Tessco stock dives after word of shortfall Split with supplier blamed for lower quarterly earnings

March 12, 1997|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

Shares of Tessco Technologies Inc. tumbled yesterday after the Sparks-based distributor of products for the wireless phone industry said a severed relationship with one of its biggest suppliers will keep its fourth-quarter earnings from living up to expectations.

Tessco's stock fell $12.375 to $20.125 on trading of 729,100 shares yesterday, after an announcement the company made Monday evening. By contrast, only 2,300 shares traded on Monday. Yesterday's close was the lowest for Tessco shares since August 1995. Tessco's fiscal year ends March 28.

The problem: Tessco cut itself off from some of its most popular products when it terminated ties with Andrew Corp. on Jan. 1.

The two companies parted ways after settling a lawsuit in which Tessco claimed Andrew illegally cut off their deal when Tessco refused to stop selling products made by Andrew's competitors. Andrew's products accounted for 28 percent of Tessco's sales during fiscal 1996.

"We've converted a majority of the customers, but there are a few holdouts that are large carriers," Tessco Chief Executive Robert B. Barnhill Jr. said. "They all kind of woke up at once and said, 'I have to do due diligence before I change a product I've used for years.' "

Tessco said it will earn 10 cents to 15 cents a share less than the average analyst estimate of 24 cents a share. The company said it had found acceptable replacements for Andrew's products, but sales of cable used to connect the antennae towers that receive cellular calls to the rest of a carrier's call-handling network have failed immediately to pick up where Andrew's cable had left off.

"This announcement was a heads up," said Barnhill, who tried to downplay the importance of the news. "We still have 15 days left in the quarter, and every day sales get better."

vTC Tessco earned $1.1 million, or 24 cents a share, on sales of $27.3 million, in the fourth quarter of its 1996 fiscal year. It earned $3.9 million during the first nine months of fiscal 1997, up from $2.9 million in the first nine months of fiscal 1996.

Officials at Cellular One and Bell Atlantic Nynex Mobile declined to comment. Sprint Spectrum, the other major wireless carrier in the Baltimore-Washington market, said it is already buying another brand of cable from Tessco.

"Our guy who buys it said that from the specifications we feel it's as good as the Andrew product," said Anne Schelle, spokeswoman for American Personal Communications Corp. of Bethesda, general partner of the local Sprint Spectrum affiliate.

Tessco also said it had returned $4 million worth of Andrew products to the supplier when the two split up. Barnhill said Tessco could have sold the goods and earned about $875,000 in gross profit, enough to avoid a shortfall this quarter, but would have risked being stuck with up to $1 million worth of odds and ends that could not be returned after Jan. 10 under terms of the settlement between Andrew and Tessco.

"No matter how well we planned we were going to be left with spoons and not with knives," Barnhill said.

Dayna Crider, an analyst at J. C. Bradford & Co. in Nashville, Tenn., said Tessco is unlikely to regain its earnings momentum until the fall of this year. She said the market thought Tessco would be able to switch its major customers to new cable products right away, and added that the weakness of small-capitalization stocks in recent months made Tessco shares vulnerable to short-term bad news.

Crider said she now thinks Tessco will make 12 cents a share during the fourth quarter, and $1.17 a share next year, compared with her earlier estimate of $1.35 a share. But she said Tessco was smart to resist Andrew's insistence on exclusivity even though Tessco's decision caused short-term problems.

Pub Date: 3/12/97

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