Settlement unsettles SPX shareholders.

• Author: Speizer, Irwin
• Position: MONEY MATTERS

Surprises can bring big smiles on birthdays. But when earnings are announced, they usually cause frowns. Charlotte-based industrial conglomerate SPX Corp. gave analysts a surprise earlier this year. Now it's struggling to win back their trust and that of investors.

SPX (NYSE: SPW) had insisted for months that its 2003 earnings per share from continuing operations would be at least $3.40. In February, it reported that it had beaten its projection by a penny. The stock market responded by driving down SPX's stock price 21%, to $42. It still hadn't fully recovered at the end of April, closing at $44.35.

Why? SPX got a lot of help in the last week of December from a $60 million settlement of a patent-infringement lawsuit against Microsoft. Analysts say that added 25 to 30 cents to earnings. Without that one-time gain, earnings would have fallen short of projections.

They were also suspicious of CEO John Blystone's sale of 794,000 shares in the weeks just before the earnings announcement. He cleared a profit of $25.4 million in a series of transactions announced Jan. 2. Shareholders responded to the stock slump with several class-action lawsuits. One filed by New York-based Milberg Weiss Bershad & Schulman alleged that Blystone and other executives hid the settlement's contribution to earnings while he unloaded his shares.

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The company says that its accounting for the settlement was proper and that all the information that troubled investors and analysts in late February had been disclosed in December or early January, before Blystone sold his shares. In fact, the price hit its 52-week high of $63.16 more than two weeks after Blystone announced his...