UPDATE 2-School Specialty posts narrower-than-expected Q4 loss

* Q4 adj loss/shr $0.55 vs est loss $0.71

* Revenue falls 10.1 pct to $156.2 mln

* Declines to provide specific earnings outlook

* Says accounting change to hurt FY09, FY10 EPS

* Shares rise as much as 17 pct (Recasts; adds analyst comments, conference call details, updates share movement)

By Renju Jose

BANGALORE, June 11 (Reuters) - School Specialty Inc (SCHS.O) posted a narrower-than-expected quarterly loss, helped by lower expenses, but said an accounting change would hurt its fiscal 2009 and 2010 earnings per share.

Shares of the school-products supplier rose as much as 17 percent in morning trade.

"It was stunning to see how much cash they managed to generate in the quarter and I think that is the principal reason why the stock is up so strongly," Signal Hill Group analyst Trace Urdan told Reuters by phone.

An accounting change will reduce earnings by 39 cents a share in fiscal 2009 and 42 cents a share in fiscal 2010, Chief Financial Officer David Vander Ploeg said on a conference call.

This change will have no effect on free cash flow, Vander Ploeg said, adding that the company expects free cash flow of $65 million to $75 million in fiscal 2010.

"When they (School Specialty) report their 10-K, they're going to have to restate their earnings with that additional cost included," analyst Urdan said.

Greenville, Wisconsin-based School Specialty also said it can begin to grow earnings-per-share in 2010 over 2009 at revenues of about $960 million. It posted a profit of $34.5 million, or $1.83 a share, in fiscal 2009.

Analysts on average expect revenue of $1.02 billion in fiscal 2010, according to Reuters Estimates. Signal Hill's Urdan said the company was overly conservative in its outlook.

"I think they ought to be able to do much better than the $960 million revenue number that they have built their case around... as the amount of stimulus funding coming to the schools will be enormous," he added.

School Specialty, which expects gross margin to rise 60 to 70 basis points in fiscal 2010, said it will be in a position to provide specific earnings outlook later in the back-to-school season as it gains more visibility around order velocity.