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Digitas Shares Tumble

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BOSTON Shares of Digitas fell nearly 20 percent yesterday in after-hours trading after the marketing company lowered its full-year revenue and earnings estimates.

Boston-based Digitas now projects 2006 fee revenue of $380-395 million, net earnings of 41-49 cents per share and adjusted cash earnings of 54-62 cents per share. Those numbers are down from Digitas' April estimates of $405-425 million in fee revenue, net earnings of 46-56 cents per share and adjusted cash earnings of 61-71 cents per share.

Shares dropped to $8.30 in after-hours electronic trading on Tuesday following a $10.23 close on the Nasdaq stock exchange.

Digitas said it expects less business from General Motors and Delta Air Lines, with revenue from those accounts down a combined 14 percent for the year. In addition, Digitas was recently hit by three client defections (Ameriprise, Federal Express and Best Buy) that will shave another $10-15 million from its 2006 revenue. Those developments in large part prompted the revised earnings forecast.

"Some of the upside we hoped for is not going to happen, at least [not] until their businesses get stronger," said Digitas CEO David Kenny on Tuesday during a conference call with analysts.

He called the loss of three accounts "unacceptable," and said he would make changes in the agency's account management team. "We need to do a better job of executing for every client we serve," he said.

Kenny also addressed Digitas' relationship with American Express, saying, "I can be unequivocal. I believe our relationship with AmEx today, across every business unit we serve, has never been stronger."

A WR Hambrecht research report by analyst Denise Garcia two weeks ago cited AmEx as mulling a shift of its commercial credit card business from Digitas [Adweek Online, July 6].

AmEx accounted for 26 percent of Digitas' 2005 revenue, and Garcia pegged the portion likely to move as representing 30-60 percent of the account, or $25-60 million. (Digitas handles mainly direct and online marketing for AmEx.)

Sources close to the agency, speaking on terms of anonymity, agreed that AmEx might move projects to smaller, less expensive shops, but said the portion likely to shift makes up about 10 percent of the overall account, which should still grow this year thanks to increased spending in the consumer and small-business sectors.

AmEx has reaffirmed its relationship with Digitas. "We aren't currently interviewing agencies for our commercial card agency of record," said an AmEx representative at the time Hambrecht published its report. "We do RFPs for individual projects from time to time, although I'm not going to go into specific details."

AmEx and GM together represented about 50 percent of the company's 2005 revenue. In the second quarter, they accounted for 41 percent of revenue.

In January, Digitas acquired specialty shop Medical Broadcasting, in part to diversify its client base. Wyeth is now Digitas' No. 3 account behind AmEx and GM.

Digitas yesterday reported quarterly net income of $13.5 million, or 14 cents per diluted share, compared to $11.9 million, or 12 cents per share, for the same period a year ago. That increase represents a gain of about 13 percent.