Tessco Earnings Drop By Half

Firm Earns $499,000

Stock Price At Lowest Since July '95

April 26, 1997|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

Tessco Technologies Inc. saw its stock take another big hit yesterday after the Sparks-based distributor of wireless phone equipment reported fourth-quarter profits that were, as expected, well below last year's.

Tessco said it earned 11 cents a share, or $499,000, before a nonrecurring charge of 4 cents a share. In the same period last year, the company earned 24 cents per share, or $1.1 million.

The company said last month that it would earn between 9 cents and 14 cents a share for the quarter that ended March 28, which is also the end of the company's fiscal year.

Tessco stock fell $2 to $17.25 yesterday, reflecting disappointment in the numbers that Tessco announced Thursday evening. The company had been expected to match its 1996 fourth-quarter results until it tipped the market last month that weaker earnings were on the way.

The closing price was Tessco's lowest since July 1995.

"This was a quarter and a year of transition and rebuilding," Tessco Chief Executive Robert B. Barnhill Jr. said. "We hope to deliver strong quarterly profit improvements beginning in the second quarter, and a return to record quarterly earnings achievements by this time next year."

Tessco's short-term problem is that it has cut ties with Andrew Corp., a maker of telephone network cable and other supplies that was Tessco's biggest supplier until last year. Andrew cut off Tessco after the local company refused to stop selling products made by Andrew's competitors, prompting a lawsuit by Tessco that the two sides settled.

Tessco has said it has found acceptable replacements for Andrew's products. But sales of one major product line, cable used to connect the antenna towers that receive cellular calls to the rest of a carrier's call-handling network, have failed immediately to pick up where sales of Andrew's cable had left off, leaving this quarter's results below par.

Yesterday a potentially more difficult pair of longer-term problems emerged, J.C. Bradford & Co. analyst Dayna Crider said.

Tessco said personal communications services, the wireless phone and paging services that are similar to cellular but work on different radio frequencies, have taken off more slowly than expected, delaying one expected source of sales growth.

The company also reported a slowdown in a subscriber-servicing business it runs for carriers including American Personal Communications Corp. of Bethesda, the general partner in the Washington-Baltimore affiliate of Sprint Spectrum PCS.

Crider said new PCS carriers are bypassing distributors like Tessco as they build their initial networks, preferring to deal directly with manufacturers who offer better financing terms and lower prices. That could mean Tessco's PCS-related growth comes later, when carriers turn to distributors to buy smaller lots of equipment to maintain and upgrade networks.

"It's economics, plain and simple," Crider said. "The expectation now is that fiscal 1998 will be flat with '97, and there's substantial risk it will be a down year."

Tessco posted $33.4 million in overall sales during the fourth quarter, up 22 percent from $27.3 million for the same quarter last year. For the year, Tessco earned $4.2 million, up 3 percent, as sales rose 59 percent to $147.1 million.

Pub Date: 4/26/97

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