Digitas to Cut Staff as 2 Clients Scale Back

NEW YORK Digitas said that it plans to eliminate 50 positions, or about 4 percent of its 1,200-person staff, to head off expected declines in revenue from clients AT&T and Delta Air Lines.

The digital- and direct-marketing agency cited AT&T’s decision to stop seeking new customers for its consumer local and long-distance services and Delta’s precarious financial situation as reasons for the anticipated revenue drop.

The Boston-based company said that the staff cuts would result in about $6 million in compensation and benefits savings.

Digitas reiterated its third-quarter fee revenue projection of $58-61 million, and revised its Q3 earnings per share to 10-12 cents, up from its previously projected 8-10 cents.

For full-year 2004, the shop said it expects fee revenue at the low end of its former guidance of $235-245 million and earnings per share of 35-42 cents. In 2003, Digitas reported fee revenue of $209.5 million and net income of $16.9 million, or 24 cents per share.

“The recent announcements by AT&T and the pressures faced by Delta Air Lines signal both client-specific revenue contraction and the creation of excess capacity,” said Digitas chairman and chief executive officer David Kenny in a statement. “We believe the strength of our client base combined with quick and decisive reallocation of staff will result in achieving revenue and earnings growth in 2005.”

Kenny acknowledged that the client “contraction” would affect Digitas’ ability to achieve 15-25 percent year-over-year growth in 2005, though he added, “We remain confident that this growth range is attainable in the longer term.”

The head-count reduction and guidance clarification comes as Digitas prepares to buy Norwalk, Conn.-based Modem Media in a stock deal valued at $200 million. That transaction is expected to close in the fourth quarter. Modem also works with Delta.

Digitas’ shares [DTAS] closed on the Nasdaq today at $6.30, up 1 cent or 0.2 percent. The stock’s 52-week high is $13.24; its low, $5.64. Modem’s stock [MMPT] was unchanged at $4.34. Its 52-week high is $8.92; its low, $3.60.