Scientific-Atlanta stock drops on revised guidance

Scientific-Atlanta’s stock price was down 34%--dropping from $35.08 to $23 per share--in midday trading today following a warning from the company it would drastically miss Wall Street estimates for the first fiscal quarter.

In a conference call to investors late yesterday, the set-top box maker reported fourth-quarter earnings that beat analysts’ consensus estimate by a penny. Fourth-quarter earnings totaled $80.5 million, or 48 cents per share, compared to Thomson Financial/First Call’s 47-cent projection.

Excluding one-time events, net earnings for the year totaled $333.7 million, or $1.99 per share--a 114% increase compared to last year.

Despite positive earnings, the company rattled investors’ confidence by reducing its guidance for the current year to 28 cents to 30 cents per share on revenue of $480 million--well off the 47 cents per share and $689 million in revenue targets analysts set.

“This was a great quarter, but the glory was about a half-second because they reduced guidance for next year pretty dramatically,” said George Hunt, senior vice president at Wachovia Securities. “You don’t get any credit for beating the quarter if your guidance is cautionary going forward.”

In addition to the revised guidance, S-A is being hurt by slowing set-top sales, decreases in bookings and backlog, a transmission business drop-off and declining digital cable demand, Hunt said. As cable MSOs complete system upgrades and decrease transmission capital expenditures, the telecom sector misery has caught up to the set-top box industry.

“The cable operators have built their networks and they’re all mostly upgraded, so they’re just not buying as much transmission equipment,” Hunt said. “The stock is under a lot of pressure because of lowered guidance and because of fear that cable operators are not going to be as successful with their digital-cable deployment.”