Gateway Gets Profit Lift

Updated from 5:22 p.m. EDT

Gateway's(GTW Quote) third-quarter sales declined year over year, but the PC maker delivered a profit that surpassed Wall Street's expectations.

Flat unit shipments of PCs and a sharp drop-off in the Irvine, Calif., company's direct-sales business kept revenue under pressure during the quarter. Revenue totaled $963 million in the three months ended Sept. 30, down roughly 5% from the same period last year, and below analysts' expectation of $1.05 billion in sales.

But Gateway said Thursday that it earned $18.1 million in net income, or 5 cents a share, during the third quarter, whereas analysts polled by Thomson Financial expected the PC maker to have a break-even quarter.

A net tax benefit of $8.2 million helped Gateway shore up its earnings. But the company's bottom line also benefited from increasing sales of notebook PCs and flat-panel displays, and a focus on cost controls.

While the 7.6% gross margin was down year over year, it was a marked improvement from the 5.5% margin that Gateway reported during its second quarter.

Shares of Gateway gained 4.9%, or 8 cents, to $1.72 in extended trading.

Ed Coleman, who was appointed CEO in September, said he was taking a hard look at the company's business model and its internal performance.

"I come to Gateway with a sense of urgency," said Coleman in his first postearnings conference call since taking the helm of the company. "While we have many strengths, business as usual is the farthest thing from my mind."