Sunday, August 04, 2002

Pomeroy Computer Resources plans to spell growth

Firm takes steps to become a majorinformation technology service provider

        Pomeroy Computer Resources Inc., the Hebron, Ky.-based computer sales and service company, has a new face.

        The 21-year-old company, which made its initial public stock offering 10 years ago, recently has:

[photo] Stephen E. Pomeroy, president and chief operating officer.
(Michael E. Keating photo)
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        Adopted a new logo, which includes dropping “Computer Resources” in its marketing materials.

        Reversed its traditional low-key approach by embarking on a print advertising campaign and sponsoring the Reds pregame radio show for the first time.

        Created a new business, Pomeroy Consulting Group, to increase its share of more profitable information consulting business.

        “There's a perception that all we do is sell hardware. In fact, we are a true, professional services organization,” said Stephen E. Pomeroy, 33, president and chief operating officer.

        In the next 18 months, “Our goal is to become one of the top IT (information technology) providers in this country,” he said.

        To do that, Mr. Pomeroy, son of Dave Pomeroy, company founder and CEO, said Pomeroy is transforming itself from being mainly a provider of computer hardware and after-sale services to become a consulting firm helping companies plan and implement their information technology strategies.

        The company's goal is to expand IT services revenues from 20 percent to a third of its total revenues and expand IT service earnings from about 50 percent to two-thirds of total operating earnings.

[photo] A configuration technician configures computers at the Pomeroy facility in Hebron.
(Enquirer file photo)
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        “If we do that, we'll have changed that perception of being just a hardware company,” Mr. Pomeroy said.

        As part of that effort, Pomeroy has invested heavily in employee training. Mr. Pomeroy won't say how much, but adds that about half of its 1,600 employees are considered billable consultants.

        And the company, which has completed 21 acquisitions in the last seven years, is looking to make the biggest acquisition in its history sometime in the next six months. Pomeroy would like to acquire an IT services provider (or providers) with $50 million to $400 million in revenues, ideally west of the Mississippi.

        All of Pomeroy's acquisitions so far, which have taken it to 30 mainly midsize markets in the Midwest and South, have been businesses with less than $100 million in revenues.

        Pomeroy's growth plan comes in the midst of the worst slump in the IT industry's history triggered by the recession and the dot-com meltdown.

        Pomeroy hasn't escaped unscathed. The company's head count, which includes about 350 in Greater Cincinnati, is down from its peak employment of 2,200 in 2000.

        Revenues last year fell 12.5 percent to $809 million, while net income dropped 74 percent to $7.8 million after restructuring charges.

        But the company, which will report second-quarter results Thursday,

        saw first-quarter profits rise 56 percent to $4.7 million, or 36 cents a share, on a 5 percent decline in revenues.

        “We're in the toughest times our industry has ever seen,” said Mr. Pomeroy, who started working for the company as a janitor as a teenager in 1985.

        But he thinks the industry slump has had a positive side.

        “It's made us think outside the box, get more creative and work harder for business.”

        As part of the new focus last year, Pomeroy obtained a $240 million line of credit, it plans to use to finance new acquisitions.

        In addition, earlier this year, Pomeroy sold its small computer leasing business to Provident Bank's leasing division. Mr. Pomeroy said the company used the proceeds to reduce its debt by $33 million, making the company virtually debt free.

        “We feel we're in a position of strength to continue to make investments both internally in people, atttract A-level talent from outside and to do acquisitions.”

        Pomeroy isn't alone in focusing on consulting. IBM Corp. last week said it agreed to buy PricewaterhouseCoopers consulting business for $3.5 billion.

        Mr. Pomeroy said his company's approach is to focus on second- and third-tier cities often overlooked by the large IT consulting companies.

        “We're typically competing with smaller, closely held undercapitalized companies,” he said.

        Pomeroy can offer everything from strategic consulting and enterprise architecture right down to the desktops.

        “Most companies can't do all of that. In those smaller markets. We're like a mini-IBM Global Services or a mini-EDS,” he said.

        Pomeroy's efforts to tell its story are starting to gain attention on Wall Street. Now, only one investment house, Raymond James & Associates in St. Petersburg, Fla., is following Pomeroy stock, rating it a buy. But Mr. Pomeroy said that in July, three investment analysts visited the company looking to initiate coverage.

        Historically, Procter & Gamble Co. has been one of Pomeroy's larger customers. P&G's decision to outsource some of its business functions to an outside company could change that relationship.

        Mr. Pomeroy said he couldn't talk about specific clients, but added that Pomeroy has been told by P&G that it's doing a good job.

        “We see that as an opportunity to expand the relationship,” he said of P&G's pending deal to outsource services with Affiliated Computer Services. In any event, he said, none of Pomeroy's customers represents more than 5 percent of its total revenues.

        Mr. Pomeroy, who was named president and COO in January 2001, after serving as chief financial officer for several years, also declined to talk about succeeding his father as CEO.

        “We have a great relationship,” he said. “He's my boss, one of my friends and my father.”

        But he emphasized Pomeroy's expansion plans are a team effort.

        “We have a great team here,” he said. “We have people who are extremely smart, smarter than I am. We have a big appetite for this company and we aren't done.”

        On thing that hasn't changed is Pomeroy's focus on customers.

        In a 1993 Enquirer interview, Dave Pomeroy said, “Everything we do is driven by the customer.”

        Last week echoing his father, Stephen Pomeroy said. “We listen to the customer, because the customer will tell you how to run your business. Our logo may have changed but our philosophy hasn't.”


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