longer-term picture looks good: 'The attrition has stopped, the rebuilt sales team is now generating very good sales growth, the UK continues its good progress, healthcare and loyalty (our two largest US research groups) are starting to grow sales again, and revenue will follow. Our strategy is working.'

Harris also believes firmly that its Internet-focused model holds the key to the future. In a forward-looking article to be published in the MRWho supplement next week, Novak says he believes telephone and face-to-face methods will eventually account for only c.20% of the firm's business, but in the meantime the share of US business from online is hovering at around two thirds and that in Europe has fallen slightly from 32 to 30% as the company adjusts for growth. Global Internet revenue for the third fiscal quarter was $30.9m, down slightly from the $31.2m of Internet revenue reported for the same period a year ago.

Novak says lessons have been learnt from the acquisition of Wirthlin, whose client-facing staff left in droves, contributing to Harris' US problems. 'We learned that cultural fit is very important and it's much better to acquire a company that already thinks, acts and feels like yours than to try to 'change' that after the deal is signed. Novatris, who we acquired in March 2004, is a good example - they were much like us and we didn't have to integrate or change them � and they've done very well, growing revenue and profits since we joined up together.' He believes newly acquired Media Transfer will follow the Novatris model: 'They are an enthusisatic, brilliant bunch, who are excited about the opportunities that joining with Harris will provide them. And the acquisition gives us good access into the US $2.2b German market, as well as some great technology, a 250,000 member panel, intellectual capital and more.'

Novak also expanded on comments about global competition in this morning's call, where he had admitted: 'We have lost significant contracts because of the limitations of our geographic coverage'. He told DRNO: 'We can now compete with the global agencies on quality, accuracy, insight and technology. We can't compete with them on in-country cultural knowledge and experience. That can only come from being immersed in the culture. If anything, it will accelerate the pace of our acquisitions. We need to be in Asia-Pacific � we need to continue to expand into Western Europe.'

The company, which also announced today the buyback of a further $25m in shares, is online at www.harrisinteractive.com.