Gateway Raises Its Outlook

The PC maker updates its fourth-quarter revenue range and raises its guidance for pro forma earnings.
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Gateway

(GTW)

raised its fourth-quarter earnings guidance Wednesday to reflect the retirement of preferred stock to be funded by a series of new convertible notes.

The PC maker also gave its first outlook for next year, which suggested that results could come in higher than Wall Street expectations.

After the bell, the Irvine, Calif.-based company said it expects fourth-quarter earnings to range from 22 cents to 24 cents a share, up from

prior guidance that called for a range of break-even to 1 cent a share in earnings. Gateway said the improvement reflects a gain of 24 cents associated with the previously announced retirement of Series A and C preferred stock, a hit of 3 cents to 4 cents a share due to faster restructuring activities and a gain of 2 cents on retiring a service plan-related liability.

Gateway raised its guidance for pro forma earnings, excluding the service plan liability, to a range of 3 cents to 4 cents a share, from 1 cent to 2 cents a share.

In addition, Gateway narrowed its guidance for fourth-quarter sales to a range of $1 billion to $1.025 billion, vs. prior guidance calling for revenue between $975 million and $1.025 billion.

The consensus estimate among Wall Street analysts was calling for Gateway to earn 2 cents a share on $1.02 billion in sales in the fourth quarter, according to Thomson First Call.

Looking forward to 2005, Gateway said it expects to earn 15 cents to 17 cents a share under generally accepted accounting principles on revenue ranging from $4 billion to $4.25 billion for the full year. The midpoint of the revenue range exceeds the current consensus estimate among analysts, which calls for sales of $4.06 billion in 2005.

Excluding charges, Gateway expects earnings to range from 17 cents to 19 cents a share in 2005, whereas analysts were forecasting 17 cents a share in earnings.

Gateway said it expects a typical seasonal decline in revenue in the first quarter of 15% or greater.

Gateway

first announced plans to retire its Series A and Series C preferred stock last month. On Tuesday, the company said it would sell two series of convertible senior notes for a total principal amount of $250 million. Gateway will use the convertible notes, combined with cash and credit facility borrowings, to repurchase the Series A and C preferred stock.

The notes will be convertible to a share of common stock at a rate and price determined Thursday; the offering is expected to close Dec. 21.

Shares of Gateway recently fell in after-hours trading by 16 cents, or 2.5%, to $6.28; the stock closed the regular session down 4 cents, or 0.6%, at $6.44.