FOOL CONFERENCE CALL SYNOPSIS*
By Greg Markus (TMF Boring)

Andrew Corp.
(Nasdaq : ANDW)
10500 W. 153rd St.
Orland Park, IL 60462
(708) 349-3300

http://www.andrew.com

ANN ARBOR, Mich. (July 16, 1998) /FOOLWIRE/ -- Andrew Corp. today reported results for its fiscal third quarter and nine months ended June 30, 1998.

Third Quarter Results. Sales for the quarter were $204.2 million, 2% below last year's $208.9 million. Income from continuing operations for the quarter was $24.6 million compared with $28.3 million for the same period last year, excluding prior year's after tax restructuring charges of $3.3 million. Diluted income per share from continuing operations for the first quarter declined 10% to $0.28 from $0.31 last year, excluding special items last year.

Nine Month Results. Sales for the first nine months were $632.2 million, 1% below last year's $636.9 million. Income from continuing operations was $77.1 million compared with $80.4 million for the same period last year, excluding last year's after tax restructuring charges of $3.3 million. Diluted income per share from continuing operations for the first nine months was $0.87, essentially unchanged when compared to last year's diluted income per share, excluding special items.

Results by Geographic Region. Overall, growth in Latin America, China, and South Africa was offset by a sharp decline in Southeast Asian business and slightly lower U.S. wireless infrastructure and land mobile revenues. European business increased slightly.

Results by Product Line

Coaxial cable sales were up slightly, with small growth in the U.S. and strength in Europe and China offsetting weakness in Southeast Asia.

Wireless infrastructure revenues were flat, with growth in Europe, Latin America, and U.S. PCS [personal communications services] offset by declines in U.S. cellular and Southeast Asia. U.S. PCS sales increased 19% to $32 million versus $27 million in the year-ago quarter.

Common carrier and private microwave sales were soft worldwide. Broadcast and government sales were down slightly, with weakness in the U.S. moderated by strength in Europe. Terrestrial microwave antenna systems sales were down slightly, with weakness in the U.S. and Europe offset by strength in Asia and Latin America. Earth station antenna sales were down, especially in the U.S., and sales of special antennas and other products were soft, due to a large decline in tower sales and continued weakness in services and distributed communications equipment.

Excluding the effects of the previous restructuring of a portion of Andrew's business in Europe, the wireless accessory business had strong growth for both the quarter and for the first nine months.

Order Patterns. Orders for the quarter totaled $213.0 million, up 6% from $200.3 million last year. Orders in the U.S. were up slightly, with the PCS market up and the cellular market down a little. PCS orders totaled $36 million, a 33% increase over a year ago. This is the first favorable quarterly comparison to prior-year PCS orders in five quarters. For nine months, PCS orders are up 8% compared to last year. European and Latin American orders increased in wireless infrastructure. Asia Pacific was down compared to last year. Total orders for the nine month period were $640.6 million essentially flat with last year's $640.0 million.

Stock Repurchase Activity. During the June quarter, the company repurchased 793,000 shares on the open market and completed the announced purchase of 1,665,000 from the Andrew profit sharing. Since May 1997, the company has repurchased 5.3 million shares for a total cost of $122 million, reducing the total outstanding shares to 86.1 million.

Income Statement Comments. Foreign exchange translation reduced revenues by approximately 2% and income from continuing operations by about 3%, effectively lowering EPS by about a penny. R&D expense declined $4.8 million, due to the timing of projects. SG&A expense declined by 1%, or about $400,000, but rose slightly as a percent of sales to 18.3%. In total, operating expenses declined to 21.5% of sales, as compared to 23.2% last year. Operating profit decreased 14% and as a percent of sales fell to 18.3% from 20.9%.

Gross Margin. Gross margin declined by 4.3 percentage points to 41.2%. The comparison is affected by the fact that last year's third quarter had a particularly strong gross margin, due primarily to favorable product mix. This year's third quarter saw increased competitive pricing conditions and a significant decline in sales of towers and other higher margin products. A specific example of the pricing pressure is the fact that so far this year the company's cable sales, as measured in feet, has increased 14% worldwide, but in dollar terms sales of cables is up just about 6%. Andrew has been able to offset much of the pricing pressure through productivity improvements, but the company cannot continue to absorb it completely.

Cash Flow Highlights. Cash from operations increased 32% to $44 million. Due to the timing of expenditures on Andrew's new China facility, capital expenditures increased 46% to $13.3 million in the quarter. The company ended the quarter with $93 million in cash, as compared to $94 million at the beginning of the fiscal year.

Copper Pricing. Changes in copper prices have not had a significant impact on Andrew's cable costs because of the way the company smoothes out its purchasing activity. Management does not expect copper pricing to have a significant effect on the company's results going forward.

Outlook

Andrew Corp. is confident in the long-term growth of the communications market, especially in the developing regions. The company continues to see excellent growth in China, with tremendous opportunities ahead. In Latin America, Andrew expects the wireless infrastructure build-out to increase considerably in the next 12 to 24 months, that will require an enhancement of that region's long-haul network, as well. Andrew is well-positioned with its facility in Brazil. The company has seen only a few million dollars in sales in the past quarter for b-band infrastructure expansion in Brazil, as that is just getting under way. As the privatization of Telebras (NYSE: TBR) occurs, the expectation is that a significant upgrade of the infrastructure will take place. Prospects in Mexico are also bright. In addition, the European market is strengthening, as is South Africa.

In the U.S., Andrew is beginning to see orders associated with the development of digital television, and that could be a bright spot in coming quarters. PCS infrastructure orders are also picking up noticeably.

As a result of pricing pressure and product mix issues, management cautions that gross margin for the full year may be up to two percentage points lower than last year. If sales volume increases, margins could actually improve. Gross margin in Andrew's wireless accessory business is also expected to improve going forward; currently, the margins in that business are roughly half of the overall corporate gross margin average.

Taking into account expected foreign tax credits this year, management continues to project a 34% tax rate for the year.

Perhaps 70% of orders to Orland Park are shipped within five days, and so lead-time visibility is very short for many parts of the business. That said, the fiscal fourth quarter is traditionally Andrew's strongest, and management expects that to continue this year. The company expects to see sequential growth, but the results will perhaps not equal the levels of last year's fourth quarter.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.

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