Gateway Misses the Mark

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Gateway

(GTW)

loves to keep them guessing.

Every quarter, like clockwork, it releases its earnings at around 5:30 p.m. EDT, late by Wall Street standards for companies announcing numbers after the close.

The cow-loving box maker didn't release its second-quarter numbers until 5:50 p.m. and maybe it shouldn't have released them at all tonight.

Gateway reported earnings of 38 cents per share, a full 6 cents below the consensus estimate for the quarter, according to

First Call

.

"It was a real iffy quarter for Gateway, so much so that there was no whisper consensus out there that I could see," says Karl Dimlich, a hardware analyst with the money management firm

Columbus Circle Investors

. "People have been below and above the consensus all week." In its year-ago June quarter, the company reported earnings of 36 cents per share on revenue of $1.4 billion, meaning it showed earnings growth of just 6%. Pre-tax income increased 10% to $94.9 million, and net income increased 8% to $60.7 million compared to $56.5 million in the second quarter of 1997.

There was some good news for Gateway fans, however: Gross profit margins rose to 20.6% from 19.5% in the first quarter, and the company shipped 33% more PCs -- 736,000 versus 554,000 -- in this year's second quarter versus last year. "After a seasonally slow April and May, our marketing programs kicked in, driving a dramatic increase in volume in June and creating good momentum for the second half of the year," Gateway CEO Ted Waitt said in an earnings release.

The company seemed to miss earnings estimate because of added marketing expenses from its YourWare program, which is the company's largest push into the consumer PC market ever. SG&A expenses increased 10% over the first quarter of 1998 due to approximately $20 million of increased marketing investment behind the brand and YourWare launch, said the company.

One analyst who made a big bet that a strong June would outweigh a weak April and May was

ABN/AMRO

analyst David Wu. "It looks as if the company had a great June," says Wu, who incorrectly bet the company would turn in earnings of 46 cents per share. Although bullish on the quarter, Wu says he is keeping a hold rating on the stock.

Its stock closed down 3, or 5%, to close at 58 3/4, but it has been up 30% over the last month. "The stock needs to take a breather for a week or two," says Dan Niles, an analyst with

Robertson Stephens

. "And that will be a good thing for these stocks, which have been going up too far, too fast."

Gateway traditionally does not allow reporters on its quarterly conference call, so a followup on it will not be forthcoming. In terms of the delayed release, it gets Wall Streeters downright antsy. "It just heightens the speculation level," says Paul Mansky, an analyst with

Piper Jaffray

, who when reached was listening to mindless elevator music a good 30 minutes before the call even began. "It makes all of our jobs that much harder -- I don't know why Gateway does this to me every quarter."

For more info on institutional holders of this stock, as well as financial statements and earnings estimates, please see the

Thomson Company Reports.