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UPDATE 3-School Specialty narrows FY view, sees better Q4 margin
February 18, 2010 / 6:17 PM / in 7 years

UPDATE 3-School Specialty narrows FY view, sees better Q4 margin

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* 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 (Reuters) - 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 the Nasdaq.

"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.

Narrower Losses

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 furniture segment.

"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 Reuters I/B/E/S.

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)

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