Volt Information Sciences: An Overlooked Small-Cap

Back on January 27 when I rolled out the first Alert HQ list of stock picks, one of the stocks on the list was Volt Information Sciences (VOL).

The stock closed at $17.45 on the Friday just prior to running the analysis. It is now at $19.10, up almost 9.5%. It was up over 2% today.

So what's up with VOL? It peaked at about $40 just over a year ago and had been carving out a ragged down hill trend since then. It hit its low point on December 4th and shortly afterward gapped up on an earnings report.

Background --

The company has four lines of business:

• Staffing Services - includes temporary/contract personnel employment, consulting, outsourcing and turnkey project management
• Telephone Directory services - publishes independent telephone directories, as well as provides telephone directory production, commercial printing, database management, sales, and marketing services; and licenses directory production and contract management software systems to directory publishers and others.
• Telecommunications Services - provides telecommunications and other services, including the design, engineering, construction, installation, maintenance, and removal of telecommunications equipment for the outside plant and central offices of telecommunications and cable companies. It also provides turnkey services for wireless telecommunications carriers and wireless infrastructure suppliers.
• Computer Systems - provides telephone directory services, information services, and other operator services systems. It also designs, develops, sells, leases, and maintains computer-based directory assistance services with other database management and related services, primarily to the telecommunications industry. In addition, VOL provides an Application Service Provider ("ASP") model which also provides information services, including infrastructure and database content, on a transactional fee basis.

In that last earnings report, VOL reported that expenses were down and profits were up. In fiscal 2007, the company's consolidated sales totaled $2.4 billion and its consolidated segment operating profit totaled $107.3 million, both figures representing historical records for the company. Net income for fiscal 2007 was $39.3 million compared to $30.7 million in the prior fiscal year.These results were based on increased operating profits of the Telecommunications Services segment of $6.2 million, the Computer Systems segment of $3.3 million, and the Telephone Directory segment of $1.3 million, partially offset by a reduction in the operating profit of in the Staffing Services segment of $5.2 million.

Outlook --

Looking forward to the rest of 2008, can Volt keep up the momentum?The Directory services segment typically sees seasonal strength in the second half of the year. That's a positive for future quarters.The Telecommunications segment had a sales backlog at the end of fiscal 2007 of approximately$93 million, as compared to a backlog of approximately $56 million at the end of fiscal 2006. This should support further growth as 2008 progresses.During the fourth quarter of fiscal 2007, Volt Delta Resources, LLC ("Volt Delta"), the principal business unit of the Computer Systems segment, acquired LSSi for $70.0 million and combined it and its DataServ division into LSSiData. The acquisition is expected to become accretive to earnings in the second quarter of fiscal year 2008.The staffing segment, however, had relatively flat results in fiscal 2007 and the outlook now is questionable due to the macro-economic outlook. If the US is truly entering a recession, the staffing business could suffer.

Conclusion --

In summary, Volt Information Sciences seems to have good prospects for at least three of its four segments. The staffing segment is the largest segment in terms of revenues so it will be critical for the company to ensure that growth does not flag in that particular area. In the meantime, investors seem to be favoring the stock and we could very well be witnessing a long-term trend reversal with bullish implications.

Comments

[step]

THE SHAME OF STEPHANIE ELLIOT & VOLT EUROPE

Judgement has recently been delivered on an on-going case between Gatton Volt Consulting Group Ltd, known as Volt Europe, the UK subsidary of American giant, Volt Information Sciences Inc and Alpha-Tek Associates.



Alpha-Tek helped Gatton find a contract resource for its end client. Contracts between companies contained clauses preventing either company cutting each other of the supply chain.



However, Gatton reneged on this agreement and cut Alpha-Tek out of the chain. Gatton went further. They refused to pay for services provided during the last month of supply. They later paid the sum due to a third party and had the audacity to claim Apha-Tek did not engage in the supply. A pure lie.



Some years later Alpha-Tek sued Gatton and Gatton engaged in a concocted defence stating that Alpha-Tek was in breach of contract and did not supply the resource. Luckily Alpha-Tek was discovered a recorded conversation between parties proving their case and weeks before trial Gatton conceded Alpha-Tek was likely to be able to prove their case and settled. In essence, Gatton had filed a false defence.



A second action was then filed for breach of the non-solicitation clause. Then Gatton engaged in a defence that beggared belief. They claimed once again Alpha-Tek had not supplied the resource (after earlier conceding they had and settled the claim) and thus went on to sign false statements of truth, all under the helm of its current managing director, Stephanie Elliott. In addition, they claimed no non-solicitation clause existed, and also the non-solicitation clause was actually a penalty clause and thus not enforceable.



Following a six day trial the judge rejected Gatton’s argument and awarded judgement to Alpha-Tek. No apology or payment for the full judgement from Gatton was forthcoming. Instead of drawing a line under the saga, and ending animosity, they decided to appeal on the basis that the judge erred because the non-solicitation clause, which Gatton freely agreed to, was a penalty clause and non-enforceable.



One must look at the morality and ethics of Gatton Volt under the direction of Stephanie Elliot, which had never apologised or shown any remorse for its actions. Gatton are a recruitment agency. They supply permanent and contract resources to clients. They specify 12-month non-solicitation clauses to protect their interest and prevent contractors “going direct”.



Yet, when Gatton freely agree to 12-month clauses, they don’t think they should be applied to themselves simply because they regard it as a clause as penalty. Is this the standard of conduct one should expect from a multi-million dollar American organisation? Is this the ethical behaviour Volt expect from its subsidaries?



Gatton is an organisation that freely and willingly signed statements of truth that are clearly known to be false. They refused to pay an organisation for services rendered, created documents to falsely state supply was via another organisation and when they breach agreements, they attempt to worm out of them stating an agreement is a penalty. Have they any shame?



Recruitment organisations often have a shady, greedy and dishonest image. These events do nothing to dispel such an image. The action of Stephanie Elliot and Volt Europe, who is a member of ATSCO, brings the profession into disrepute and is nothing short of a disgrace. It seems the American parent company sits back allowing such disgraceful behaviour, which portrays it in bad light and may destroy its reputation.