* Q3 loss $0.98/shr vs loss est $1.01/shr
* Says sees higher gross margins in Q4
* Says anticipate additional acquisitions
* Cuts upper end of FY10 profit view range by 6 cents
* Shares reverse earlier losses
(Recasts, adds details, updates stock activity)
By Shobhana Chadha
BANGALORE, Feb 18 School Specialty Inc SCHS.O
on Thursday lowered the upper end of its 2010 profit forecast,
but said in an earnings call it sees higher gross margins in
the fourth quarter from increased pricing.
Shares of the school-products supplier, which had fallen
more than 5 percent earlier in the day, recovered most of those
losses to trade down 1 percent at $21.92 in afternoon trade on
"With the catalogue (sales) drop in January we have
increased prices," Chief Executive David Zanden said in the
conference call with analysts.
"As we complete the negotiation process (with customers) by
the end of the fiscal year, we expect somewhat higher gross
margins in the fourth quarter," Zanden said.
The company, which acquired education technology firm
AutoSkill International Inc in September, also said it is
anticipates strategic acquisitions to strengthen its portfolio
in both subject areas where it already competes as well as in
differentiated research-based curriculum programs.
The Greenville, Wisconsin-based company now sees 2010
profit of $1.40 a share to $1.54 a share, compared with its
prior forecast range of $1.40 a share to $1.60 a share.
School Specialty also cut its revenue outlook to a range of
$895 million to $910 million compared with its earlier view of
$915 million to $940 million.
"They did reduce their guidance, but I think that is
clearly an indication that the market conditions in school
spending continue to be very challenging," analyst Trace Urdan
of Signal Hill Group said.
"It is evident that the company is making terrific progress
on cost cutting," he said.
For the third quarter, the company reported a 15 percent
fall in revenue to $103.1 million, which it attributed to a
difficult school spending environment, particularly in its
"The furniture segment is a derivative of new school
construction and all new school construction has really stopped
due to recession," analyst Urdan said.
"You won't see schools spending on furniture until they
would see tax receipts improve at the state level."
Net loss for the third quarter ended Jan. 23, was $18.5
million, or 98 cents a share, compared with net loss of $23.4
million, or $1.25 a share, a year ago.
Analysts on average were expecting a loss of $1.01 per
share, on revenue of $103.6 million, according to Thomson
Gross margins at the company, which distributes school
supplies to pre-kindergarten through 12th grade, improved 550
basis points to 41 percent, the company said.
Selling, general and administrative expenses fell 11
percent to $65 million.
(Reporting by Shobhana Chadha in Bangalore; Editing by
Aradhana Aravindan, Anthony Kurian)