Gateway Posts First Profit in 3 Years Amid Falling Costs

Personal computer maker Gateway Inc. (GTW) Thursday posted its first operating profit in nearly three years as its retail strategy gained traction and costs fell, sending shares up 11 percent.

The company's net loss was also lower than its previous forecast, which it had backed in September.

"We've gained traction in retail and have an ongoing commitment to direct and professional sales," said Gateway Chief Executive Wayne Inouye in a telephone interview.

Gateway reported a third-quarter net loss of $59.3 million, or 16 cents per share, compared with a year-ago net loss of $138.8 million, or 43 cents per share.

Revenue rose to $915.1 million from $883.1 million.

Excluding $63 million in restructuring charges, Gateway said it would have earned a profit of $4 million, or 1 cent per share, its first such profit since the fourth quarter of 2001.

On that basis, analysts had forecast a loss of 7 cents per share, on average, within a range of 5 cents to 8 cents, on revenue of $939.5 million, according to Reuters Estimates.

On Sept. 13, Gateway said it was on track to post results that were in line with its previous forecast, which called for a loss before items of 7 cents to 9 cents per share and revenue of $900 million to $950 million.

"We knew we had momentum but a lot of the favorability occurred from accelerated cost cutting and margin improvement," said Chief Financial Officer Rod Sherwood in an interview.

For the current quarter, fourth, quarter, Gateway forecast revenue that was slightly lower than analyst expectations and earnings per share before items that was better than estimates.

Irvine, Calif.-based Gateway said it expects earnings per share before items of 1 cent to 2 cents and revenue of $975 million to $1.03 billion.

Analysts currently expect a loss per share before items of 1 cent a share, on average, on revenue of $1.09 billion.

Gateway, which earlier this year completed the acquisition of privately held eMachines (search), where Inouye was CEO, ended the quarter with slight more than 2,000 employees. As previously announced, it will end 2004 with fewer than 1,900 employees.

When eMachines acquisition was announced on Jan. 30, the company had 7,400 workers.

In after-hours trade on INET, Gateway shares rose to $5.99, their highest in six months. In regular trade on the New York Stock Exchange (search), they gained 15 cents, or 2.9 percent, to close at $5.39.