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Black Box Stumbles After Earnings Estimate

A black cloud descended on Black Box Corp. on March 11.

That was the day the DMer and technical service provider of computer communications and networking equipment and services to businesses said that expected earnings per share for the quarter ending March 31 would be 53 to 54 cents, prior to one-time charges.

Unfortunately for Black Box, the average estimate of analysts surveyed by Thomson First Call had been for earnings per share of 74 cents, according to news reports.

As a result, the stock plunged from a March 11 closing price of $39.14 to $26.78 when trading concluded March 12. Volume for the day was more than 7.5 million shares, compared to just over 200,000 the day before. The March 12 session low of $26.65 represented a four-year low, according to Reuters, but was eclipsed the next day by a session low of $25.58.

The nosedive was part of a period in which the stock plummeted 27.02 percent, from $40.60 on Feb. 24 to $29.63 on March 31.

Equity analyst Jeff Beach of investment banking firm Stifel Nicolaus, St. Louis, said Black Box is in two businesses.

“One is on-site — I call it data network installation,” he said. “They also sell cables, connectors and other products such as computers, printers and peripherals, and that's through catalog sales and an Internet site. It looks like the industry contraction worked its way through the business.

“Maybe a small company needs components for a computer. There seems to be a decision made to defer that business; whereas, if it was electrical work needed, or something related to heating or plumbing, the money is being spent,” he said. “The upgrade spending for electrical or security systems to keep a building operating seems to be made, where the decision is being made to delay spending on data network installation. Maybe spending on data networking is, in the very near term, being viewed as spending that can be put off for some period of time.”

Beach also said the U.S.-Iraq war has businesses worried about its effect during the next three to six months.

“They're looking for ways to cut spending, and one of the ways to reduce spending is on their data network,” he said. “It's a different spending decision than upgrading machinery that has worn out. They're the closest customer to that decision, as opposed to the manufacturers or distributors in the supply chain related to the data network. They would see it first.”

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