- Quarterly revenues grew 16 percent year over year to $2.53 billion
- Third quarter 2000 net income increased 35 percent year over year to
$152.6 million
- Quarterly earnings per diluted share increased to $0.46, up 31 percent
over last year
- Third quarter gross margin was 23.1 percent, up 1 percentage point year
over year
- Non-PC income was more than 50 percent of income, with half of that
recurring, exceeding the fourth quarter 2000 target of 45 percent
- Consumer unit posted revenue growth of 27 percent year over year
- Gateway's European, Middle East and Africa operations continued to
outgrow the market there, with revenues increasing 13 percent year over
year
SAN DIEGO, Oct. 12 /PRNewswire/ -- Continued strong growth in sales to
consumers and small businesses coupled with continued growth in Europe
propelled Gateway (NYSE: GTW) to record third quarter profits of
$152.6 million on revenues of $2.53 billion, or $0.46 per diluted share, a
35 percent increase in net income over the third quarter of last year.
Gateway recorded growth in all four business units during the third
quarter of 2000, with Consumer leading the way with a 27 percent revenue
increase. Gross margins for the quarter were 23.1 percent, showing the
continued success of Gateway's beyond-the-box business strategy in powering
increasingly profitable sales of bundled hardware, software and services.
Income from hardware, software and services other than the PC was more than
50 percent of income in the third quarter, which exceeded Gateway's fourth
quarter target by five percentage points.
"The real message of our third quarter results is that while most of our
traditional competitors remain focused on hardware, Gateway is realizing its
goal of becoming a company that acts as a solutions provider, showing millions
of clients worldwide how to get more from their technology," said Jeff
Weitzen, Gateway president and chief executive officer. "We are not a
pure-play PC maker anymore and our results last quarter prove the point."
In the third quarter, Gateway accelerated year-over-year revenue growth to
16 percent, up from 12 percent in the previous quarter. From a profit
perspective, this was Gateway's third consecutive quarter of 30-percent-plus
net income and earnings-per-share (EPS) growth. For the first three quarters
of 2000, Gateway has recorded average diluted EPS growth of 32 percent, versus
a consolidated average of 20 percent for its competitors during the same
period.
"The combination of accelerating revenue and profit growth that leads the
traditional PC industry further illustrates the differences in the Gateway
business model," said John Todd, Gateway chief financial officer.
Quarterly Sales
In the third quarter of 2000, Gateway sales rose to $2.53 billion, up
16 percent from year-ago levels. Net income rose 35 percent year over year to
$152.6 million. Gateway earned $0.46 per diluted share, compared with
$0.35 per diluted share a year ago, a 31 percent increase.
Propelled by growth across all sales channels, Gateway's Consumer unit
posted a 27 percent increase in revenues in the third quarter over year-ago.
Gateway continued to grow its Internet service, along with its strategic
partner America Online. By the end of the third quarter, Gateway and AOL had
added more than 300,000 net new subscribers, bringing the total to more than
1.7 million subscribers.
Additionally, Gateway launched a nationwide campaign in the United States
during the third quarter to show consumers and small business owners how to
get more from their existing technology and how new technologies can help
change their lives. Under the new tagline "People Rule," this massive effort
included a new multi-media advertising campaign as well as a grassroots effort
to offer free clinics and "ask-a-tech" sessions through Gateway's more than
300 Country stores. The company also launched new solutions bundles that
included software, hardware and training around such applications as digital
photography, music, personal finance and Internet browsing.
"Our research told us that our clients were growing increasingly
frustrated with new technology because that technology was just not as easy to
use as the industry had led them to believe," Weitzen said. "At Gateway,
we're carving out a unique place in the industry with the ability to fulfill
against a promise that others are trying to make."
Gateway also showed continued growth overseas. Gateway's Europe, Middle
East and Africa (EMEA) unit outgrew the market there in the third quarter,
with revenues rising 13 percent year over year, marking a further
strengthening of Gateway in Europe. Gateway's Asia-Pacific (AP) unit saw
revenues grow by 8 percent in the third quarter, compared with last year.
Gateway's sales to businesses increased 2 percent in the third quarter
compared with last year, propelled by a refocusing on sales to small and
medium sized businesses, government and education institutions. During the
third quarter, Gateway Business improvement was driven by a doubling of the
number of business sales representatives servicing small business in Gateway
Country stores and enhanced business products and solutions, training, and
local service support through the Gateway Networking Solutions Program.
In addition to rolling out DSL Internet access and web hosting earlier
this year, Gateway Business also laid plans during the quarter for a further
ramping up of beyond-the-box offerings for its target clients. Small Business
beyond-the-box services contributed four cents of EPS this quarter, with
nearly two thirds of that recurring each quarter.
The Gateway Country(R) stores retail channel added 35 stand-alone
locations during the third quarter, bringing the total to 384 locations
worldwide. In the United States, there were 24 new Gateway Country stores
opened during the quarter, bringing the total to 311 locations. Gateway
Country also opened four stores in Canada during the third quarter. In EMEA,
Gateway Country had 27 locations at quarter's end. In AP, Gateway added seven
stores during the quarter, bringing the total to 42.
In addition to Gateway Country stores, Gateway had another 669 Gateway
store-within-a-store outlets around the world by the end of the third quarter.
In EMEA alone, Gateway had 275 retail outlets in addition to Gateway Country
stores at quarter's end, an increase of 45 during the quarter. In AP, Gateway
had 100 store-within-a-store outlets in addition to Gateway Country stores, up
13 from the end of the second quarter. In the U.S., Gateway had opened
staffed Gateway Country stores inside of 294 OfficeMax stores by quarter's
end, an increase of 202 during the quarter.
