UPDATE 2-School Specialty cuts full-year view, shares sink

Thu Aug 19, 2010 11:48am EDT

* Q1 EPS $0.70 vs est $1.16

* Q1 rev down 23 pct at $253 mln

* Cuts FY11 EPS view to $ 0.37-$0.72

* Shares fall as much as 21 percent (Recasts; adds details, background and updates shares)

Aug 19 (Reuters) - Continued delays in school spending and lower school construction activity led School Specialty Inc SCHS.O to post a disappointing first quarter and slash its full-year outlook, sending the school-products supplier's shares down 21 percent.

Severe cuts to U.S. education budgets have delayed school spending and hurt School Specialty for the second straight quarter, and the company saw no near-term improvement in school construction activity.

Revenue at the company's furniture segment fell 31 percent, despite the launch of a new line in August to combat rising price competition.

"We expect pricing pressures for both furniture and consumable products to negatively affect gross margins in coming quarters," Chief Executive David Zanden said in a statement.

Gross margin at the company, which distributes school supplies to the pre-kindergarten through 12th grade education market, fell 50 basis points to 42.7 percent.

The company, whose smaller rival Scientific Learning Corp SCIL.O posted a second-quarter loss last week, said the order delays in the first quarter will be apparent in the second quarter.

"However, with most school budgets now set, we are seeing an increase in order activity," CEO Zanden said.

For the first quarter ended July 24, School Specialty earned 70 cents per share, while analysts on average had expected $1.16 per share, according to Thomson Reuters I/B/E/S.

For 2011, the company now expects to earn 37-72 cents a share compared with its earlier estimate of $1.00-$1.30 a share. It also lowered its revenue outlook. [ID:nWNAB9484]

In June, School Specialty said it signed a consumer-focused contract with Amazon.com Inc (AMZN.O) and expected to generate revenue in the second half of fiscal 2011. [ID:nnSGE6590JB]

The Greenville, Wisconsin-based company's shares, which have lost about a quarter of their value in the last three months, were down 17 percent at $14.61 in late morning Thursday on Nasdaq. They touched an 18-month low of $13.80 earlier in the session. (Reporting by Shobhana Chadha in Bangalore; Editing by Prem Udayabhanu, Unnikrishnan Nair)