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Earnings Preview: School Specialty

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School Specialty Inc. , an education company offering supplemental educational products and equipment in the U.S. and Canada, is set to release its fourth-quarter 2012 financial results on Thursday, June 14, 2012.

The Zacks Consensus Estimate for fourth-quarter 2012 stands at a loss of $1.00; with the loss estimates ranging between a high of 91 cents and a low of $1.08. The estimate reflects a decline of 9.9% from a loss of 91 cents reported in the comparable period last year.

The Zacks Consensus revenue estimate for the quarter is pegged at $121 million, reflecting a decrease of 5% from $127.4 million reported in the prior-year period.

Review of the Last Quarter

School Specialty posted better-than-expected third-quarter 2012 results on the back of effective cost management and margin improvement. However, budgetary constraints and a competitive pricing environment were headwinds.

The company posted a loss of 86 cents a share during the quarter, much better than the Zacks Consensus Estimate of a loss of 91 cents and substantially down from a loss of $1.07 incurred in the year-ago quarter.

Greenville, Wisconsin-based School Specialty’s total revenue decreased 5.1% year over year and 13.9% sequentially to $85.3 million in the third quarter of 2012.

School Specialty reiterated its fiscal 2012 guidance. Management continues to project loss per share of between 50 cents and 65 cents, revenue of between $730 million and $740 million and free cash flow in the range of $0 million to $10 million. EBITDA is projected in the range of $48 million to $52 million.

(Refer the article: School Specialty Loss Narrows)

Zacks Agreement & Magnitude

Out of the two analysts providing estimates for the fourth of quarter 2012, none revised their estimates in the last 7 or 30 days. Accordingly, the Zacks Consensus Estimate remained unchanged at a loss of $1.00.

The Outlook Remains Gloomy

The recent economic downturn has resulted in uncertainties related to state budget funding levels in the school districts, which has led to a cautious spending approach. A continued softness in demand still persists for both curriculum-based products and supplemental materials.

Many districts opted to defer their purchasing as states delayed their traditional adoption cycles for a new curriculum, indicating ambiguity in the marketplace about the school budgets and the alteration in common-core standards.

After posting an earnings decline of 51% during the second quarter of 2012, the company incurred a loss of 86 cents a share in the third quarter.

As a result, the analysts covering the stock remain cautious about the company’s performance going forward.

Zacks Rank Defining Neutral Stance

We think the abovementioned negatives are already priced into the shares. Therefore, we expect limited downside. As a result of which, we retain our long term ‘Neutral’ recommendation on the stock.

Currently, School Specialty, which competes with Office Depot Inc. (ODP - Free Report) , carries a Zacks #3 Rank that translates into a short-term ‘Hold’ rating and correlates with our long-term recommendation.

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