Profitability
Selling, General & Administrative (SG&A) expenses were $364.5 million,
down slightly as a percentage of sales in the third quarter versus a year ago.
SG&A was 14.4 percent of sales in the third quarter versus 14.7 percent of
sales a year ago.
Gross margins were 23.1 percent of sales, an increase of 1 percentage
point over last year and the 11th consecutive quarter of year-over-year margin
improvement.
Net Income
Net income increased to $152.6 million, a 35 percent increase over
year-ago levels. Earnings per diluted share increased 31 percent to $0.46 per
diluted share, up from $0.35 per diluted share a year ago.
Outlook
Historically, the fourth quarter of the year has been the strongest period
for Gateway.
"The fourth quarter is traditionally our strongest selling season of the
year," said Todd. "We're planning to continue leveraging our beyond-the-box
model, in Gateway Consumer, Gateway Business and internationally, as well as
our ever-strengthening distribution network to meet our goal of delivering
consistent earnings results, better-than-industry growth rates and a more
diverse and profitable revenue stream."
During the fourth quarter, Gateway expects to begin to offer the first of
its family of Internet appliance products, which it is co-developing with AOL.
The first device, a kitchen countertop appliance, will go on sale in time for
the December holidays.
Gateway also will continue to expand aggressively its number of
distribution points.
Later this quarter, SEC Regulation FD will go into effect. In order to
ensure Gateway remains in compliance with SEC regulations regarding public
disclosure, the company today established new internal guidelines regarding
certain information and ways it plans to publicize that information so that
all investors have a fair chance to use it to make investment decisions.
Today's financial results announcement reflects the new Gateway guidelines.
Gateway also announced an accounting change for the fourth quarter. As a
result of EITF 00-10, Accounting for Shipping and Handling Revenues and Costs,
freight charges billed to customers will be included in net sales and the
related expense in cost of goods sold. This reclassification will have no
impact on net income or EPS. Gateway expects to release revised historical
quarterly information reflecting this reclassification in the next several
weeks.
Conference Call
Gateway's quarterly conference call, led by President and CEO Jeff Weitzen
and Chief Financial Officer John Todd, will be accessible today via live audio
webcast at 5:30 PM ET/2:30 PM PT at http://www.gateway.com.
Special Note
The above statements include forward-looking statements based on current
management expectations. Factors that could cause future results to differ
from these expectations include the following: general economic conditions;
growth in the personal computer industry; competitive factors and pricing
pressures; component supply shortages; risks relating to new or acquired
businesses and joint ventures; and inventory risks due to shifts in market
demand. Additional factors are described in the Company's reports and other
filings filed with the Securities and Exchange Commission.
About Gateway
Gateway (NYSE: GTW), a Fortune 250 company founded in 1985, focuses on
building lifelong relationships with consumers and businesses through complete
technology personalization. Gateway ranked number one in U.S. consumer PC
revenue in 1999(1) and was rated among the top ten best corporate reputations
in America according to a survey conducted in August of 1999 by Harris
Interactive and the Reputation Institute and published in The Wall Street
Journal. In 1999, Gateway was seventh in total return to shareholders among
Fortune 500 companies and tenth in total shareholder returns over the past
five years.(2) Gateway employees worldwide provide clients with services and
built-to-order computers that consistently win top awards from leading
industry publications. Gateway had total global revenue of $8.65 billion in
1999. For more information, visit our Web site at http://www.gateway.com
(1) According to GartnerGroup/Dataquest US PC Quarterly statistics.
(2) According to Fortune Magazine, April 17, 2000.
Gateway
Consolidated Statements of Operations
(in thousands, except per share amounts)
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
Net sales $2,530,093 $2,178,496 $7,009,852 $6,194,016
Cost of goods sold 1,946,489 1,698,447 5,399,782 4,842,077
Gross profit 583,604 480,049 1,610,070 1,351,939
Selling, general
and administrative
expenses 364,477 321,270 1,029,101 929,429
Operating income 219,127 158,779 580,969 422,510
Other, net 17,482 18,020 55,131 49,295
Income before
income taxes 236,609 176,799 636,100 471,805
Provision for
income taxes 83,996 63,648 225,815 169,850
Net income $152,613 $113,151 $410,285 $301,955
Net income per share:
Basic $0.47 $0.36 $1.28 $0.96
Diluted $0.46 $0.35 $1.24 $0.94
Basic weighted average
shares outstanding 322,408 313,719 321,221 313,203
Diluted weighted
average shares
outstanding 333,681 323,912 332,348 321,755
Gateway
Consolidated Balance Sheets
(in thousands)
September 30, 2000 December 31, 1999
ASSETS
Current assets:
Cash and cash equivalents $849,998 $1,127,654
Marketable securities 132,874 208,717
Accounts receivable, net 741,155 646,339
Inventory 199,643 191,870
Other 668,212 522,225
Total current assets 2,591,882 2,696,805
Property, plant, and equipment, net 840,271 745,660
Intangibles, net 171,873 52,302
Other assets 858,489 459,921
$4,462,515 $3,954,688
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $908,707 $898,436
Accrued liabilities 513,539 609,132
Accrued royalties 133,040 153,840
Other current liabilities 199,694 148,302
Total current liabilities 1,754,980 1,809,710
Warranty and other liabilities 156,203 127,860
Total liabilities 1,911,183 1,937,570
Stockholders' equity 2,551,332 2,017,118
$4,462,515 $3,954,688
SOURCE Gateway
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Related links:
http://www.gateway.com
CONTACT:
media, John W. Spelich, Public Relations,
858-799-2657, john.spelich@gateway.com, or investor relations,
Marlys D. Johnson, Investor Relations, 605-232-2709,
marlys.johnson@gateway.com, both of Gateway
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