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Foolish Forecast: Dassault? Das' Right.

What's the greatest thing about writing for the Fool? Having the freedom to write about pretty much any interesting idea, any company, that I happen to trip across. Or better still, the chance to peer into financial innards no Fool has laid eyes upon (or written about, at least) before.

In that vein, today I'm going to exercise my writer's prerogative to explore a French high-tech firm. So gather round, friends and neighbors, and let's get to know "product lifecycle management" software maker Dassault Systemes SA (Nasdaq: DASTY  ) .

What analysts say:

  • Buy, sell, or waffle? The company is rarely spoken of in the U.S.; 21 analysts follow Dassault internationally. Ten of them like the stock, nine say "hold it," and two vote sell.
  • Revenues. In Thursday's Q3 2006 results, the average expectation among these learned souls calls for 40% sales growth to $365.6 million.
  • Earnings. Analysts foresee profits growth of only 10%, to $0.43 per share.

What management says:
After Q2 earnings, CEO Bernard Charles called the company's results for the quarter "great." But "great" seems to be a matter of interpretation. Revenues were up 29%, but pro forma profits rose only 12%, and GAAP earnings actually declined 22% versus Q2 of last year.

Looking forward, a Fool can therefore be forgiven for any confusion over whether CFO Thibault de Tersant's assertion that "we continue to see stronger activity for the second half" is good news or bad. It's all the more perplexing because de Tersant would only opine on expectations for sales growth (27%-28% year over year) and pro forma profits -- but gave no GAAP estimate.

What management does:
Nor are the trends in margins particularly great here. Gross margins are holding pretty steady, although they've begun slipping in the last two quarters. However, rolling operating and net margins are down significantly from 18 months ago, and have fallen in each of the last six quarters.

Margins %




























All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
It could hardly be otherwise. Over the last six months, the cost of goods sold has outpaced sales growth 34% to 28%, and selling, general, and administrative costs have similarly done so, 36% to 28%. Really, one of the few metrics that's been growing more slowly than sales is the research and development spending necessary to develop future products. R&D spending over the last two quarters is up just 24% year over year.

Meanwhile, over on the balance sheet, we're unable to do our usual review of working capital management by checking on both inventories and accounts receivable; monitoring inventory trends is pretty pointless when a company's product is infinitely reproducible software. But accounts receivable, like everything other than R&D at this company, has grown faster than sales, at 32% year over year.

Ideally, on Thursday we'll see a reversal of these trends -- costs growing more slowly than the sales they're driving on the income statement, and R&D spending that at least matches sales growth.


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Fool contributorRich Smithdoes not own shares of any company named above. Try the Fool's disclosure policy with a nice croissant.

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