Friday, July 07, 2006

In turmoil, LeapFrog taps new CEO

Analysts say educational toy company is in need of a strong leader to set their finances back on track
By Blanca Torres
After two years of repeated executive turnover, Emeryville-based LeapFrog Enterprises Inc. named Jeffrey Katz as chief executive and president Wednesday, replacing Tom Kalinske, who held the position since 2004 and will remain as vice chairman of the company's board.
Katz had served on the company's board for the past year and was chief executive of travel search engine Orbitz LLC from 2000 to 2004 and airline Swissair from 1998 to 2000. Before that, he was vice president of American Airlines, where he worked for a total of 17 years.
The maker of educational toys for children has struggled the past few years with a sagging stock price, declining sales and various executives coming and going.
"There's no question there's turmoil," said John Challenger, chief executive of Challenger, Gray & Christmas, a Chicago-based workplace consulting firm. "It's a company that is deeply in need of a strong leader who can right the ship -- get this company up and running and successful and allow it to fulfill its promise."
Wednesday's moves mark the latest shake-up in LeapFrog's executives ranks.
Kalinske served as CEO from 1997 to 2002, when he was replaced by Michael Wood, one of the company's founders.
Later, in February 2004, Kalinske again took the CEO job, former Fisher-Price executive Jerome Perez was named president and Wood became chief vision and creative officer and vice chairman of the board. Wood resigned from that post in September of the same year. The company also replaced its chief financial officer the following November.
Kalinske added president to his title last February after Perez resigned.
Investors may be "encouraged the board" is replacing Kalinske "given the company's weak operating performance over the last two years," wrote Citigroup Inc. analyst Elizabeth Osur Wednesday in a research note. She is based in New York and has a "hold" rating on the shares.
In February, LeapFrog posted a profit of $17.5 million or 28 cents per share for 2005, but the stock plummeted close to 10 percent because its sales failed to meet analysts' expectations.
And in May, the company announced a loss of $23.6 million during its first quarter ended March 31 after overall sales slipped 7 percent to $66.5 million from $71.9 million. The stock price took a 9 percent dip to $9.52 after the news hit Wall Street.
So far this year, the company's stock price has ranged between $9.30 and $15.35. It closed at $10.30 Wednesday, a 1 cent increase from the day before. The share price has fallen significantly from its all time high of $46.54 on Oct. 21, 2003.
Challenger said it appears that LeapFrog is trying to find the right mix of leadership to help succeed financially.
"They have a great idea and great product and great reputation, but it hasn't taken off," he said.
Steven Fink, the company's chairman, said Katz has the managerial and operational skills the company needs.
"(Katz) is the ideal leader to take the helm and reignite LeapFrog's growth," he said in a statement.

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