Firm penalized for reluctance to give earnings guidance.

During an eight-year stretch starting in the early 1990s, On Assignment Inc. racked up 34 straight quarters of meeting or beating Wall Street earnings estimates.

Investors loved the stock, and ran it up to an all-time high of $34.93 in June 2000.

By early last year, though, the streak was over, and so was the honeymoon with Wall Street. After a string of missed projections and an 83 percent decline in its stock price, the Calabasas-based temporary staffing firm decided to stop offering projections about its earnings.

Issuing guidance was "not worth the time," said Chief Financial Officer Ronald Rudolph. "(It) only means that the analysts coveting us just had to work harder."

The message received on Wall Street is a different one.

"The company hasn't exactly proven it has a handle on its operations," said Mike Werner, an analyst who covers the temporary staffing industry for St. Louis-based money manager Kennedy Capital. "Not giving guidance isn't exactly the best way to boost confidence." (Kennedy Capital doesn't own On Assignment stock.)

As with all public company stocks, the story begins and ends with performance. On Assignment was founded in 1985 by two chemists to supply scientists for temporary projects.

It went public in 1992, and gained attention by consistently hitting its revenue and profit goals. The company had the market to itself; competitors such as Adecco SA and Kelly Services Inc. didn't get into laboratory staffing until several years later.

During that time, analysts got used to company-supplied supplemental metrics, such as productivity measurements and the number of temps placed by each of its recruiters, in addition to standard revenues.

But the run ended in April 2001 when On Assignment reported that first quarter earnings would fall a penny short of the 22 cents per share estimate. Two months later, it revised its earnings guidance for the remainder of the year, citing the recession.

The company goofed again in May 2002, affirming existing estimates at an investor conference but having to backpedal within two months, trimming estimates by about 25 percent.

So in January 2003, after it was disclosed that fourth-quarter earnings would come in at least 5 cents below the mark, the stock hit a then-low of $5.90 each.

When the share price continued to fall, a decision was made to stop issuing guidance. On Assignment also stopped reporting per-recruiter data, which company officials felt analysts were misusing in light of changes wrought by their restructuring efforts.

Meeting expectations

Rudolph explains that the company has a duty to protect its shareholders and that its restructuring, as well as the 2001 acquisition of short-term traveling nurse provider Health Personnel Options Corp., changed the nature of its business.

"If we're too optimistic about our performance, the shares will just get discounted," Rudolph said. On the other hand, he added, meeting lowered expectations isn't necessarily rewarded with a higher stock price.

Ironically, On Assignment's shares received a boost last week from Adecco, which faces a Securities and Exchange Commission investigation over accounting irregularities. As of Jan. 14, On Assignment shares were trading at a 52-week high of $6.74 and closed at $6.70, registering a 13 percent gain since the Adecco reports first surfaced in the Wall Street Journal.

While Thomson First Call hasn't done a formal study on companies that stop issuing guidance, its informal survey only shows 11 of the 1,500 companies it tracks have done so. Among those on that list: Gillette Co. and McDonalds Corp.

"It's not exactly something we spend a lot of time looking at, but when a company pops up, we certainly take notice," said First Call analyst Gint Rimas.

While many companies have missed earnings targets, the temporary staffing industry has had particular difficulty projecting earnings as companies stopped hiring in the recession. But few in the sector have retracted their guidance altogether.

Labor Ready Inc., for example, last month issued a forecast for a 40 percent jump in fourth quarter net income.

Rudolph doesn't rule out issuing earnings guidance once the staffing recession ends, which may make it easier to forecast results. It may also begin issuing figures such as "gross profits per consultant" which the company considers a better measurement of performance.

But some analysts say On Assignment's reticence demonstrates how much trouble it continues to have, both in financial controls and operations. It took a $147 million goodwill impairment charge during the second quarter of 2003 after having to write down much of the cost of acquiring the nursing business. It also had extra costs for shutting down branches in secondary markets such as Des Moines, Iowa.

"The continuous and seemingly endless business model changes, restructurings and shifts, along with previous management and employee turnover at On Assignment, continue to serve to divert management's attention from fundamental operational execution," wrote Lehman Brothers analyst Adam Waldo in a report last month.

The traveling nurse business--a line that was supposed to feed off of demand and high bounties being paid for nurses in numerous markets--still faces problems.

Revenues from that segment fell 7 percent during the third quarter as hospitals cut back on spending. Employers have gotten staff nurses to work more overtime and brought temporary traveling nurses, many of them sole breadwinners, onto their staff full-time.

Another concern is the brewing accounting scandal at Adecco. Customers who defect from Adecco to Kelly Services likely would represent lost referrals to On Assignment, because Kelly competes fiercely in the laboratory segment. Rudolph said any effects on revenue would be "insignificant."

The company reports its earnings on Feb. 24 and Rudolph won't say whether the estimates are near the mark. "We're being audited and in a dark period," he said. "There's no way I can say one way or the other."

On Assignment Inc.

Stock Prices

YEAR (Dec. 31)                  2002     2001

Revenue (millions)            $250.3   $194.6
Total Expenses (millions)      231.2    170.1
Operating Income (millions)     19.1     24.5
Net Income (millions)           12.3       17
Earnings Per Share             $0.48    $0.75

Quarterly Net Income (millions)

SUMMARY

Business: Temporary staffing
Headquarters: Calabasas
CEO: Joseph Peterson
Market Cap: $164.8 million Dividend Yield: N/A *
Total Liabilities: $15.6 million P/E Ratio: N/A **
Long-Term Debt: $0

* Company does not pay a dividend.

** Company is not profitable.