SmarTalk Shares Drop 28%

Shares of SmarTalk TeleServices Inc. plunged 28% on Thursday after the distributor of prepaid phone cards said it will post a first-quarter loss because of higher costs and the delay of a new product.

SmarTalk stock fell $8.69 to close at $22.44 on Nasdaq.

Los Angeles-based SmarTalk is facing higher costs and delays in gearing up new outlets to sell its calling cards. The company also failed to introduce a new cellular card as expected and doesn’t foresee sales from that product until the third quarter at the earliest.

“This is a function of timing,” said Jeff Lindauer, chief operating officer. “That’s affecting revenue.”

Also hurting results is a decision to account for sales from call centers at discontinued operations as of January. Those operations accounted for $28 million, Lindauer said, or about 39% of 1997’s $71.9 million in sales. They also had pretax profit of about $1.4 million in 1997, SmarTalk said.

Lindauer said SmarTalk is “evaluating alternatives” for its call center operations, including a sale or spinoff.

The company said it expects a first-quarter loss of 5 cents a share on sales of about $40 million. It had been expected to earn 5 cents a share, the average of three analysts surveyed by First Call Corp. In the year-ago quarter, SmarTalk had a loss of $310,297, or 2 cents, on sales of $7.37 million. It said it will report first-quarter earnings on May 12.

SmarTalk has been on an acquisition spree, making five purchases totaling about $250 million last year. These new outlets gave it the rights to sell its calling cards in more than 100,000 stores.

Jack Grubman, an analyst at Salomon Smith Barney, wrote in a research report that SmarTalk said sales and earnings will also be lower than expected for 1998 and 1999.

SmarTalk declined to comment on whether it will meet 1998 and 1999 estimates.