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Light Guidance Trips Solectron

The company's outlook offsets an earnings beat.
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Updated from 4:46 p.m. EDT

Solectron

(SLR)

beat the Street's forecast for its fourth-quarter earnings, but light guidance and more restructuring plans sent shares lower in late trading.

The stock recently shed 5.3%, or 18 cents, to $3.24.

For its first quarter now underway, Solectron forecast a non-GAAP EPS in the range of 4 cents to 6 cents, on sales of $2.6 billion to $2.8 billion. The consensus analyst estimate had expected the company to land in the high end of both ranges, projecting EPS of 6 cents and revenue of $2.79 billion.

Factored into the guidance is charge of up to $150 million in the first quarter due to the company's implementation of the

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"lean initiative," Solectron CEO Mike Cannon and CFO Paul Tufano said on a call with analysts after the bell on Thursday.

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The company also announced plans to cut 1,400 employees and expects $50 million to $60 million in charges, approximately 90% of which will be cash expenditures. The plans should be completed in the next 12 months, the company said. In addition, Solectron is planning a second wave of restructuring which should be completed in 24 months.

Certain high-cost European sites have been underperforming, so a "significant portion" of the company's facilities in that area will be cut back, executives said.

For its fourth quarter, the electronics manufacturing services firm said it earned $38.8 million, or 4 cents a share, for its fourth quarter. A year ago, the company made $11.8 million, or a penny a share.

Excluding some items, Solectron made $54.8 million, or 6 cents a share, rising from $41.4 million, or 4 cents a share. Analysts polled by Thomson First Call anticipated a profit of 5 cents a share.

On the top line, Solectron reported $2.9 billion compared with $2.4 billion in the same period last year. Analysts expected $2.71 billion.

"The highlight of fiscal 2006 was our return to growth," Cannon said in a press release. "I am pleased that we were successful in delivering quarterly revenue growth throughout fiscal 2006, particularly in the second half, where our revenue grew by $610 million compared with the second half of fiscal 2005."

Cannon and Tufano acknowledged that Solectron still needs to improve efficiency and productivity to boost its financial results.

Gross margins are currently at 5.4%, CFO Paul Tufano said, short of the company goal of 7% to 8% gross margins. "We are working as fast as we can to get those numbers," he said.

Free cash flow "has not been a good story" this year, Tufano said.

"Very clearly we have a lot of improvement to do on inventory management," Cannon said. "We are not as efficient as we need to be."

"Looking ahead to fiscal 2007, we are confident we have taken the actions to deliver continued improvement in growth and profitability," he said.