UPDATE 2-LSI Industries Q3 profit lags Street view, cuts outlook

(Adds analyst's comments, updates share movement)

By Bhaswati Mukhopadhyay

BANGALORE, April 24 (Reuters) - Lighting products maker LSI Industries Inc (LYTS.O) posted lower-than-expected third-quarter results, hurt mainly by weak sales from its graphics segment and lower profit margins, and cut its 2008 outlook.

Shares of the company fell as much as 10 percent, but recovered the losses later in the day.

The company, whose customers include Best Buy Co Inc (BBY.N), Ford Motor Co (F.N) and McDonald's Corp (MCD.N), said sales from its graphics segment dropped 31 percent, while those from the lighting segment fell 3.4 percent.

Some end-of-life contracts in the graphics business with Dairy Queen and 7-Eleven stores are posing challenges for the company, Jonathan Dorsheimer of Canaccord Adams said by phone.

The company is looking for new contracts in this segment, he said.

LSI Industries is transitioning to LED lights from traditional high-intensity discharge lights, but adoption of new products is taking longer than expected, he said.

LSI, whose key competitors are Cooper Industries Ltd (CBE.N), Hubbell Inc (HUBa.N) (HUBb.N) and Acuity Brands Inc (AYI.N), is also ramping up its billboard business.

However, here too the ramp up is taking a longer time than expected, said Dorsheimer, who has a "hold" rating on the stock.

"It is an expensive business and the sales are lumpy."

RESULTS TRAIL EXPECTATIONS

For the third quarter, net income plunged 70 percent to $997,000, or 5 cents a share, from $3.3 million, or 15 cents a share, a year ago. Sales fell to $64.8 million from $75.3 million.

Analysts were expecting earnings of 9 cents a share, before items, on revenue of $70.4 million, according to Reuters Estimates.

LSI Industries said its third quarter is always the weakest due to winter weather conditions. This year, the slowing economy also hurt the company's sales to retailers, it said.

"We expect fourth-quarter operating results will also be below plan," Chief Executive Robert Ready said in a statement.

The company said it sees 2008 earnings of 65 cents to 69 cents a share, compared with its prior view of 75 cents to 81 cents a share.

It sees sales of $305 million to $317 million, down from its previous view of $322 million to $332 million. Analysts expect earnings of 77 cents a share, before items, on revenue of $324.7 million.

Shares of the Cincinnati-based company were down 1 percent at $12 in late trade on Nasdaq. They touched a low of $10.85 and a high of $12.14 during the day. (Editing by Anil D'Silva, Vinu Pilakkott)