Tessco sues a supplier stock falls

News of dispute clouds report of higher earnings

Anti-trust violation alleged

Sparks-based firm claims Andrew Corp. ending agreement

April 20, 1996|By Michael Dresser | Michael Dresser,SUN STAFF

Tessco Technologies Inc. has sued one of its largest suppliers, charging that it cut Tessco off after the Sparks-based wireless -telephone equipment distributor refused to stop distributing competing manufacturers' products.

News of the breach between Tessco and Andrew Corp., of Orland Park, Ill., sent Tessco's stock plunging yesterday. Tessco stock lost more than 13 percent of its value, closing down $4.125 at $25.625, its lowest price since February.

News of the dispute overshadowed an otherwise excellent fourth-quarter earnings report from Tessco, which posted a 49.8 percent increase in revenue and a 61.6 percent gain in profits.

Profits for the quarter ended March 29 rose to $1.1 million, or 24 cents per share, compared with $687,000, or 15 cents a share, during last year's fiscal fourth quarter. Revenue rose to $27.3 million, from $18.2 million during the year-ago quarter. For the full year, Tessco's revenues reached $92.3 million, up from $74.5 million in fiscal 1995.

"This year came in like a lamb and went out like a lion," said chairman Robert B. Barnhill. "Fourth-quarter revenue growth was ten-fold higher than we experienced in the first quarter."

But investors yesterday were concentrating on the bearish implications of Tessco's falling-out with Andrew, which was announced Thursday after the markets closed.

Tessco stock, which closed Thursday at $29.75, opened at $21.50 and could make up only about half of that loss in subsequent trading.

"The earnings were stellar, but people were asking what's going to happen in the next quarter," said Kevin Cory, an analyst with Ferris Baker Watts in Baltimore.

Tessco said it filed a lawsuit charging Andrew with violating the Maryland Antitrust Act after the supplier gave 30 days' notice of intention to end the companies' distribution agreement.

Steve D. Shadowen, an attorney for Tessco, said the suit alleges that Andrew cut off Tessco because the company declined to carry Andrew's products on an exclusive basis. Tessco is asking the court to issue an injunction ordering Andrew not to terminate the agreement.

"We're confident that the lawsuit they filed against Andrew has no merit, and we intend to defend it vigorously," said Tami Kamarauskas, a spokeswoman for Andrew. She said sales through Tessco represent less than 5 percent of of Andrew's revenues.

Mr. Barnhill said Tessco has been working recently to reduce its dependence on Andrew as a supplier of cable, connectors and other equipment used in wireless phone networks. He said that sales of Andrew products, which had been running at 30 percent of Tessco revenues in 1994, were down to 23 percent for the last quarter.

Mr. Cory said the dispute arose after Tessco decided to sell cable made by the Belgian firm Eupin.

"They did their own independent tests on the Eupin product and they find it is superior to the Andrew cable," he said.

Mr. Cory said Tessco could see a slowdown in sales as it works to convert customers from the Andrew cable to the Belgian competitor. "There might be some brand loyalty there because people don't like to make changes," he said.

Mr. Cory said he continues to be enthusiastic about the company but was not shocked by the price decline. He said his firm dropped its buy recommendation last October when the stock price hit $26.50.

"We feel pretty comfortable with a P/E ratio somewhere south of where it is today," Mr. Cory said.

The Ferris Baker analyst said Andrew could come to miss a distributor such as Tessco, which is known for its ability to efficiently repackage equipment from a variety of manufacturers into ready-to-deploy "kits."

"They could be shooting themselves in the foot a little because it seems they had a good relationship," Mr. Cory said.

Pub Date: 4/20/96

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